Wednesday, September 30, 2009

Continued from Previous Post

One of my friends called me after reading my last post and asked me if I wasn't taking the easy way out on my "Both" for Inflation and Deflation - he said I was starting to sound like a Wall Street economist... you know, those guys that are NEVER wrong because they never take a position...

A fair point, that.

Deflation is here at the monetary level, and it will be here for a year, or two, or three (if I knew exactly, I wouldn't need my day gig). At some point the printing WILL overtake the defaults in the credit markets. Defining Deflation as Mish does, as a monetary issue, while certainly correct, does not help folks trying to decide on purchasing power protection strategies. After all, Treasury TIP securities are prices against CPI, NOT money supply, right?

I think that the Treasury and Precious Metal's markets are better indicators than the stock market for this. So far, Treasuries say Deflation and Gold says the US$ is losing value (import price inflation). I don't give specific advice, but it is no secret that my biggest positions are Treasuries and Precious Metals (please remember that I hedge with a covered call writing strategy, so don't take my disclosure as advice... I have been doing this a LONG time and kinda/sorta know what I am doing).

Lastly, I said the US$ could rally in the short term, I did not say it would. Look, nothing is impossible. For my money, I would rather be long a warehouse full of stable consumer goods like toilet paper than US$'s (click here for an interesting take by fellow analyst The Mad Scientist).

More on this soon.

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Regarding the Doomers on Agriculture.

Those guys got it wrong. Unfortunately, I believed their points had merit and after being up nicely in a leveraged Corn trade I got killed in one of my funds last year when the market just dropped out from under me and there was NO interest in out of the money spreads. I went from a VERY pleasing profit to disaster in a matter of 10 trading days or so...

I have been pulling apart Ag for some time now, and I think that weather is THE issue - not peak oil, or Nat Gas, or any of the other "off the cliff" scenarios. In short, there will be no overnight Ag disaster due to a shortage of Fossil Fuels in the near future, though Energy PRICES will affect Ag prices and production - just not to the point of disaster.

As I said in my previous post, "The "next blow up" will not likely come on time, as predicted, or as conveniently as" we think we are capable of predicting. Peaknic's focus on the food supply. No doubt they will be absolutely, positively correct ONE DAY - it just won't be because of Peak Oil (for the foreseeable future... 2020 and later they might be very, very right). This is not to say that the world's, and especially the U.S., food supply systems are perfectly secure - they are not. One growing season like 1936 in the U.S. heartland and we would be "up sh*t's creek" with no paddle and hole in the canoe. If you could just tell me which year this weather pattern would develop next, we would all be very, very rich... from what I understand this has a 1% probability of occurring in any given year, so good luck forecasting that.

(And yes, I am aware of the whole feed or fuel thing... more on that latter.)

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That was because SUPPLY went down after the Galveston hurricane, and we all know that demand cannot exceed demand... in short, there is not a great deal of support for Oil over $70 at the moment. If the data changes I will change, too.

Imports remain down over 8 % from last year. It will be REALLy interesting to see what Oil imports turn out to be over the next 3 years. That little tidbit of data holds the entire world by the kishkes (alt. gishgas).

Greg






4 comments:

Dan said...

I told you; I took a tour of the bread basket corn was overplanted to the expense of wheat and milo.

oOOo said...

Been reading a great book called 'the sun kings' about the start of modern astronomy and one of the topics they touch on is that back in 1801 Herschel announced he had spotted a correlation between sunspots and wheat prices.

The wheat price series is one of the longest we have, extending back to 1250. ALthough he was ridculed at the time, (as allmost all progressive thinkers seem to have been) a lot of new research is starting to point to a strong link between sun spot cycles and the weather on earth:

"1. We analyze a direct link between wheat prices and solar activity in the 17th Century, for which wheat prices and solar activity data (derived from 10Be isotope) are available. We show that for all 10 time moments of the solar activity minimums the observed prices were higher than prices for the correspondent time moments of maximal solar activity (100% sign correlation, on a significance level < 0.2%). We consider these results as a direct evidence of the causal connection between wheat prices bursts and solar activity.

2. The test of the maximum-minimum price asymmetry for wheat in the USA in the 20-th century shows that the effect of the influence of solar activity also occurred,
but its amplitude and its significance level were lower than that for Medieval England in the century of the Maunder Minimum."

http://scholar.google.com/scholar?q=%22William+Herschel%22+wheat&hl=en&rlz=1B3GGGL_enUS247US247&um=1&ie=UTF-8&sa=N&tab=ws

http://arxiv.org/ftp/astro-ph/papers/0411/0411165.pdf

Greg T. Jeffers said...

oOOo:

We saw that research... Last winter was a zero sunspot year and a cold winter and corn went down....

but i think the correlation was with wheat?

Anyway...

I think that the food supply is real, the doomers are in the right church, but the wrong pew. There will be enough fossil fuels to run the food system for decades and decades, but there is no redundancy for a significant weather event or other natural event.

oOOo said...

"there is no redundancy for a significant weather event or other natural event".

yea, black swan events seem most of the time to be the major causes of paradigm shifts.. Natural or otherwise.