23 March 2010

History from the Future: The Burger Craze of 2014

It was hard to know exactly when futures markets had begun to drive commodities prices. Oil, obviously, was one place where speculations on financial markets drove the everyday price at the pump - causing prices to rise and dip like seagulls in a squall. And then the same thing began to happen to wheat, rice, beef, chicken .... And before long, the prices at restaurants and grocery stores began to move in tandem with these commodities prices, like prices at the gas pump. And then somebody got the really bright idea of pricing food like stocks and the real fun began.

The pushing and shoving in line at the fast food joints as the first indication that something profound had changed. Customers were bidding for burgers like traders on the floor of the stock market. Prices were bouncing up and down like the price of Yahoo stock. From the time someone got into line to the time they ordered, the combo meal they wanted might have gone up or down a dollar. But that was just at first. Soon, this market, like so many before it, began to be defined by derivatives and speculation.

In 2014, there was the great quarter pounder craze. As the pace of social change quickened, demand for comfort food surged. Coupled with a bad wheat harvest that year, savvy speculators realized that beef prices would soon be going up. A day trader who'd become rich speculating on gold around the time of the Great Recession, Chaz Mingus, tried to corner the market on quarter pounders and the folks at Goldman Sacs began to bid against him. It was surprising that quarter pound burgers rose to $10. What was more surprising was that this actually created a resurgence of interest in quarter pounders. Worried that this American classic might soon be priced out of reach, Americans lined up to buy it before prices went higher. This, of course, made prices go even higher. Commentators were soon explaining that it only made sense that quarter pounders would cost $120. Hadn't Americans been paying exorbitant prices for fine dining for decades? And what was more classic than the burger? And then prices hit $500 and as had happened decades before at Ford and GM, the new credit and financing divisions of Burger King and McDonald's began to make more profit than the actual restaurants. Stories abounded of people who were paying the equivalent of monthly mortgages for their quarter pounder habit.

The derivatives market began to trade in the concept of the hamburger. How could you price something so iconic, people began to ask. And then the prices got really out of hand.

Curiously, the market bust about a year later when Wendy's introduced the fifth-pounder. Prices plummeted and millions of Americans were left holding the bag on $2,000 hamburgers.

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