Monday, November 28, 2011
China's Vice Premier Mr Wang issued a bearish forecast, saying he is "certain, among all uncertainties" that a long term global recession is going to happen, that it will be "chronic" and China, which relies highly on external demands, must see the situation clearly and focus on domestic problems (Reuters)
China will have to move on its own and not be dependent on global growth to drive their domestic growth.
This is a strong comment from China. It suggests that domestic growth will be a priority since there is a strong likelihood of global recession. Will this mean a more isolationist economic policy? We will have to see, but the three pillars of economic growth, the US, the EU, and China all look weaker than six months ago.
Sunday, November 27, 2011
“If history repeats itself,” footballer Andrew Demetriou once pointed out, “I should think we can expect the same thing again.”
from Michael Pettis Will Greece unravel by Christmas?
It seems likely there will have to be more action taken and the holidays would be a perfect period to get the action and word out without a major market malfunction. A break-up is a possible and it is the logistics which may be the hold-up.
Confusion and uncertainty is never good for both consumer and producers of food.
"Corn and sugar are becoming increasingly linked in the global markets, something that has implications for the prices of both commodities." from Agrimoney
Sugar is used as a sweetener and bioethanol simialr to corn. Hence, there is a substitution between these two crops that did not exist in years past.
It may not show-up in short-term correlation but the relationship between corn, sugar, and oil is going higher. The cost of production in corn is more driven by oil. The output is oil driven. The same is true of sugar.
The role of corn as a sweetener is also increasing. Corn syrup has been a cheap substitute for sugar. This relative cost will create a further link.
Holmes would have been a great investor and provides useful information for any decision-maker.
Money market funds cannot compete under this environment and the result will be money flowing back to banks and way from what has been called the shadow banking system. This could be what regulators and government wants, but it will change the forms of financing and will reduce the potential supply of loanable funds. The cost of business will go up for those borrowing money and the rate of return for investors will go down.
Wednesday, November 23, 2011
A decade ago there was talk that there would be no risk free bonds available to investors. Now there is no risk free asset. There is no greater change in financial markets.
World Agriculture Investment Conference October 4-5, 2011
Cash flows will have differences. Farmland will also be more sensitive to commodity prices because lease rates are reset every year. Farmland will also be affected by farm margins, so input costs are more important. This would be the equivalence of maintenance on a building. Farmland has higher risks in the short-run because weather will have a significant effect on the ability to pay leases. Prices can rise but if the quantity is reduced on your specific farmland, the value for income production is lower.
Tuesday, November 22, 2011
In 1982, 94 percent of the state's farmland was owned by people who lived in Iowa, according to data compiled by Iowa State University.
But that resolve has waned. When the U.S.'s rural economy eroded in the wake of the 1980s farm collapse, many families encouraged their progeny to leave the land and find their economic fortune in America's cities.
The kids left. Many of them they stayed away. As the years passed, that familial loyalty to the land faded.
Today, about 20 percent of Iowa farm land is owned by people who don't live in the state, according to Iowa State University data. The average Iowa farmland owner is a single woman - often a widow - who is over the age of 70.
from reuters story
“Taking the long view, we are running out of dirt.” —David R. Montgomery, geologist
Jeremy Grantham, the curmudgeonly head of the money manager GMO, wrote about soil depletion in his last quarterly letter. “Our farmers are in the mining business! Yes, the soil is incredibly deep, but it is still finite.”
“Globally, it’s clear we are eroding soils at a rate much faster than they can form,” notes John Reganold, a soils scientist at Washington State University.
The latest speech by ECB president Draghi suggests that he is, like other central bankers, are looking for ways to avoid using liquidity in the short-run to solve fiscal problems. There is a clear bias to have the fiscal ministers provide a solution and holdback liquidty as a last resort.
Saturday, November 12, 2011
Thomas Sargent at podium and Chirs Sims standing to the left.
Chris Sims will have as strong an impact as Sargent because techniques can be applied by all schools of thought. Sims, through vector autoregressive models, VAR, focuses on the impact of shocks to the economy. We can now measure shocks through time and see how they will play through the economy. Every econometric course focused on macroeconomics will have to learn the techniques of Sims.
We congratulate both for having a profound change on economics.
There is no money illusion when there are price declines. Tangible assets clearly will be worth less and all borrowers will be negatively affected. Borrowing or leverage becomes more dangerous. Perhaps more clearly, there is a fear of asset price deflation by central banks which is much greater than any fear of general price increases. Is because central banks are part of the creditor class? Hard to say. It is also unclear that central banks are able to control inflation. Look at the periods of hyperinflation. What is clear is that deflation cannot be easily solved and will have a strong wealth effect and central banks want to avoid this problem at all costs.
So how can speculators control the price of oil markets when the largest firms are all in the hands of governments which may not have the same objectives as private firms own by shareholders and required to maximize profits?
State control of oil is the greatest danger to the oil markets.
1. explicit or indirect caps or ceilings on interest rates;
2. cresation of a captive domestic audeince for government bonds;
3. direct ownership of banks or management of financial institutions.
Farmland - "the dark-horse bubble candidate for the next decade " Robert Shiller.
Friday, November 4, 2011
Markets respond to incentives. Higher prices mean rationing on the demand side. Higher prices will cause more supply to be produced. What happens next? prices fall form the over supply. Look at the wheat market. Prices are the lowest in years and have declined form over $10 / bu in March to current prices of $6.36 /bu.
Stocks are rising after what seemed like a crisis last year. Production is outstripping consumption so the price of wheat has come down to a new equilibrium level.
See International Grains Council