Yes Vargas:El Ni¤o will come to the rescue. Read and pass me a beer.
From Microsoft Investor site.
Storm Clouds of Inflation
Will El Ni¤o again wreak havoc with food prices? Weather watchers
may want to stock up on soy futures.
By Susan Lee
Once again, the Federal Reserve -- having cast its eye out over the horizon -- has failed to sight inflationary weather. The great ship of state will remain on course; the sails do not have to be lowered.
I don't know where, exactly, the Fed was looking, but it sure wasn't Peru. Peru?
Yep. That's where the first sign of a nasty little weather phenom --
and potential inflation -- was sighted last month. It's called El
Ni¤o and it's a warming trend in ocean currents along the eastern
Pacific that appears first in Peru. El Ni¤o -- Spanish for the Christ
child because its impact is most obvious in December -- has been noted as far back as the late 15th century. It appears seemingly at random (about every seven years) and lasts anywhere from 18 months to two years, causing the ocean's temperature to rise between five and nine degrees Fahrenheit.
But that's just the initial manifestation. This disturbance is apparently the author of full-scale havoc. During the last bad episode, from 1982 to 1983, El Ni¤o was blamed for dramatically
horrid weather all over the globe.
Huge storms pounded the eastern Pacific coast from Chile to
Alaska. (Poor Peru had 13 feet of rain in six months.) California,
Florida and two-thirds of the southern United States experienced
torrential rains. There also were droughts. Africa, Australia,
Indonesia, the Philippines and India were parched. And there
were cyclones in Tahiti, hurricanes in Hawaii, tornadoes in the
deep southern United States and blizzards in Greece.
Not a pretty picture. In all, $4 billion to $8 billion in damage was
done worldwide. Many grain crops were history and oceanic birds
and fisheries were devastated. It was unpleasant and disruptive,
but the economic consequences were no great shakes.
So where's the inflation in this story? In the El Ni¤o of 1972 to
1973.
Same preface: El Ni¤o appears off the coast of Peru, making the
water too warm for fish, most notably anchovies (a source of
protein feed). Peru happened to have one of the most important
fishing industries in the world, so an instant fishmeal shortage
resulted. At the same time, drought decimated the peanut crop in
West Africa and India, aggravating the scarcity of protein feed.
Not to forget, there was also a worldwide failure of the wheat
crop, most notably in the former Soviet Union.
Hence, demand for agricultural goods surged and, of course,
prices skyrocketed. This situation worked its way up through the
food chain, causing prices for wheat, soy and corn, and then
chicken and beef, to more than double.
This El Ni¤o did have a gigantic economic consequence. In 1973,
the U.S. rate of inflation was 12%.
To be fair, inflation also was pushed by mega-stupidities like a
loose-as-a-goose Federal Reserve and Nixon's elimination of the
gold standard in 1971, as well as the meanness of the Arab
states' trebling of oil prices in 1973. And, to be rigorously fair,
these events may have accounted for most of the run-up in the
rate of inflation.
Nonetheless, El Ni¤o delivered a huge weather shock to a great
chunk of the world's economy that then surfaced as inflation.
Is it about to happen again?
Here's what we know: A strong El Ni¤o effect is associated with
good crops in the United States, but bad crops in other agricultural powerhouses like Australia, China and Argentina. If there is a global grain shortfall (and no anchovies), that puts the U.S. farm sector on top. But it also zooms demand and thus prices for all consumers. And I mean all consumers -- from owners of feed lots, to bakers of hamburger buns, to once-a-week eaters of Big Macs. And food inflation is stubborn. One can't just substitute another good for food. (Hey! I'll skip the hamburger. Give me an extra Jeep instead . . . )
If food inflation appears, the Fed has two choices: It can accommodate inflation by pumping out more money (unlikely) or it can clamp down by raising interest rates (likely).
Here's what we don't know: How strong the El Ni¤o effect will be.
Some scientists are predicting the worst El Ni¤o in 50 years, but
the accuracy of their forecast can't be judged until this fall. Pretty iffy.
However -- and this is for the strong of stomach -- I will tell you
what one weather scientist told me. Back in 1972, a trader on the
Chicago Merc noted heavy rains in Peru. He bought futures
contracts on soy and made a breathtaking fortune. So the reckless among you might want to keep an eye on futures for corn, wheat and soy as well as cattle, hogs, sugar and cocoa. Presumably, so will the Fed.
And if you're eating $10 hamburgers this winter, don't say I didn't
warn you.
P.S. If only they take ECM shares for future contracts of soy....
Cheese, it was difficult to find some good news. Pass me another.
Cheers and salud,
Sergio |
