Love Beef

By?Weronika Pycek,?Shawn O'Malley, and Matthew Gutierrez· June 1, 2023

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Artificial intelligence, debt ceiling, inflation, the Fed — throw those buzzwords around at a cocktail party, and you’ll sound like a financial savant. And in doing so, you’d probably touch on 90% of stock market commentary of late?

All important but increasingly repetitive topics.

??Here are a few facts you can drop to really stand out to your friends:

• Some 61% of U.S. adults are invested in the stock market — the
• highest share?since 2008
• Big companies don’t live forever: Only?60.4%?of the companies in the S&P 500, as of October 1990, existed ten years later
• Since 1926, most of the U.S. stock market’s returns have come from less than 4% of companies. Most stocks are?losers…

—?Shawn

?Here's the rundown:

Today, we'll discuss two items in the news:

• Why beef prices keep rising
• After a three-year pause, student loan payments are coming due again
• Plus, our main story on gold’s history as a financial asset

All this, and more, in just?5 minutes to read.

POP QUIZ

Since the start of civilization, how much gold has humanity mined? (Read to the end for the answer)

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IN THE NEWS

??Why Your Steak (and BBQ) Is Getting Pricier (WSJ)

Ranchers?are shrinking cattle herds because of drought and high costs, cutting down the nation’s?beef supply.?That threatens to push prices for steaks and burgers to records as we enter?peak grilling season?in the?U.S.

• A rapidly shrinking cattle supply is driving prices higher. Due to?global warming, years of persistent?drought conditions?have made cattle more expensive to raise. Pandemic disruptions exacerbated the issue, and cost increases have prompted ranchers to sell off?livestock.
• The total number of cattle in the U.S. is at its lowest level in nearly a decade, while U.S. beef production is on track to drop by more than?2 billion?pounds in 2024, the biggest annual decline since?1979, per the?Agriculture Department.

Ranchers say they’re running out of reasons to replace the livestock they send to slaughter, let alone enlarge their herds. “We’re spending?$1 million?to make?$4,000,” said a rancher in southwest?Nebraska?who also has?two?feedlots.

Why it matters:

Meat and backyard grilling is a core part of?American?culture and appetite. Prices for ground beef, up more than?20%?since?2020, could hit?record highs?this summer during peak grilling season and an estimated average retail price of?$5.33?a pound this year.

• As a result, some diners are choosing different cuts, only picking up beef occasionally, or removing it from their grocery list altogether in place of chicken and vegetables.
• Americans’?love of beef?has grown in recent years despite health discussions, the climate impact of raising cattle, and more plant-based proteins.

Break-even biz:?The margins and profitability of years ago in the?cattle industry?simply aren’t there anymore.?“Some people got tired of the hassle and got out of the business,” one rancher said. “For the average cattle raiser, it’s a break-even business.”

??Student Loan Payment Pause to End Soon (NYT)

More than?40 million?Americans have?student loan debt. After a?three-year break, those loans are about to become due again. (Former students sigh.)

As part of the agreement between?President Biden?and?Speaker Kevin McCarthy?to raise the?debt ceiling, the pause button would be released “60 days?after?June 30,” or around?Sept. 1. That isn’t much different from the timeline that Biden previously laid out, but it may give him less room to extend the pause yet again.

The payment pause on federal loans has been extended?eight?times since?March 2020?and interest has not been occurring during that time.

• Secretary of Education Miguel Cardona?acknowledged?borrowers?may be feeling anxious around payments starting up, but he says they should feel confident the administration is working to make it a smooth transition.
• “We’re providing support for [borrowers], if they’re struggling. We’re rolling out a new?income-driven repayment plan?so their payments are more reasonable and manageable,” he said.

Why it matters:

Because millions of Americans, mostly those who attended colleges since?2000, have been burended by student loans as the cost of?higher education?continues to rise.

• It’s not tiny amounts, either:?The Federal Reserve reports that the median student debt for all borrowers in?2021?was between?$20,000?and?$24,999.

Borrowers?are waiting to hear if the?Supreme Court?will approve Biden’s plan to forgive?$10,000?in student debt per borrower earning less than?$125,000?a year and?$20,000?for?Pell Grant?recipients.

