Market Skeptics

Dynamics For Disaster In Agricultural Markets

2009-11-21T08:10:00.000-08:00

Below is a batch of entries from Nogger’s Blog.

(emphasis mine) [my comment]

Friday, 6 November 2009
Romanian Winter Plantings Seen Down 30 Pct

Romanian farmers are expected to plant 30% less winter grains this year, according to UkrAgroConsult.

Drought in 2009, delayed receipt of farm subsidy payments, an antiquated infrastructure and low grain prices are all partly to blame.

Agrimoney.com report that since the collapse of Communism, the amount of irrigated land has slumped by more than 90% to well below 300,000 hectares.

A recent USDA tour of the country reported a "large amount" of deserted farms - "not land just lying fallow or waiting for next season's crop but vacant land" they add. [example of low prices leading to lower production]

Lack of on-farm storage, in a country where half of the tillable area is still ploughed by horse-drawn equipment, means that many farmers are forced to take whatever price is on offer for their crops at harvest time.

Many have clearly had enough, at least for now.

Wednesday, 11 November 2009
Brazil To Put Wheat Import Tariff On The Chopping Bloc

Nogger's favourite grains website Agrimoney.com is reporting that Brazil might be about to scrap it's duty on wheat imported from outside the Mercosul trade bloc. [leading to increased demand for wheat imports in 2009/10]

Brazil's regular No 1 wheat supplier is Argentina, who in previous years have normally had enough to meet almost all of Brazil's import needs. Of course things haven't gone according to plan for the Argies in the last two years, with the 2008/09 crop wrecked by drought and this year's plantings the smallest on record in a two fingered salute to the government.

So with a wheat crop of only around 7.5 MMT potentially coming out of Argentina this year, and them consuming around 6.5-7.0 MMT themselves, there isn't going to be much left for Brazil's best mates to export this year.

Hungry Brazil are set to consume 11.4 MMT of wheat in 2009/10 according to yesterday's USDA figures, but with their own production badly affected by heavy rains they are likely to deficient to the tune of around 7 MMT this year, say Agrimoney.

Clearly the vast majority of that is now going to have to come from outside the bloc.

Well it's a good job that the shops are still open isn't it? Certainly the US will be fancying their chances of a slice of that action, as Brazilian millers are famously anti-Russian wheat.

Tuesday, 17 November 2009
Wheat Continues To Pour Out Of Ukraine

Grain continues to pour out of cash-strapped Ukraine with Nov 1st wheat reserves standing at a fraction over 11 MMT, over 20% down on year ago levels, and 4.75 MMT less than two months previously.

You don't have to be Pythagoras to figure out that at this rate they will run out long before next season's harvest begins. [evidence suggesting decreased capacity for wheat exports in 2010]

Against a backdrop of political uncertainty, farmers and trading houses alike are keen to export anything that isn't nailed to the floor. Quickly.

Wednesday, 18 November 2009
First Imported Wheat Shipments Clear Indian Customs

Fed up waiting for the government to release state-owned wheat stocks onto the market at realistic prices, flour millers in southern India have taken matters into their own hands and begun importing wheat in containers from Australia.

Media reports from India confirm that "a few containers have arrived and they have been cleared by the phyto-sanitary and plant quarantine authorities”. ]

Suppliers in Australia literally have to clean the wheat before it leaves to meet stringent Indian quarantine restrictions, but with prices fetching USD300-315/tonne (Rs 13,900-14,575/100kg) CIF the southern Indian port of Tuticorin there are plenty prepared to take the risk.

From the flour millers point of view it's a win-win deal, local wheat is costing Rs 15,400-15,800/100kg, availability is tight and what is available has high levels of infestation (typically 5-6%).

When the first few deals were done a risk premium of USD25/tonne was being added by the sellers, pessimistic that the wheat would get customs clearance. Now that the first consignments have got through OK, this has dropped to USD7-8/tonne, with more sellers now coming forward, say millers.

[evidence suggesting strong demand for soybean imports in 2010]

The Roller Flour Mills’ Federation of India is urging the government to relax the strict quarantine regulations until new crop wheat is available in March, to facilitate bulk imports. But for now the government continue to stick their heads in the sand. Their mysterious 27 MMT or so of strategic stocks remains under lock and key, yet neither do they seem prepared to open the doors to wholesale wheat imports.

