Monday, April 21, 2008

Articles of Interest from Around the Net

In the interest of time/efficiency I'll probably be going to some blog entries in the following format with some headlines with a short blurb and then interested readers can click on the link to read the full story. I need to spend more time reading and less time typing so while I'll continue full story summaries on most items, I'll put together some packages like this for those interested in reading further.

If you (reader) find anything of interest feel free to post a comment to this entry with a link but please use to post the link.

Recent stories catching my interest:

The Economist: The New Face of Hunger (topic: food crisis and impact on world poor, something we predicted long ago and now hitting mainstream)
  • World agriculture has entered a new, unsustainable and politically risky period,” says Joachim von Braun, the head of the International Food Policy Research Institute (IFPRI) in Washington, DC. To prove it, food riots have erupted in countries all along the equator. In Haiti, protesters chanting “We're hungry” forced the prime minister to resign; 24 people were killed in riots in Cameroon; Egypt's president ordered the army to start baking bread; the Philippines made hoarding rice punishable by life imprisonment. “It's an explosive situation and threatens political stability,” worries Jean-Louis Billon, president of Côte d'Ivoire's chamber of commerce.
Asia Times: China caught in Potash Crunch (great summary of the main players in the fertilizer business and why I favor the potash companies in the long run - mini monopolies - talk of spot potash to $700 by this summer and $800 - or more - by fall; you know the names by now - Mosaic (MOS), Potash (POT), Agrium (AGU) and our new friend Intrepid Potash (IPI))
  • The magnitude and growth rate of demand from China still drives global commodity prices. But in the fertilizer sector, where China this month has had to agree to a price for potash more than double what it paid last year, the inflexibility of Chinese demand for food has made it difficult for the country's negotiators to hang on to the commercial advantages they are accustomed to enjoying from being the world's largest consumer.
Paul Krugman of NYTimes Says We are Running Out of Planet to Exploit - as an aside I saw a show on National Geographic that says if the other 95% of humans on this planet consumed and wasted like Americans did, we'd need 4 Earth's. That's a scary thought. This planet is simply not equipped to handle billions of "middle class" people - it needs most to live in abject poverty to support the number of people that live on it, which was the status quo for decades upon decades - but has changed with the rise of Chindia. [WSJ: New Limits to Growth Revive Malthusian Fears] We need major technological breakthroughs to reduce resource dependence over the next 5-10 years or it could create some very ugly situations. I've said since day 1 of blog, future wars will be over fresh water instead of oil.
  • It’s not just oil that has defied the complacency of a few years back. Food prices have also soared, as have the prices of basic metals. And the global surge in commodity prices is reviving a question we haven’t heard much since the 1970s: Will limited supplies of natural resources pose an obstacle to future world economic growth?
NYTimes: Sticker Shock in Organic Aisles - this goes along with my idea that when prices get high enough people, aside from the truly upper middle class and lower upper class, will be fleeing Whole Foods Market (WFMI) - economics over health - I continue to like that stock as a short on the "pooring of America" theme.
  • Shoppers have long been willing to pay a premium for organic food. But how much is too much? Rising prices for organic groceries are prompting some consumers to question their devotion to food produced without pesticides, chemical fertilizers or antibiotics. In some parts of the country, a loaf of organic bread can cost $4.50, a pound of pasta has hit $3, and organic milk is closing in on $7 a gallon. “The prices have gotten ridiculous,” said Brenda Czarnik, who was shopping recently at a food cooperative in St. Paul.
NYTimes: In Lean Times, Biotech Grains are Less Taboo - again, when push comes to shove economics wins over everything else - health, morals, taboos - the names here are Monsanto (MON), Syngenta (SYT), and a little Dupont (DD)
  • Soaring food prices and global grain shortages are bringing new pressures on governments, food companies and consumers to relax their longstanding resistance to genetically engineered crops. In Japan and South Korea, some manufacturers for the first time have begun buying genetically engineered corn for use in soft drinks, snacks and other foods. Until now, to avoid consumer backlash, the companies have paid extra to buy conventionally grown corn. But with prices having tripled in two years, it has become too expensive to be so finicky. “We cannot afford it,” said a corn buyer at Kato Kagaku, a Japanese maker of corn starch and corn syrup.
WSJ: Global Growth Creates Market Winners - well this story pretty much sums up my blog, but about 6-9 months too late - mentioning steel, agriculture, coal, energy :) Go global, find customers with deep pockets, and avoid subprime nation. (and it's sister, subprime UK)
  • Stocks are down so far this year, the U.S. economy could be in the midst of a recession, and the housing market's troubles could linger for many months. But a handful of stocks and sectors are soaring in 2008, believe it or not. Some of them, such as some companies in the steel and agricultural businesses, could continue to generate strong gains, analysts say, though others, such as some coal and energy companies, look like riskier prospects.
NYSun: Food Rationing in America? Sounds Outlandish? It's Already Happening
  • Many parts of America, long considered the breadbasket of the world, are now confronting a once unthinkable phenomenon: food rationing. Major retailers in New York, in areas of New England, and on the West Coast are limiting purchases of flour, rice, and cooking oil as demand outstrips supply. There are also anecdotal reports that some consumers are hoarding grain stocks.
