GRIN and Bear It

May 13, 2008

By Russ Winter

The skewering of the American consumer (JULS) continues unabated. Now comes even more evidence from the AARP that the Great “unreported” Inflation (GRIN) is rapidly emptying out pocketbooks like a thief in the night. There appears to be several important manifestations of this, besides the glaring lack of a real interest rate on savings. The first is the pernicious trend of borrowing to buy essentials for survival.

May 13 (Bloomberg) – Bank of America, the nation’s largest credit-card issuer, is also seeing a “recent sharp increase” in spending on necessities by its credit-card customers.

And if that’s not enough, even more are drawing from retirement funds to cover GRIN. Ultimately items that are normally the purview of a first world economy are sacrificed, such as medications and supporting local and state government (see Favela Economics).

NEW YORK - The economic downturn is hitting roughly one in 10 middle-aged and older Americans especially hard, compelling them to borrow money for everyday living expenses and to seek help from family, friends or charities, according to a survey released Tuesday by the AARP.One-third of survey participants said they stopped putting money into their 401(k) or retirement account and 14 percent said they had cut back on their medications. The majority of baby boomers said they were finding it more difficult to pay for essentials and utilities, and six in 10 said they had cut back on eating out and entertainment.

Among the trends JULS can look forward is a GRIN on shoes. Perhaps a solution would be to follow fashion trends in Brazil where almost all poorer people wear sandals and camisetas (T-shirts). Unfortunately in the US that is only a seasonal solution, but still smart investors might wish to investigate the dominant publicly traded companies in this arena. I have a strong hunch that the minimalist Brasileria look will be in, soon enough.

After a decade of declining prices, footwear makers at all levels are raising prices. The mass-market Payless, a unit of Collective Brands Inc., recently increased prices on shoes in stores, though it won’t say by how much. Brown Shoe Co., which makes Via Spiga and Buster Brown footwear and hasn’t altered prices in years, plans an increase of 5% to 12% for fall. And the Nine West shoe label plans to boost prices on some styles by 15% next year.

The moves reflect higher costs in China, which makes about 85% of shoes sold in the U.S., as well as higher fuel costs and the weak U.S. dollar. And they could presage price increases of other goods soon: Handbags, belts and other leather accessories are made in the same region in China.

Next we learn that farmers are being so severely GRINed that they really can’t afford to grow high value crops. This development is so devastating in it’s effect that comparing it to third world favela might not do it justice. More like ancient history really, or Mad Max?

LA Times: All over the world, prices for basic foods — barley for beer, milk for cheese, corn for tortillas, and the rice that serves as a staple for more than half the world’s population — are soaring. But farmers aren’t rushing to cash in on the boom by planting more of the crops. They say the reason is simple. The cost of planting some crops is rising as fast as their prices, and sometimes faster, leaving little incentive to increase production of some foods that remain in high demand around the world.

Farmers typically plant their crops once a year and not all of them cost the same to produce. Both corn and rice, for example, require more fertilizer to grow and fuel for farmers to tend than other crops. As the prices of those supplies rise faster than the prices of some commodities, farmers are shying away from some expensive crops.

O que aconteceu? Ben Bernanke’s grinsy world or sandals and camisetas? Some how I think the no shirt, no service rule will need to be changed? A good article on the topic.