Thursday, February 17, 2011

Housing, Oil, Weather, Water, & Food

Today's Quote -


“There’s no room for error anymore .With any weather issues, we’re going to make new all-time highs in corn and soybeans, and to a lesser degree, wheat futures. The pressure is acute, in terms of planting fence row to fence row, and really getting the message out to farmers that they need to be planting up their front yards." - Dan Basse, president of AgResouce Co.

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You simply must take your hat off to Ben Bernake and the Federal Reserve AND Hank Paulson.  Considering the disaster within the banking system that Bernake walked into his results have been outstanding. No, we are not going back to cash out re-fi's... but that's not the point (and yes, I know life is extremely unfair and that people who deserved to fail were bailed out and were maintained in their establishment position by our government... but that is a far better outcome than Martial Law, some thing we were mere days from back in 2008). Nor am I suggesting that housing has bottomed as some of the folks over at "The Daily Reckoning" are... I am agnostic to skeptical about that thought... and it WAS/IS bad, and it was/is painful for folks still unemployed... but back in 2008 I thought it was going to be a great deal worse. When the data changes you gotta make adjustments, irrespective of what you thought was the case previously. Reality doesn't give a good fart about what I thought.

Ergo, hat tip to Bernake and Paulson.

The Housing finance cluster f**k was made by man, and could be fixed by man. During the height of the collapse of the housing finance market the ensuing economic contraction took the pressure off of Oil prices, and during that time Nat Gas production did not collapse as expected (but contrary to media and popular opinion, there is no glut in Nat Gas... Nat Gas inventories are below their 5 year average because of the "cold winter"). I define "economic growth" as population gains, monetary inflation and net per capita productivity increase (after all if 100 steel workers are replaced by 10 workers and robotics and the other 90 do not find productive work it is hard to argue for a net per capita increase in productivity). In fact, "economic growth" will remain, in my humble opinion, for as long as we have population gains (if all else remains constant... and nothing ever remains constant).

It has been postulated that economic growth is dependent upon ever expanding Oil production, and I think that to be a reasonable assertion. Here's another wrinkle: Population growth is dependent upon food supply growth, something that is at least somewhat questionable. Financial markets are governed by the same demographic laws that govern Medicare and Social Security. Can industrial food production be increased by 1.2% per year indefinitely? It didn't happen this year.  In fact, while world population did expand at roughly 1.2% at a time when food production declined by several percent I assert that the only reason that that was possible was world grain inventories were drawn down; but that was a "one off". We cannot borrow grain and cattle and dairy from the future like we do money.  In fact, inventories are so low that the coming world harvest must expand by some factor or world population decrease will occur.  Its just physics. Of course, it is more likely than not the harvest will be what we need it to be (if that makes you feel any better).

Ergo, housing is no longer the issue, and perhaps it never was... perhaps it only covered up the very real issues of food, water, and oil.

Yours for a better world!

Greg

P.S. Corn and Wheat prices are up over 1% this morning.

10 comments:

Dextred1 said...

Jeffers,

We can have population growth here while the worldwide pop growth stalls due to starvation and economic decline. We produce way more than enough food for our nation. Population is a larger factor than oil in the long run. I would actually purpose that over the long term oil reduction will result in more work. Maybe on a subsistence farm which will be on top of some other menial Job, nobody said life should be easy (you know this, look where you are moving for good) Similar to the second law of thermodynamics, you can have a localized decrease in entropy as the overall entropy of the system increase.

Greg T. Jeffers said...

I was talking world wide... and the effects that outcome will have on markets in general.

Anonymous said...

With all due respect, Greg---

U6 Unemployment 22%

Home prices DOWN 30% & dropping

27% of home mortgages underwater

All major US Banks on life support

Gold UP 300%

FASB acct rules a global joke

Muni bond market torpedoed

CA, NJ, IL, NV, FL, MA Bankrupt

85% of college grads unemployed

USD on death watch

US disrespected globally

Stock market on Bernanke dope

Yup. Thanks Ben & Hank

Best, Marshall

Greg T. Jeffers said...

U6 Unemployment 22%

Home prices DOWN 30% & dropping

27% of home mortgages underwater

All major US Banks on life support

Gold UP 300%

FASB acct rules a global joke

"Muni bond market torpedoed" what does the Fed have to do with the Muni market?

"CA, NJ, IL, NV, FL, MA Bankrupt" See Above.

"85% of college grads unemployed" where did you get that data point? And how is it the Fed's fault that our educational system screwed everybody?

"USD on death watch" not debating that...

"US disrespected globally" - long before Bernake came on the scene...

"Stock market on Bernanke dope" no... the economy is on deficit dope for sure, and maybe a little QE2 dope... and that has helped earnings... but earnings of $96 per share for the S&P means the index is trading at what, less than 14X earnings?

Remember, the financial system is a CLOSED system, and has to be approached from that angle.

And I never said anything qualitative... I just said these guys prevented Martial Law... because that really was the alternative.

Greg T. Jeffers said...

"U6 Unemployment 22%" inaccurate

"Home prices DOWN 30% & dropping" what's that have to do with Bernake? And why is that a bad thing?

"27% of home mortgages underwater" again, what's that have to do with Bernake?

"All major US Banks on life support" They have contracted brutally, and they aren't done... Bernake has not gotten in the middle of that...

"Gold UP 300%" maybe rightly, maybe bubbly... time will tell.

FASB acct rules a global joke

Anonymous said...

This can has been kicked down the road for 35 years. That is how long ago that credit creation started to rise faster than GDP. I don't think there is much left that can be done. The Fed is now printing to finance the federal debt and cutting spending may be politically impossible. I hope there are still some rabbits in the hat!

A man fell off the top of the Empire State Building. As he dropped past the 50th floor, someone yelled out the window "How's it going?"

The man yelled back "So far, so good!"

Regards,

Coal Guy

Greg T. Jeffers said...

Coal Guy:

I still have to admire the fact that these guys bought themselves this much time. Of course and energy shock or terrible drought in the heartland would f&*^ things up... but, within the limits of the actual financial system, these guys did a pretty good job. Believe you me, they know where we are in the credit cycle... but at least we are not under martial law, and that's a good thing.

Hydra said...

Tractors did not become readily available until 1945. Until then, 25% of the farmland was used to feed the draft animals that worked the other 75%. Subsequent productivity gains took more farmland out of service. In my area, thousands of acres are now fallow, or forest. There will be no shortage of food.

Hydra said...

World stock market up $3.1 trillion in Jan. Dow at record low, priced in gold. Energy prices at historic lows, priced in hours of labor to buy it.

The sky is falling.

Hydra said...

27% of mortgages under water. 35% of homes owned free and clear. I have lost three, good long term tenants: they bought foreclosures.

It is the end of civilization.

Every week, I see more costru tion trucks on the road. Last week I saw a convoy of four trucks delivering four big excavators.