Around?16 million?people were?approved?for forgiveness before the Biden administration was barred from processing applications.

MORE HEADLINES

? Debt ceiling bill passes in the House,?advances?to the Senate days ahead of default deadline

?? Macy’s & Costco say shoppers are?pulling back?at their stores, changing what they buy

?? Hedge funds?deploy?ChatGPT to handle grunt work

GOLD AS A SAFE HAVEN

Ancient Times

Gold, the world's most precious metal, has always symbolized prosperity, fortune, and success.

Throughout history, gold was more than just a mere shimmering trinket. It was a badge of social rank, only accessible to society’s wealthiest individuals.

As the philosopher Ralph Waldo Emerson once said, “The desire for gold is not for gold. It is for the means of freedom and benefit.”

Homer, the Greek author of the Iliad and the Odyssey, references gold’s glory in his esteemed works. He portrays it as the splendor of heavenly beings and a symbol of affluence among mortals.

The Aztecs used gold for plates, ornaments, medals, and other decorations, while the Egyptians believed gold had divine powers.

First currency system

Gold was adopted as a?currency?early on as civilization developed.

Across the ancient world, travelers and traders used rings or bars of precious metal to transact. But their value in trade had to be determined by weighing and validating them each time a transaction occurred.

Coins, with their standardized weights, eliminated this time-consuming problem, making them a quicker and more effective tool for trade.

The initial introduction of gold coins was commanded by King Alyattes of Lydia, an area now part of Turkey, dating back to around 619-560 BC.

According to numismatic (currency) historians, it was the world's first official government-issued coin and set the standard for future coinage.

Gold persisted as one of the world’s most significant currencies, which didn’t necessarily change with the introduction of paper money. Instead, national currencies maintained a direct connection with gold, exchanging the paper for its equivalent value in gold to settle claims.

Convertibility of the U.S. dollar to gold

Back in 1944, the?Bretton Woods system?played a major role in shaping the global economy in the post-war period.

It aimed to design a new international monetary order and to avoid issues from protectionism, hot money flows, and unstable exchange rates.

Its objective was also to establish a framework promoting monetary and financial stability, fostering global economic growth and international trade.

Yet, in the early 1960s, the U.S. dollar's fixed value against gold in the Bretton Woods system needed to depreciate due to a substantial rise in domestic spending and increased military expenditures from the Vietnam War.

As a result, the Bretton Woods system dissolved when U.S. President Richard Nixon announced the "temporary" suspension of the dollar's convertibility into gold in August 1971, as attempts to revive fixed exchange rates failed.

France went so far as to order a warship to sail to New Jersey to try and collect gold for its U.S. dollar holdings.

But Nixon’s announcement ushered in the era of “fiat” currencies we know today, where paper currencies are legally mandated for use without an explicit peg to commodities like gold.

The gold market structure of today

Today, gold serves three essential purposes, illustrating the broad spectrum of its demand base:

• Jewelry?- it’s resilient and durable, making it perfect for creating sophisticated jewelry of all shapes and forms
• Technology?- its superior electrical conductivity makes it a vital component in electronics
• Financial?- financial gold is synonymous with bars, coins, ETFs, and central bank reserves

The total amount of gold above ground is estimated to be 209,000 tons (t) worth?$12 trillion?as of December 2022.

Gold as a Safe Haven

Throughout history, gold has maintained its value despite empires crumbling, political coups, and global wars.

As an investment, gold has also offered a diversifying element to portfolios. The legendary investor, Ray Dalio, sees gold as a fundamental part of his “all-weather” portfolio, which aims to preserve wealth across decades and even centuries.

Yet, other prominent investors, like Warren Buffett, aren’t keen on gold.

Buffett has criticized the precious metal, saying, "It doesn't do anything but sit there and look at you." In his perspective, it simply offers no practical (financial) utility — gold doesn’t produce any reinvestable cash flows.

Dive deeper

You can explore?this website?to learn more about gold’s financial history.

TRIVIA ANSWER

The World Gold Council estimates that around 187,200 tons of gold have been mined since the start of civilization, and 90% of that has occurred after the California Gold Rush.

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