  • At a Costco Warehouse in Mountain View, Calif., yesterday, shoppers grew frustrated and occasionally uttered expletives as they searched in vain for the large sacks of rice they usually buy. "Where's the rice?" an engineer from Palo Alto, Calif., Yajun Liu, said. "You should be able to buy something like rice. This is ridiculous."
CBSMarketwatch: Pilgrim's Pride (PPC) a major chicken producer is cutting production. We know what that means down the road... higher chicken prices. This is a theme I've been mentioning since last fall as yet another unintended consequence of the ethanol boondoggle... it will have lag effect and no one is talking about it now - check back by the fall or next winter. This will allow the food producers to increase prices but still to be determined if they will be able to increase them enough to offset the rising input prices to feed their animals. A lot of macro economic events happening here, and it's a matter of degree of what rises more, inputs or end food prices. I continue to watch iPath DJ Livestock ETN (COW) which plays on this theme from the cattle/hogs angle.
  • Pilgrim's Pride said Monday it plans to cut weekly chicken processing at its plants and may shutter another production facility to offset exorbitant costs for corn and soybean meal. Pilgrim's Pride, the largest U.S. chicken producer, said it will reduce weekly processing by 5% compared to last year's levels.
WSJ: Smaller Banks Begin to Pay Price for their Boomtime Expansion - this should be the next leg of the credit crisis... while the Federal Reserve and Treasury Department will bring all hands on deck to save the NYC based banks, the many smaller regional banks are going to get hit with effects of the consumer led recession. Unfortunately, Ultrashort Financial (SKF) focuses mostly on the large banks that the government is now backstopping so there is no easy way to get at these names without individually shorting.
  • Now, two years after its expansion push, Sovereign has quit making auto loans outside the Northeast because too many borrowers fell behind on their bills. Losses on the bank's loans ballooned. In January, to conserve cash as it wrote off more bad loans, Sovereign eliminated dividend payments. On Tuesday, the bank is expected to announce a 40% drop in first-quarter earnings.
  • Similar troubles are echoing through small and midsize banks across the U.S. In a bid to expand during the recent boom, many set up operations in unfamiliar markets or started pitching new products. Others, aiming to stave off encroachment by huge U.S. financial institutions, boosted their lending by offering easy terms or lower rates. Now the slowing economy is exposing bad timing and blunders.
NYTimes: A New Threat to Farmers: The Market Hedge - we discussed this a while back, how Hedge Funds were now piling into the commodities market and causing major disruption [Feb 28: The Hedge Funds are Coming! The Hedge Funds are Coming!] - what was traditionally used as a hedge by farmers to protect themselves is now a plaything for the locusts... I continue to believe as hedge funds control more and more of the world's capital there comes a time when their sheer scale and size must fall under some sort of higher level of regulation as they literally, en masse, can move markets. Perhaps only when a disaster strikes caused by hedge funds, will anyone care to broach this subject - give it 5 to 10 years. As more wealth is concentrated in fewer and fewer hands (sovereign wealth funds and hedge funds), we will have the same things we always have - out sized risk leading to terrible effect. And then the politicians will say "how did everyone miss this and why was there no regulation?" Blah blah.
  • But Mr. Grieder’s days on the farm in Carlock, Ill., are getting even longer. He now has to keep a closer eye on the derivatives markets in Chicago, trying to hedge his risks so that he knows how much he will be paid in the future for crops he is planting now. And the financial tools he uses to make such bets are getting more expensive and less reliable.
  • In what little free time he has, Mr. Grieder attends Illinois Farm Bureau meetings to join other frustrated farmers who are lobbying officials in Chicago and Washington to fix a system that was designed half a century ago to reduce uncertainty for food producers but is now increasing it.
  • But today’s crop prices are not just much higher, they also are much more volatile. For example, a widely used measure of volatility showed that traders in March expected wheat prices to swing up or down by more than 72 percent in the coming year, three times the average volatility for that month and the highest level since at least 1980. The price swing expected in March for soybeans was three times its monthly average, and the expected volatility in corn prices was twice its monthly average.
Summary: We have a major disconnect between Wall Street and Main Street, as the stories above show. And the inflation being created by central banks across the globe, I continue to believe is helping to inflate all assets, including equity prices, over and above where they'd be in a normalized supply/demand equation. Good for stock investors, bad for all consumers and the world's poor and middle class. US stock market watchers continue to live in a world of "the US is all that matters" and cling to the "as US slows, inflation will disappear" - I've argued this is wrong since day 1 of blog and Ben Bernanke has taken the other side of this trade. I think Ben will be wrong; unfortunately many on this globe will be hurt by this incorrect prediction by Uncle Ben and his merry band. As further insult to injury, we will continue to use fabricated government reports which says inflation is contained and not really an issue to continue our path of dollar destruction and inflation embellishment. Main Street will continue to get pummeled.

Long Mosaic, Potash in fund; long Mosaic in personal account

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