Wednesday, 18 November 2009
Bug Damage A Problem In Black Sea Wheat

An interesting report on Reuters suggests that damage by bugs is a serious problem in this season's Black Sea region wheat crops.

Quoting the Vice President of Global Technical Governance at SGS Agricultural Services, they say that Russian wheat this season typically has an average of 2.6% bug damage, with Ukraine wheat damage estimated at an average 4.6%. In some parts of the Ukraine bug damage has been as high as 80% he says. No wonder they're so keen to get rid of it, still it saves a few bob on loading charges when the wheat can walk onto the boat by itself.

As well as climatic conditions, much of this season's wheat problems can probably be attributed to economising on pesticides in these cash-strapped times, he says. [example of low prices leading to lower production]

With Egypt having recently lowered it's maximum tolerance to bug damage to just 1%, in theory that leaves the door open for better quality European or US wheat to make inroads into 'difficult' homes like Egypt and perhaps even India.

Not that you'd know it the way recent tenders have been going, with Russia picking up the lion's share once again of late.

Thursday, 19 November 2009
Heavy Snows Might Hit Chinese Wheat Production

The Chinese government may have shot themselves in the foot with their cloud seeding efforts in northern China's wheat growing areas.

Warm and dry October weather hampered wheat planting and development on the North China Plain. Rainfall had been practically non-existent in October in leading wheat provinces Henan and Shandong and adjacent Anhui and Jiangsu, say Gail Martell of Martell Crop Projections.

So the military were duly dispatched into the countryside armed with the usual array of silver iodide and heavy artillery.

The seeding, plus temperatures falling as low 29 F, brought an early covering of 'fake' snow to Beijing on November 1st. The snow was the earliest to hit the capital in 10 years, according to the Beijing Evening News.

Perhaps what the authorities hadn't reckoned with was that Mother Nature has seen fit for it to continue to snow more or less ever since. [There has been a lot of terrible weather for farming this year, hasn’t there?]

The heaviest snow in 22 years hit Hebei last week, with falls as deep as 37 cm in some parts of the province. The snow has been accompanied by bitterly cold weather with temperatures of minus 15 to minus 17 degrees Celsius, according to the Xinhua News Agency. [more abnormal weather destroying production]

The drastic temperature drop will harm the province's 2.4 million hectares of wheat, said Zhang Wenzong, director of Hebei Agri-Meteorological Center.

The sudden switch from almost summer-like conditions to winter seems to have by-passed autumn completely. Whilst the snow will certainly ease the drought, it's early arrival along with sub-zero temperatures will badly affect further planting and potentially send newly planted wheat into premature winter dormancy.

They might be able to make it rain, but can they stop it snowing and freezing in the world's largest producer and consumer of wheat?

Thursday, 19 November 2009
USDA Weekly Export Sales

For the period November 6-12, 2009 the USD today reported the following weekly export sales:
…
Soybeans: Net sales of 1,349,700 MT were up 6 percent from the previous week and 58 percent from the prior 4-week average. Once again the primary destination was China (724,700 MT). Trade estimates for weekly sales had ranged from 750,000 and 950,000 MT. Exports of 1,724,200 MT were a marketing-year high, the primary destination (no surprises here) was China (914,500 MT). [evidence suggesting strong demand for soybean imports in 2010]

Thursday, 19 November 2009
Heatwave Might Trim Australian Wheat Yields

Eastern Australian farmers might be thanking their lucky stars that this year's much-touted El Nino event didn't arrive on the scene Down Under earlier than now, or wheat production this season might have been severely curtailed.

Much of western New South Wales sweltered in near-record heat today as temperatures soared to the high 30s and low 40s. In some parts of the far west of the state highs of 46 degrees were hit, and tomorrow is forecast to be even hotter.

The current record heat wave, which has caused kernel-shriveling that will reduce wheat yields, became established in a very dry October where conditions damaged wheat in the top 2 producing states of Western Australia and New South Wales, say Martell Crop Projections.

Victoria also report crop damage and reduced yield expectations.

Friday, 20 November 2009
Analysts Cut Australian Wheat Crop Estimates As Temperatures Hit 46 Degrees

November temperature records are being broken all over eastern Australia, with much of New South Wales seeing the mercury hit 10 to 20 degrees above their November average today. [more abnormal weather destroying production]

The hottest today was felt through the Upper Western where Wanaaring and Brewarrina reached 14 degrees above average at 46 degrees, making it their hottest November day on record. Other November records broken through the state were at Cobar, Condobolin, Forbes and Trangie all reaching a toasty 45 degrees, according to Elders Weather.

