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.