The chart on the left shows that rice prices are up. WAY WAY WAY UP. That’s more than 3X the price per tonne in the past few months.

Rice is the food staple of the world. More people eat rice than anything else. So when the price moves in such a material fashion, we should definitely be taking notice.

Rice, like oil, is used as an input for many goods (and we’re not just talking about Rice Krispies). With such a dramatic move, it won’t take long before prices for many products begin to move higher in tandem.

Crude oil prices are hovering close to $120/bbl, at record highs. With the low interest rates currently being pursued in North America, it is no longer a question of if we’ll see inflation, but how soon.

If we do begin to see inflation before the economy recovers, expect to hear a whole lot about Stagflation.

Here’s the good news: It looks like a bubble.  Not a quick shock like in the 70s, but a bubble. A bubble just like Tech in the 90s. A bubble just like Real Estate from the past few years. Bubbles can last for years, but eventually will pop and bring relief to an inflated market. The only concern is how long will we have to suffer, and at what cost?

There’s nothing really new or exciting in the headlines this morning, so I thought I’d talk a little about oil.

I’m not really a big fan of technical analysis. Personally I think it’s ridiculous to believe that past prices have any indication on the future. However, sometimes charts are handy to make a point. So here we go. Are current oil prices justified, or are they silly?

Markets prices tend to become silly when things get too heated or too cool. Technical analysts will call this a Top & Bottom and will try to time when it happens in order to maximize profits. I’ve never seen concrete scientific evidence that this works, but the overall idea of silly prices is valid.

Crude oil is now trading at record prices of about $115 USD/bbl. Is this justified? Have the costs of producing this product doubled in the past two years? Has world demand doubled?

I don’t think so.

The big catch with silly prices is that they are no longer functioning in a logical sense. The price of oil could double again before the hoarde of masses begin to realize that things have gotten silly. When they do, the reversal will be quick and hard. Beware of Silly Prices.  

The fall of the US dollar is an important part of any recovery. As the dollar drops, US Assets (companies, resources, stocks, etc…) will all look relatively cheap to foreign investors. Those foreign investors will then spend money acquiring things away from the US economy, keeping it afloat.

Here’s where things start to get interesting. Forget the uproar down south about foreign workers taking jobs away from Americans. At this pace, in a couple of years we’ll see massive uproar on American companies being taken away from Americans. This is the free market at work. Prepare to live with it.

Taking a look at this morning’s headlines:

US home foreclosures  are up 57%

Oil  is at a record high of $112.

Corn & Rice futures are at record levels trading in Chicago.

Now I don’t want to sound like Mr. Negative and scare you, but things aren’t exactly looking too good for the US Economy. The US Dollar stinks, interest rates are low (this is good for people with loans, but foreign investors like high interest rates), and commodity prices are rising.

The most important thing that people should now be paying attention to are JOBS.

As long as Americans are employed, they will be able to deal with these rising prices. Sacrafices will be made, Johnny might buy a Civic instead of a Hummer, Sue will abandon her trip to Europe and go see the Grand Canyon instead. People will struggle, but survive without much effort.

If jobs disappear, prepare for something that hasn’t been seen in a generation. People’s lives will change, materially. Well known business names will go bankrupt, people will stop spending, things will be bleak. Normally, this is where a government would step in with social programs and spending to boost the economy and try to help make lives better. The question will be, with current spending and taxation, where would that money come from? And at what cost to future generations?