With the wheat harvest well underway lower yields than expected are being reported, not just in NSW but also Victoria and Western Australia. Current sweltering temperatures may knock a bit more off yields yet in late maturing crops, analysts say.

Profarmer Australia yesterday cut their Australian wheat production estimate by 1 MMT to 20.9 MMT, whilst Commonwealth Bank of Australia lopped 700,000 MT off their output ideas to 21.6 MMT.

Both estimates are considerably lower than the hapless USDA's current stab in the dark of 23.5 MMT. [Agreed]

Friday, 20 November 2009
Things Could Be Worse, You Could Be Indian

Food inflation running at 14.55%, prevented from importing foreign wheat in bulk by the strictest quarantine regulations in the world. Whilst the government sits on it's supposed stocks of 27 MMT of wheat, which it will only sell if you want to pay well over the market price for it.

And this is a government who got elected on their promises of cheap food for all. Is it just me, or is there something innately immoral about buying USD6.7 billion worth of gold from the IMF whilst the people are starving?

Subsequently smarting at allegations that they are a load of profiteers who are so bent that they can't lie straight in bed at night, the government are now said to be 'considering' lowering their minimum tender price for wheat from a laughable USD292-USD365/tonne to the equivalent of USD240-290/tonne.

Well whoopee do. Considering that they've been 'considering' whether to release any wheat or not for months now, I wouldn't go holding my breath for a snappy decision on that one.

They should try 'considering' that the average Indian on the street can't afford to be paying almost 15% more than last year for his food, and get their fingers out.

Sell their domestic stocks off cheap, what are they there for food security or profit? Failing that, waive the strict import regulations as they did back in 2006. Nobody can seriously tell me that the wheat in the state granaries is better quality than the French or German material that Egypt just bought at below USD200/tonne yesterday.

Meanwhile, the opening day of parliament was adjourned yesterday after angry farmers marched through the streets of Dehli, protesting against low state-set sugarcane prices. The dispute may delay cane crushing in Uttar Pradesh, pushing domestic sugar prices even higher, and could also affect early sowing of wheat, farm leaders said.

Friday, 20 November 2009
Breaking News

Just popped up on the screen that China's CNGOIC website says that the regular weekly government soybean and corn auctions that have been in operation since September are to cease from Dec 1st. No explanation offered. [evidence suggesting strong demand for soybean imports in 2010]

That might get the market going this afternoon, particularly after yesterday's strong sales and exports news.

The thoroughly excellent Agrimoney.com say that "this left US soybean sales for the 2009-10 marketing year, which only started in September, at more than 70% of Washington's full-year forecast already" which is a pretty startling statistic, I'm sure you'll agree.

US sales to China, which have been running at almost a million tonnes a week recently, look like continuing unabated.

Chinese soybean imports are expected to be around 3.5 MMT in November, rising to 4 MMT each in Dec and Jan, with the vast majority of that set to come from the US, before the Brazilian harvest gets into full swing.

Friday, 20 November 2009
Rice Market Simmering Nicely

Whist the poor monsoon season slashed Indian summer rice production, flooding in the south of the country is seen doing likewise with winter rice output, analysts say.

That could leave India needing to import 3-5 MMT of rice next year, which considering that they are normally an exporter of around 4.5 MMT, is a pretty significant turnaround.

This would be the first time India has needed to import rice in more than twenty years, and also coincides with a pick up in demand from the Philippines, who have had their own production slashed by a series of typhoons.

India lost 18% of it's summer rice crop and could lose a similar proportion of it's winter production, analysts say.

That would slash stocks perilously low to under 1 MMT, without imports, and that is only enough to keep hungry India going for just four days.

Government mandates insist that state food agencies hold minimum stocks of 5.2 MMT of rice, pushing import requirements up above 4 MMT in 2010.

Strangely, the Commerce and Industry Minister Anand Sharma told reporters today that the government "have adequate stocks" after refusing to offer a subsidy to state-run companies looking to import rice.

Friday, 20 November 2009
Ukraine: The Golden Goose Is Dead (Maybe)

Rumours are sweeping the market that Ukraine Rail has failed to restructure its debt on a bond owed to Barclays Bank.

