WRITTEN BY Abroaden Insights Team - June 24 2022 - WTF is going on with the Economy?!

WTF x AWI #093: Eggonomics Eggs -splained

Why are eggs so expensive right now? 

If you’re a fan of omelets, baking cakes, or letting your reggaeton-blasting neighbors know what’s up, you might have noticed the price of eggs is sky-high right now. 

In fact, over the past year, the price of eggs in the EU, and the US in particular, shot considerably. 

Here in Europe, the price of 100kg of eggs went from 125 EUR in mid 2021, to almost 200 EUR earlier this Spring.  

(source: EU Egg dashboard. Yes, that’s a thing. I don’t know if there’s a derivatives market where we can bet on egg futures, though). 

With inflation apparently in every headline, it’s tempting to chalk up high egg prices due to all of the money created over the course of the pandemic. 

Yolks, on them. 

Eggs are experiencing Eggflation for non-monetary reasons

The real reason for the price of eggs rising has less to do with monetary policy and more to do with a pandemic. 

No, not that pandemic, rather one ravaging its way through poultry stocks around the world. 

Over the past half-year, a rather nasty bird flu has spread far and wide, infecting millions of chickens and turkeys.  

This strain of influenza has a near-100% fatality rate for the infected egg layers, with European poultry stocks particularly hard hit. 

To combat the virus, governments and farmers have:

It doesn’t take much of a  background in economics to see that, combined, these factors take tons of egg supplies off of the market. 

With less supply but high demand, prices inevitably go up, which is egg-actly what we’re seeing here. 

It’s also worth noting that higher fuel prices (more on that below) and fears over grain shortages are also contributing to price increases. 

Eggs, like almost every other food, are subject to regular price volatility. That’s why many economists like to strip or limit food prices from over impacting their inflation measurements. 

Regardless, it’s always beneficial to dig a bit deeper below the headlines to see what’s really happening as it makes us better consumers and investors.

editor’s note: I’m not going to apologize for all the awful egg jokes here. I had an opportunity and I took it. Isn’t that what successful investing is all about? Maybe. 

 

Europeans are worrying less about inflation…which is interesting

Last week, a survey of European consumers showed that residents in the EU are worrying less about inflation impacting their lives. Falling for the second month in a row, the consumer confidence index showed that Europeans were less concerned with inflation than earlier this year. 

This data is interesting, especially since we hit another 40-year record for inflation in the Eurozone last month

It’s worth remembering that: 

  • Lots of our inflation here comes from higher energy prices, which is a direct result of Putin’s war. 
  • The headline rates compare what happened this year to last year. In April 2021, the economy and borders were still mostly shut. For example, transport (aka plane and train tickets) are up 13% compared to last year. That would make sense as borders were still closed at that time.  

In a lot of cases, how we feel about the economy helps guide how we spend our money (even if sentiment and numbers don’t always fully correlate). 

Maybe European consumers have already priced in higher energy costs and are more optimistic about the first normal summer in three years.  We’ll keep an eye on it to see what the situation looks like as the year rolls on. 


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Why oil production doesn’t magically ramp back up

The BBC ran this interesting article explaining why pumping more oil right now is way easier said than done. 

If you don’t have time to give it a read, the premise is this: 

  • Right after the pandemic began, the price of oil dropped below zero.
  • That took many producers, out of the market 
  • American oil companies were hit particularly hard as fracking -- the most popular extraction method in the US -- is expensive and time-consuming. The prolonged period of high oil prices took them out of the market for a long time. 
  • Many of the workers and talent left the industry during this downturn.
  • Now, despite the high price of oil, drillers don’t have enough talent or resources to get back up and running
  • Even if they did, it would take months for the supply to hit us. 

Check it out when you get a chance. 

Crypto gets the  FATCA treatment

Want to trigger an American living abroad? Just say the word “FATCA” and watch them rage-rant for the next 20 minutes.  

If you’re not familiar with the foreign account tax compliance act, it is a law from 2010 that’s supposed to keep Americans from hiding financial assets overseas. 

The idea is that foreign financial institutions must report their US client holdings to the IRS or face severe consequences.  

Unfortunately for US expats, ‘foreign financial institutions’ usually means their local bank branch and broker.  

FATCA’s authors didn’t take that into consideration when they drafted the law, resulting in untold pain for Americans abroad. 

For the longest time, though, crypto fell through the FATCA cracks, creating a loophole of sorts for those holding cryptocurrencies.

Now, the IRS is moving to apply FATCA rules to crypto exchanges globally

If that wasn’t enough, the OECD is also looking to implement reporting requirements for NFTs and other DeFi assets

The industry is understandably nervous about these developments.  However, like all things crypto, a bit of regulation might not be such a bad thing