You probably have heard about the riots going on in Egypt over the rising price and rationing of bread (wheat).I only know what I read (here and here). Knowing what is really happening there is difficult as function of being far away and news accounts sometimes don't correctly capture the essence of these things.
It is much easier to understand that part of what is causing the problem is a distortion of some sort in the price of soft and agricultural commodities. I say "some sort" because quantifying the distortion is not really the point and I doubt I am the person to do it. I think successful navigation is more important than successfully quantifying such an event.
Wild, wild price action, regardless of direction, happens every so often and the most important thing for most folks is simply to recognize something is not right and if something is not right in a serious manner then the chance of consequences in other seemingly unrelated markets is quite high.
A year ago rough rice was trading around 11. It started 2008 in the 13s. The July 2008 contract now appears to be above 20.
The chart is of the Wheat ETC (WEAT.L) traded in the UK. It started the year at 5, up to 7 and now back below 5.The action is wild and creates visibility for problems in other markets either directly or as some sort of secondary effect.
In addition to the commodity markets being a little cattywhompus so is the bond market. Yields are absurdly low. Either yields stay very low which causes one set of problems or we see a violent run up in yields (like in July 2003) which causes another set of problems. An orderly correction is rare event.
I'll leave predicting what all this means and what it will domino into for the smart guys in the room. It is more useful to know risk is heightened both in places where we expect it (stocks and commodities) and where we don't (bonds and money markets).
The rioting will hopefully end very soon but the market events triggering the riots could have fallout for quite a few months (some will say longer) and so continued defensive posturing seems to be right. If this thought turns out to be wrong then obviously the world will be better off.
8 comments:
With heightened risk in stocks, commodities, bonds and money...what asset classes are left?
I think I'll pick up a box of shells and a case of MREs on the way home :-)
or a couple of hectares in Chile, a few head, an ox and a bunch of seeds?
I tend to agree wild run ups or crashes in prices can not be discounted. I am still some what confused and in cash. I do not even like the dollar, but do not like anything else in the short run either.
I can not wait to see the "fixes" various governments will come up with to make things even worse.
Tom k and anonymous said hit the nail squarely on the head.
Hard to be truly comfortable with much, little alone feeling like you have an edge. Capital preservation mode until things are clearer.
The Rydex Managed Futures Fund, Permanent Portfolio Fund and First Eagle (SGIIX) seem to be eeking out gains.
I do have a bullship again for today: Michelle Caruso-Cabrerra on CNBC. Not sure if she is newly single and looking or if there is a new demographic to go after but goodness gracious - very tight blouses everyday now. Looks uncomfortable and out of place, more like Melrose Place...
Citi sells leveraged loans for 90 cents on the dollar, but they have to accept the first 20 percent of losses. Now everyone wants to value leveraged loans at the sale price of 90 cents on the dollar.
Good plan IMO, but at this rate how many years will it take to work their way out of the current mess?
Accepting the current value of the loans and having all the banks go under is not a good plan IMO. That is not what was done when the latin american countries defaulted on their debts a few decades ago.
no more credit expansion for a while it looks like, which is not good for so many markets. We will see.
The bread riots in Egypt are not much different than the bread riots in Jordan in 1987 or, conceptually, what happened in Illinois after the price of a gas went up to $2/gallon couple of years ago.
In Illinois they did not riot, but people were very upset, laws were changed, taxes were suspended, etc... now we are paying $3.40 and nobody cares.
The price of bread today in Jordan is many times what it was in 1987. Everybody is paying up and nobody cares.
That's how people react to change. Eventually they get used to having less and just shove a sock in it.
Regarding "everything" looks bad...
I'm as confused as anyone else, but would think being somewhat heavy cash would be the "least bad" position over the next few months, or until things clarify, *s*
jan
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