This rumour is compounded by speculation that a second bond is near default - one that is underwritten by Ukraine's government and owed to Deutsche Bank.

That's got the currency markets spooked and we are back to a flight to safety, which sees the unpopular pound taking a spanking in the corner down to USD1.6475.

On a separate issue, to highlight just how badly the bottom has fallen out of the agricultural market in Ukraine, the production of tractors for agriculture and forestry purposes fell by 85.1% in January-October 2009 year-on-year, according to the State Statistics Committee.

The production of seeders shrank by 81.5% and the production of disk harrows fell by 85.7% during the same period, they add. [another example of low prices = lower production]

Friday, 20 November 2009
Here's An Interesting Thing

Figures out today from the Russian customs department show that they exported just over 2 MMT of wheat in October, bringing exports for the current marketing year so far (July/Oct) to just under 7 MMT.

What's so interesting about that, you rightly ask?

One of the takers in October was ultra-fussy we don't need to import anything India with 24,600 MT, apparently. [evidence suggesting strong demand for soybean imports in 2010]

The Wallaces Farmer reports that it was a phenomenal year for U.S. soybean exports.

It Was a Phenomenal Year for U.S. Soybean Exports
Record soybean exports from the United States were reported for the recently ended 2008-2009 soybean marketing year.
Compiled by staff
Published: Oct 28, 2009

The U.S. Soybean Export Council has released key export data for U.S. soy export marketing year 2008-2009, which ended September 30, 2009. It was a phenomenal year for exports with the third record year of soybean exports in a row and over 55% of the U.S. 2008 soybean crop exported. Soybean exports were up 11% from the previous marketing year.

Iowa Soybean Association director of market development Grant Kimberley expects strong demand to continue for soybeans and soy products.

"As people continue to improve their diets by consuming more meat protein, world demand is projected to remain strong for soybeans and soybean meal," says Kimberley. "International marketing is one of ISA's top priorities, and we will continue our work to build demand and create customer preference for Iowa and U.S. soybeans."

China was by far the top soybean export market with over 686 million bushels, followed by Mexico with 113 million bushels. Mexico was the top soybean meal export market and India was the top soybean oil export market. [evidence suggesting strong demand for soybean imports in 2010]

Dewitt-ee.com reports about farming in 2009 in Arkansas County.

Farming ’09
By Christina Verderosa
November 18, 2009

[Arkansas]

Jared Holzhauer, who farms along with his father in Gillett, had no doubt the weather affected his operations, “negatively.”

His rice crop turned out well, but “We had beans that drowned,” Holzhauer said. “The later rains effected the seed quality,” resulting in problems with mold and seed stain.

The biggest long-term impact of the record rains looks like it will be on the 2009-10 wheat crop. Between low prices and the delays from the weather and late soybean harvest, Bell is estimating the wheat crop for Arkansas County will be down 90 to 95 percent. Mike Merritt of Farm Inc. gave some more specifics.

On Monday, Merritt said the price of wheat has rallied a bit to $5.40 a bushel, but that’s still a far cry from what it was just a few years ago. A number of farmers had already decided against planting wheat and the weather delays “sealed the deal.” Merritt said. “Yields start hurting after Thanksgiving.” Adams estimated that wheat acres, which dropped to 25,000 last year from a peak of 100,000 about five years ago, will drop even further.

Some local farmers had decided to drop wheat even before the rains came. Holzhauer said the price was the main reason he decided to forgo wheat. Weather is also still a concern. “We’ve had too many close calls on frosts [in the past few years],” Holzhauer said. [another example of low prices = lower production]

Graves normally plans to grow wheat but won’t this time.

“If I don’t have wheat to mess around with, I could have a pretty good bean crop next year,” Graves said. “And I won’t have to worry about geese in the wheat.”

“Usually I try to plant wheat every year,” Graves said. The trend is not just in the county, but also statewide. He said a USDA representative had said that the Arkansas wheat crop is 26 percent planted. “I’d like to know where that is,” he said.

Pjstar reports that Illinois harvest still slow.

Illinois harvest still slow
Most soybeans are in, but yields are disappointing
By STEVE TARTER (starter@pjstar.com)
of the Journal Star
Posted Nov 16, 2009 @ 08:42 PM

[Illinois]

EDWARDS — The wet weather kept Ross Pauli from getting into his field near Edwards on Monday but he figures he's still ahead of a lot of other area farmers.

