It hasn't been reported on the front pages yet, but the flooding in Wisconsin and the heavy rains over much of the midwest have begun to garner some attention in the local Midwest media.

For example here, and here. (thanks to make_peace_now from the IV boards for the articles)

Well, a hard rain has been falling.  For consumers, a harder one is yet to come.

Corn closed on friday at $7.65/bushel.  Significantly, the grain index (the JJG) broke out to an all-time high.

Inflation is beginning to make headlines.  A quick glance at the Prudent Bear weekly inflation clippings illustrates the point.   For this week alone there were articles describing multi-year high inflationary numbers for 10 countries (Ireland, Sweden, Netherlands, Finland, Czech Republic, Latvia, Hungary, Slovakia, Egypt, and Bulgaria).

This breakout in the grains, and the higher corn prices that we will have over the next few months as yield estimates get cut, make further inflationary pressure inevitable.  Together with oil, the food inflation effect will begin to seep into the core numbers, and into the psyche's of individual consumers.

In my opinion, there are a few consequences of this:

• You have to own some gold stocks.  They’ve been the worst part of my portfolio for over a year.  If I would have sold all my gold’s last August and bought nothing but agricultural stocks (something that I contemplated but did not do) I would be much better off.  Still, the food and fuel evidence firmly points to continued inflationary pressure.  As well, don’t forget that the evidence of the commodity bull market thus far has tended to demonstrate that the group that lags the most will be the next to outperform.
• Interest rates will continue to rise.  Fannie and Freddie mortgages are a full 70 basis points higher then they were a month ago.  The Canadian banks raised mortgage rate between 30-80 basis point this week.  This is no time to own bonds, and probably not a good time to own houses either.
• The one group that will outperform in this environment are the agricultural stocks.  They have pricing leverage.  They are supplying a scarce commodity (either fertilizer, grains or the infrastructure to support grains).  And the end users are making huge amounts of money.  65% of my portfolio is agriculture.  I have no plans on reducing that number.  If Deere continues to trade down, I plan to increase it.
• The effect on the developing world is yet to be determined.  I am certainly not going to stick my neck out in this environment and say that the BRIC’s will grow without a pause.  But I am also not willing to say that they will slowdown significantly.  Remember that my thesis here is that the growth of the BRIC nations, particularly China and India, has been the result of the expanding import replacement capacity of the cities of these countries.  This is an INTERNAL process, one that depends far less on exports to the United States and the rest of the OECD then most economists are willing to accept.  Nevertheless, inflation in these countries has a big impact  Food inflation cuts deep into discretionary spending.  This is no time, and there is no need, to be making huge bets on growth right now.