According to the Bureau of Economic Analysis (BEA), consumer
consumption accounts for 65 percent or more of the U.S. GDP. Yes,
almost two-thirds of the entire U.S. economy relies on the
When Bob Q. Consumer halts spending because of unfortunate
circumstances such as loss of employment, lower wages, decline of
confidence, or simply lower purchasing power of income received,
GDP is adversely affected.
As you can see from the chart above, consumer purchasing power is
declining rapidly and has been for quite some time.
Bottom line: the same monthly income just doesn't go as far in
today's economy as it did even one year ago,
particularly when it comes to buying groceries
Agricultural prices have skyrocketed in recent months, and we as
consumers are feeling the pinch. To put it simply, when the
dollar's purchasing power declines, commodities prices rise in the
exchanges and eventually at the grocery store. And, if your grocery
bill is high, your disposable income used towards items you can
live without (the items that keep the U.S. economy going) declines,
thereby negatively impacting the economy.
But, not all is lost. There are ways to fight the ongoing rise in
commodity prices that are negatively impacting your bottom line.
The best way to fight a rise in commodity prices, more specifically
a rise in your grocery bill - foreign currency exchange - otherwise
known as forex.
The Canadian dollar, the Australian dollar, and the New Zealand
dollar are all seen as commodity currencies. What do I mean by
All of these countries export a large amount of commodities which
are imperative to the success of their respective economies.
Basically when commodity prices rise, the three commodity
currencies perform well.
And, it is the long-term rise in agricultural prices that
negatively impacts purchasing power for consumers at the grocery
store. Simply stated, higher ag prices - higher grocery bill.
Just take a look at the rise in the Nasdaq OMX Global Agriculture
Index (QAGR). As you can plainly see, global agricultural prices
have been on a tear since July 2010.
So, how can we combat the ongoing rise in agricultural prices and
more importantly, our grocery bill?
Blake Young of
recently mentioned an investment in forex that would act as a hedge
to your rising grocery costs. Here is his example:
"Suppose you spent an average $500 a month in groceries and saw
your grocery bill increase incrementally the same 50 percent over
eight Months that the QAGR saw. You have paid approximately $1,000
more the usual. Meanwhile, purchasing one mini contract of the
AUD/USD on July 1 when the QAGR was breaking through its highs
would have generated over $1,500 in the same time frame. That hedge
would have taken care of the increase in grocery prices - with $500
Because the forex spot market continually rolls over, this type of
hedge can be left on for multiple months if it is monitored
carefully and proper money management is in place."
I realize that some of you may feel as though forex is worlds away
from small caps, but as astute investors we need to educate
ourselves on all the opportunities and financial products that will
certainly make investing easier and more productive.