"We're done with the soybeans and we've harvested about 70 percent of the corn," said Pauli.
…
Pauli called his bean crop "very disappointing" this year. "Yields are off considerably from last year," he said.

While he averaged 50 bushels of soybeans an acre last year, this year's bushel counts were in "the low 40s and some even in the 30s" per acre, said Pauli, citing the area's unusually cool, wet weather as one of "the factors that were against soybeans this year."

Those cool, wet conditions made white mold more of a problem for beans than usual in this area, he said. "That mold often hits soybeans grown in Wisconsin and Minnesota because of the cooler weather up there. This year, we had that kind of weather," said Pauli.

A shortage of good growing days was also cited. "A lot of soybeans didn't get in until June because it took farmers so long to get the corn in this year. Beans like a lot of sunlight and we had a lot of cloudy days this year," he said.

Delmarvanow.com reports that storm floods roads and fields.

November 18, 2009
Storm floods roads, fields
Nor'easter closes schools, roads in five-day rain event
By Ceri Larson Danes and Ted Shockley
Staff writer

[Virginia]

GROTON TOWN --Real-estate agent Toni Trepanier heard the noise around 1:30 a.m. Friday -- "this metal noise," she said -- and she heard her dogs begin to bark anxiously.

"I said, 'Oh my God, what's that?'" said Trepanier, who lives in a large home in this small settlement near Mappsville, Accomack County.

It was the roof of her barn, which was ripped off and flung into her yard during the teeth of last week's nor'easter, which dumped more than 7 inches of rain in Painter -- more in other areas -- and produced wind gusts up to 60 mph.

The nor'easter combined with the remnants of Tropical Storm Ida to produce rain over parts of five days and wind that soaked roads, canceled schools and damaged buildings.

Bobby Isdell, acting administrator of Virginia's Department of Transportation in Accomac, said the department would begin cleaning debris and noting drainage problems when the storm ends.

…
Oyster flooding

Low-lying Oyster experienced flooding Thursday that rivaled Hurricane Isabel, the 2003 storm that caused damage in the area.

"It wasn't Isabel, but it was pretty close to it," said Dave Fauber, an Oyster resident. "It was pretty bad."

…
Farm report

With farmers busy harvesting soybeans and planting cover crops like barley and wheat, rain from this week's nor'easter will likely provide a significant delay.

"It's going to set us back two weeks," said Bill Shockley, agricultural extension agent for Northampton County on Friday morning as he conducted a damage assessment throughout the county.

"The next few days are going to tell us a whole lot."

He estimated 50-60 percent of the soybeans in the county had been harvested.

The Times Dispatch reports that Virginia crop outlook muddied by deluge.

Va. crop outlook muddied by deluge
JOHN REID BLACKWELL TIMES-DISPATCH STAFF WRITER
Published: November 17, 2009

[Virginia]

Last week's torrential rainfalls have caused damage and delays to some Virginia farm crops, but the extent of losses is unknown, some agriculture experts said yesterday.

Several crops that were recently planted or still in the fields were hurt by the widespread, three-day deluge, including winter wheat, barley and soybeans, said Molly Payne Pugh, executive director of the Virginia Grain Producers Association.

"There is definitely going to be damage," Pugh said. "I don't have a good feel for how much yet. Right now, we are assessing."

Pugh said she and her husband planted about 400 acres of red winter wheat on their farm in Tidewater.

After last week's storm, "we know for sure that we won't see at least 100 acres of that," she said.

Soggy ground conditions could prevent farmers from replanting any lost winter wheat in time to make a good crop. Winter wheat produced about $135 million in cash receipts for Virginia farmers in 2008.

The state's soybean and cotton crops also are a concern now because the rain further delayed an already late harvest.

The Michigan Farmer reports about Snow, Slush and Discouragement.

Snow, Slush and Discouragement Give Way to Blue Skies
Posted on November 17, 2009 at 8:50 PM

[Kansas]

Well, the reprieve for getting crops harvested proved to be short-lived. We had a few days of nice weather, then a whale of a whammy this week.

The weird thing for south-central Kansas is that three days of rain, cloudy weather and downright dreary conditions STILL did not produce a freeze OR a killing frost. So those folks hoping for frozen ground to get into corn and milo fields are out of luck. And the green crops are still green, which just might be a blessing.

