Words from the (Investment) Wise for the Week That Was (April 28 - May 4, 2008) Part II
John Hussman (Hussman Funds): Agricultural commodities in speculative bubble
"As for agricultural commodities, what we are observing is probably not a Malthusian breakpoint, but what I'd call 'speculative hoarding'. Essentially, as the prices of commodities rise, particularly in developing nations, there is a tendency to save in the form of real goods. We've observed this historically in various countries as hoarding of every form of physical output ...
"Some consumers have started hoarding rice, the food staple for half the world, as supplies shrink.
"In effect, we are observing a version of tulip-mania with foodstuffs. I would expect that prices will reach a speculative peak, probably within a few months, and then most probably plummet with very little in the way of relief rallies. That is a fairly predictable dynamic once commodity price movements reach the parabolic stage that they have entered lately. Still, it's not clear how high that parabola will ascend, because as the slope goes vertical, small differences in the exact point of the bust will lead to substantial differences in the price at the high. But the world has more arable land and more capacity to bring it into use within months and years than should cause near-term concern about a Malthuisan breakpoint."
Source: John Hussman, Hussman Funds, April 28, 2008.
Bloomberg: Rice drops as US crop sowing accelerates
"Rice plunged the most in three weeks after a government report showed planting of the US crop accelerated, easing concern that global food supplies will lag behind demand.
"The cereal, the staple food for half the world, has tumbled for four days, declining 7%, after doubling in a year as China, Vietnam and India curbed exports. Record prices stoked social tension in Asia and Africa and prompted Wal-Mart Stores Inc.'s Sam's Club to limit purchases of jasmine, basmati and long-grain white rice in US stores.
"'Supplies of the grain are sufficient, but there was a bottleneck because of speculative hoarding in some countries,' said Nicholas Chung, senior manager at Korea Development Bank."
Source: Jae Hur, Bloomberg, April 29, 2008.
GaveKal: Wheat, rice and soy prices rolling over
Source: GaveKal - Checking the Boxes, May 2, 2008.
Financial Times: Opec says oil could hit $200
"Opec's president on Monday warned oil prices could hit $200 a barrel and there would be little the cartel could do to help.
"The comments made by Chakib Khelil, Algeria's energy minister, came as oil prices hit a historic peak close to $120 a barrel, putting further pressure on global economies.
"His remarks suggest Algeria wants Opec to continue to resist calls by US and European leaders for the cartel to pump more oil to help ease prices. But Mr Khelil blamed record oil prices on the weak dollar and global political insecurity.
"He told El Moudjahid, Algeria's government newspaper: 'I don't think that an increase in production would help lower prices, because there is a balance between supply and demand and the stocks of gasoline in the United States have recorded a surplus and are at their highest level for five years.'
"He added: 'The prices are high due to the recession in the United States and the economic crisis, which has touched several countries, a situation that has an effect on the value of the dollar. Each time the dollar falls 1%, the price of the barrel rises by $4 and of course vice versa.'"
Source: Carola Hoyos, Financial Times, April 28, 2008.
John Reade (UBS): Copper conundrum
"The copper market is a strange place at the moment, says John Reade, head of metals strategy at UBS, who notes that available stocks of the red metal have fallen sharply this year.
"'The copper price is high and there are tremendous supply disruptions and production interruptions,' says Mr Reade: 'Yet demand is patchy, weak in the US as demonstrated by comments from some Codelco customers but stronger in Europe, based on recent increases in physical premiums.'
"Codelco, the world's largest producer, is reported to have asked some US customers to consider delaying orders if strikes in Chile continue.
"Although China imported a lot of copper in the first quarter, the spread between London Metal Exchange copper prices and those in Shanghai has risen to levels not seen since late 2006.
"UBS says the high level of the LME/Shanghai spread indicates Chinese traders have little interest in LME copper at current price levels and it also points to a future slowdown in Chinese imports of copper.
"Mr Reade says that data on speculative positioning from Nymex suggests investors are now 'long' copper, but he questions whether it is reasonable to expect copper prices to move much higher from current levels, barring an acute intensification in production interruptions. 'Impossible to be short, unattractive to get long: this is the copper conundrum,' he says."
Source: John Reade, UBS (via Financial Times), May 1, 2008.
Financial Times: Eurozone economic confidence slips rapidly
"Economic confidence across the eurozone is eroding rapidly, with increasing signs that the growth slowdown is hitting the region's labour market, a closely-watched survey has shown.
"The European Commission's eurozone 'economic sentiment' index has fallen sharply from 99.6 in March to 97.1 in April - the lowest level since August 2005. With the indicator regarded as good guide to growth trends, the unexpectedly steep decline pointed to a marked deceleration in economic activity.
"However, the ECB expects inflation to moderate only gradually over the next 18 months - and earlier this week the Commission forecast that in 2009 the average rate would still be above the central bank's goal of an annual rate 'below but close' to 2%.
"... eurozone countries show varying performances. Economic sentiment in Spain, which is at risk of a serious house price correction, has fallen to the lowest level since late 1993. But sentiment in Germany and France remains relatively robust - falling to the lowest levels since February 2006 and December 2005 respectively.
"Jean-Claude Trichet, ECB president, struck a cautious tone in Austrian newspaper interviews published on Wednesday saying growth in the first quarter had been 'quite robust' and was expected to be 'reasonably resilient' in the first half of the year. But he said forecasts by the International Monetary Fund showing a sharp slowdown this year 'may be too pessimistic'."
Source: Ralph Atkins, Financial Times, April 30, 2008.
This is money: Bank bail-outs to be kept secret
"The Bank of England has imposed a permanent news blackout on its £50 billion-plus plan to ease the credit crunch.
"Ferocious and unprecedented secrecy means taxpayers will never know the names of the banks that have been supported through the special liquidity scheme, which was unveiled by Bank Governor Mervyn King last week.
"Requests under the Freedom of Information Act are to be denied. Details will be kept secret even after 30 years - the period after which all but the most sensitive state documents are released.
"Any Bank of England employee leaking the names of institutions involved will face court action for breach of contract.
"This hypersensitive official stance is thought to be a response to the events of last year when a huge stigma was attached to any lender suspected of going to the Bank for cash help. The scheme is intended to steady the markets, but it is feared that reports of banks making widespread use of the facility could trigger further instability."
Source: Dan Atkinson, Simon Watkins, This is money, April 27, 2008.
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