Wednesday, December 3, 2008


Housing/Autos.  For years, the production data of these dominated the American economic landscape.  Then came the Tech bubble.  Housing/Autos were so "Old Economy".  The Internet was going to change everything - and it did.  We began our search for our next house and our next car on the Internet. 

Then the tech bubble burst and the market crash of 2000/01 was on.  The Fed decided to pay for one bubble with another bubble, and Housing/Autos once again ruled the day.  Only this time there is no market big enough to blow a bubble in that can pay for the one that just popped.

Today it was reported that the U.S. treasury plans to lower 30 year mortgage rates to 4.5% by buying mortgages guaranteed by Fannie and Freddie in the market place.  Welcome to the REAL BANK OF AMERICA!!  This effort will have less result than a good fart in a stiff breeze.

The U.S. is overcome with capacity - we have excess capacity to build cars, and now we have far more than we need; we have excess capacity to build houses, and now we have far too many of these as well.  All of this as a result of reckless monetary policy designed to put off paying for the last disaster/bubble.  The only solution is TIME.  Time will wear out those excess homes and cars.  (To wear out all of those cars we need to increase the fuel supply.  Good luck with that.)

Meanwhile, it is somewhat disconcerting that our political & business leaders have no idea where our grain inventories are, and what has to take place to assure food security.  The decline in Oil prices has taken the heat off of ethanol in the media.  However, the decline in Oil prices has not yielded an increase in Oil supplies to the U.S.  With Mexico, the U.S.'s third largest supplier of Crude oil experiencing significant declines in Oil production the U.S. may well need ALL of the ethanol it can get its hands on in 2010.  That means the 2009 harvest had better be perfect (remember, we don't manufacture corn... we GROW it.  There is only one growing season per year in the Northern Hemisphere). Spring planting is still some months away, but if fertilizer prices and usage are any indication (and I think they are the only other consideration besides acreage that farmers can plan - they can't control weather) the 2009 harvest won't overwhelm the storage bins under any circumstance.  If there is a drought or other natural challenge things could get real interesting, real fast.

Total Corn acres planted increased by 17 million in 2007 from 2006, declined by 8 million or so in 2008, and will decline once again in 2009 (corn cannot be continuously planted in the same soil as each successive year yields decline precipitously.  Even with heavy fertilizer use, "corn after corn after corn, 3 years of consecutive corn planting in a field will yield about 50% less per acre in the 3rd year than the 1st year).  Farmers must do plan their plantings based on market conditions AND field conditions and neither is an exact science.  The important number to Policy Makers should be the days of supply left over from the previous year at the beginning of the harvest.  These grain inventory numbers for corn and wheat are at their lowest in terms of days of supply since 1974.  Somehow I think that that bit of data is vaguely important - yet I don't hear the President-elect's incoming team talking about it much.  Money talks.  What does Food do?

Feeding everyone is easy in September, just after the harvest, but if you don't have anything left over from the previous year prior to the harvest... well, people might get antsy. 

So I like the grains, especially corn and wheat.  

Good Luck!

Mentatt (at) yahoo (d0t) com


bureaucrat said...

The only thing that will help are time and BANKRUPTCIES, which the government baby boomers will never allow because of the realization that maybe they aren't the greatest generation. Japan didn't allow businesses/banks to fail and they are STILL in a depression 2 decades later.

Anonymous said...

Greg- would you be able to comment on the viability of CEF- Central Fund of Canada- as a means of holding precious metals? Thanks

bureaucrat said...

Oh, by the way, I work with E85/ethanol. Don't think of corn ethanol as a solution for anything. I can run the numbers for you if you want (there are LOTS of zeroes), but if you took every single kernel of corn in the U.S. and made it into ethanol, you would only displace, at best, 15% of the gasoline & diesel we use each year. Corn just doesn't have enough BTUs. It's that simple. It will never be more than a "botique" fuel. Maybe if ethanol was made with sugar or wood, but those aren't easily available either.

Greg T. Jeffers said...


I can comment in that I do not own CEF, but the Mad Scientist, Dr. Lalani does. I do plan to own CEF but I cannot say when or what my reasons are as it might be construed as investment advice.

I hope this helps.


Greg T. Jeffers said...


I understand the issues of corn ethanol as well as any layman can I guess...

Still, if another million bpd of imports disappears every drop of liquid fuel will be of great import I think.

bureaucrat said...

I've been running my NON-ethanol-compatible (officially) 1992 Buick LeSabre on E85/ethanol for almost three years now, as a test to see if regular vehicles might be able to use E85/ethanol in a gasoline shortage. I've been hoping for the old car to blow up, but it has run really well all this time. Not one stall while driving, in all weather and all traffic. It doesn't start as easily out of the garage in the winter, but it does start. This was done solely as an experiment.