Producers fighting soybean shatter are in a world of hurt because this weather just makes their challenge even worse.

Now, the good news. Blue skies were visible to the west from my vantage point in Wichita tonight, and the forecast is for warmer weather with breezy conditions for several days. Maybe, just maybe that means harvest for at least some folks.

My reaction: Dynamics for disaster are playing out in agricultural markets. Demand for imports increases while production falls. Once distressed sellers like Ukraine are done selling, prices will begin to move higher.

Britain Risks 'Debt Spiral'

2009-11-20T20:55:00.000-08:00

The Telegraph reports that OECD warns Britain risks 'debt spiral'.

(emphasis mine) [my comment]

OECD warns Britain risks 'debt spiral'
Britain is at growing risk of a "public debt spiral" unless the Government takes "drastic" action to cut the deficit, according to the OECD, world's leading economic institution.
By Edmund Conway
Published: 19 Nov 2009

The Organisation for Economic Co-operation and Development said that even if Britain reduces its deficit in line with other leading nations, it will still have the rich world's biggest deficit from now until 2017 and potentially beyond, casting serious doubt on its economic credibility.

The warning coincided with shocking public finance statistics showing that public borrowing in October was 88 times what it was in the same month last year, making it likely that the Chancellor will miss his £175bn borrowing forecast this year.

The double blow is acutely embarrassing for Downing Street, coming ahead of next month's pre-Budget report and only 24 hours after it pledged to create a Bill to halve the deficit within four years and to reduce debt every year for the coming decade.

In fact, the OECD predicted in its annual Economic Outlook, Britain's deficit was likely to be even higher next year than this year, at 13.3pc, raising the prospect that the Government could break its own law in its very first year.

Britain's deficit will remain higher than any other major country, including even Iceland and Ireland, unless the Government takes far more drastic action to repair it, said the OECD's acting chief economist Jørgen Elmeskov.

"Halving the deficit would be a start, but since the UK is starting out from a deficit which is in double figures, one should go further still," he said. "The concern is that there could be a cost spiral - where debt increases, hitting confidence in the market, which pushes up interest rates, and this leads to even higher deficits."

The prospect of interest payments on Britain's rapidly growing debt rising to 12pc of tax revenues has already prompted Standard & Poor's to issue a warning about the security of the UK's credit rating.

The OECD said that it expected the total gross debt levels owed by the British Government to rise from below 50pc of GDP in 2007 to 120pc of GDP by 2017. This would be higher than any other G7 economy apart from Japan, whose gross debt would reach an unprecedented 223pc of GDP. [Japan, Britain, and the US all face currency collapses]

The OECD, which predicted that growth in the rich world would recover this year at a "tepid" rate, also forecast that Britain's economy would grow by 1.2pc in 2010, having contracted by 4.7pc this year.

Its UK debt warning came as the Office for National Statistics said that public sector net borrowing in October was £11.4bn - a record for the month. The shortfall, caused by a slump in tax revenues and the increased cost of supporting the unemployed, leaves the deficit almost treble that of last year. October normally shows a surplus as corporation tax receipts arrive.

Shadow Chancellor George Osborne said: "Today is a defining moment in the debate about Britain's debt - the moment when we see that Gordon Brown has not just lost control of the public finances but lost the economic argument about the debt crisis.”

My reaction: Britain fiscal position is spinning out of control.

The Bank of England’s ballooning toxic assets

The chart below from Cumberland Advisors offers a visual depiction of the balance sheet of the Bank of England. Notice that “other assets” (ie: toxic assets) now make up most the Bank of England’s assets.

Like the Federal Reserve, the Bank of England is running out of room on its balance sheet. The only way it can keep buying UK debt (and funding the UK budget deficit) over the next year is by significantly increasing the size of its balance sheet (printing a lot of money).

Conclusion: Everything is reaching the breaking point as we approach the end of 2009. I would like to repeat the advice I gave a eight months ago when I wrote about Britain monetizing its national debt.

The pound and the dollar are dead. I urge anyone who owns dollars or pounds to buy physical gold, euros, Swiss francs, or anything else for that matter. The dollar and the pound are about to become the two worst performing asset classes on the planet.

Fed Buys Another 71 Billion Mortgage-backed Securities

2009-11-19T21:02:00.000-08:00

The Fed has bought another 71 billion mortgage-backed securities in the last week, as you can see in the chart below,

Two important points to note:

1) The Fed's balance sheet is now overflowing with assets it cannot sell: Treasury securities (politically difficult to unload in large numbers) and toxic assets (no one wants to buy them).

2) The Fed can’t keep buying more US debt (ie: treasuries and mortgage debt) without expanding its balance sheet (essentially printing more money).

-------------

Martijn said...
It would be nice if you'd post the historic balance all the way up from the 30s or so. That shows quite nicely how it has been slowly building up until august 08 and than exploded. class="Section1">

Here is the same chart as above going back to 2002.

49 mn Americans food insecure: USDA study

2009-11-19T01:13:00.000-08:00

Commodity Online reports that 49 million Americans food insecure.

(emphasis mine) [my comment]

49 mn Americans food insecure: USDA study
2009-11-17 23:50:00

CHICAGO (Commodity Online): The U.S. Department of Agriculture's Economic Research Service reported on Monday that 49 million Americans, including nearly 17 million children, are food insecure. The 2009 report on Household Food Insecurity in the United States paints an alarming picture of the pervasiveness of hunger.

This is an increase of 36 percent over the numbers released one year ago by the USDA, which found that 36.2 million American were at risk of hunger. "It is tragic that so many people in this nation of plenty don't have access to adequate amounts of nutritious food," said Vicki Escarra, president and CEO of Feeding America. "Although these new numbers are staggering, it should be noted that these numbers reflect the state of the nation one year ago, in 2008. Since then, the economy has significantly weakened, and there are likely many more people struggling with hunger than this report states.

The new data reinforces recent findings from a research study conducted by Feeding America, the nation's leading hunger-relief organization, reflecting a dramatic increase in requests for emergency food assistance from food banks across the country.

Conducted in September, the Feeding America study shows that its network food banks experienced an average increase in need of nearly 30 percent this year. While the numbers vary geographically, some food banks are reporting increases of more than 50 percent in requests for emergency food assistance over a year prior.

"National socio-economic indicators, including the escalating unemployment rate and the number of working-poor, lead us to believe that the number of people facing hunger will continue to rise significantly over the coming year," added Escarra. "Research on previous economic recessions indicates that people who fall into the grips of poverty in a time of recession do not recover financially. Many of those people are likely to be in need of our services now or in the future.

"Feeding America's 200 food banks continue to work on the front lines feeding more than 25 million people each year, through our country's food pantries, soup kitchens, and emergency feeding centers - more than 63,000 agencies in total," said Escarra. "These establishments, many of which are grass root and faith based centers operated solely by volunteers, serve as an oasis for the more than 4 million people who seek relief weekly to help feed themselves and their families. Emergency food assistance is a critical link in the nation's response chain to help people through times of crisis."

Escarra observes, "Our network food banks are calling us every day, telling us that demand for emergency food is higher than it has ever been in our history. Feeding America will continue to work closely with our partners at USDA to ensure that the public and charitable sectors are keeping pace - as best we can - with the dramatically increasing needs for food assistance." [Imagine what is going to happen as food prices double then triple over the next few months as the dollar/food panic unfolds]

Feeding America provides low-income individuals and families with the fuel to survive and even thrive. As the nation's leading domestic hunger-relief charity, our network members supply food to more than 25 million Americans each year, including 9 million children and 3 million seniors. (Courtesy: PRNewswire)

Commodity Online reports that US role in world economy shrinking alarmingly.

US role in world economy shrinking alarmingly
2009-11-18 09:15:00

BALTIMORE, USA (Commodity Online): For the first time in 200 years, American consumers are no longer the driving force behind the world's economy. In his book, Fiscal Hangover, Keith Fitz-Gerald--one of the world's leading experts on global investing--picks apart every important change and identifies unprecedented opportunities.

Investors will discover how the U.S. role in the world economy is shrinking at unheard-of rates; how and why government intervention may well prevent the U.S. markets from normalizing in years to come; why Asia is already well on its way to becoming the next great financial center; and why China's Yuan is quietly replacing the U.S. dollar as the world's reserve currency.

Commodity Online reports that dollar collapse to ravage US economy and Obama.

Dollar collapse to ravage US economy and Obama
2009-11-18 08:35:00
By Christopher G. Galakoutis

…
As discussed last post, I don’t believe the US will resort to outright money printing as per Weimar Germany in the 1920’s or more recently Zimbabwe. The bond market has a gun to Ben Bernanke’s temple, and is telling him in no uncertain terms that if he were to drop dollar bills from helicopters, he would get his head blown off. Think of it as the bond market staring down the Fed and telling it that the dollar had better start behaving like gold. [This is flawed logic. The reason Bernanke will print money like a madman is to prevent the treasury market from collapsing.]

All sides agree we will see deflation in terms of gold. What happens in nominal terms is the big question. A bond market up until now going along with Fed actions is not signaling that the Fed has or will lose control of the dollar. ~~In fact, it is signaling the opposite~~ [The Fed has bought over 1 trillion US debt in the last year. This is the only reason interests rates aren’t higher]. ~~Bernanke’s SAT score was 1590 out of 1600. He’s no dummy~~ [Bernanke’s intelligence is irrelevant, he is a mere pawn of the US Treasury department]. He knows who his bosses are, and he will do what they ask [The US treasury (Bernanke’s master) will demand he print money]. He and the government tipped their hands in that respect during the crisis, when they chose who they chose to bail out in a massive way, while the first tent cities where going up across the country.

That leaves a loss of confidence in all paper currencies and specifically a collapse of the US dollar as the only other trigger that takes gold to much higher levels. But that would also mean the US’s friends and allies turning their backs on this country at a time when it could be argued the US is most in need of their continued support. [The global food crisis which will start in two or three months, will cause the world to abandon the dollar]

It would mean the world turning its back on a new administration and a new president loved the world over. And whom might the world have to deal with next, should a collapse of the US dollar ravage the economy and Obama in 2012?

If the world turning its back, and dumping the dollar in a coordinated effort, is the scenario that plays out, then holding dollars will prove to be a bad move. But I don’t see that scenario playing out [if you were aware of the global 2009/10 food shortage, you would]. Sure, at some point foreign creditors will tighten the screws on the US, and it won’t be able to borrow as much as it has been. That is the day of reckoning I have written about.

That is when the US will be forced to make the tough choices. That is, cut deficits and perhaps negotiate repayment terms on its debts. I suppose those are the key issues that all of these arguments rest on.

Will the US make the tough choices and retain some semblance of self-respect [no way in hell], or will it simply print money and go the way of Zimbabwe? [Anyone who even has to asks this question knows nothing of history or how the world works.]

I would argue that anyone who believes there is no difference between a Zimbabwe and the US [me] -- in that the US takes the easy way out and literally prints greenbacks to pay off creditors -- simply does not understand how the world works [you kidding me? THE US HAS ALWAYS TAKEN THE EASY WAY OUT THE EASY WAY OUT IN THE LAST FEW DECADES. Did the US deal with social security crisis, the budget deficit, the trade deficit, etc? No. The Idea that the US would start being responsible at this point is ludicrous], and should they be investing in anticipation of such an outcome, will be looking at substantial loses in the near future [bullshit].

My reaction: It isn’t a pleasant subject, so I don’t write about it too often. Things are going to get much worst in the US over the next year.

With 49 million Americans food insecure and a looming global food shortage/dollar collapse, it shouldn’t take too much imagination to understand just how bad things will be. I have already written about the potential for famine in the US earlier this year…

The imminent collapse of the dollar leaves the US vulnerable to Famine.

1) There is no fixed relation between food and famine.

2) Many large famines have taken place despite moderate-to-good food availability

3) A famine develops when a sizeable number of people lose the economic means of acquiring food.

4) This can result from unemployment or from a sharp drop in earnings compared with food prices (ie: hyperinflation), even when there is no fall in food output or supply [although food shortages do also increase the potential for famine].

5) Market-based movements of food are related to demand and purchasing power.

6) The general prevalence of poverty and weakness of the economy in the country or region is an important pre-requisite for famine.

7) The sense of distance between the ruler and the ruled (between 'us' and 'them') is a crucial feature of famines. [ie: the distance Goldman and the average American]

Conclusion: Famine is caused by sudden loss of purchasing power by a portion of the population already living near poverty. If the dollar collapses and the food stamps one out of nine Americans depends on become worthless, the US would meet all the criteria for a potential famine.

Famine in Weimar Germany as an example

In January 1922, hyperinflation exploded in Germany. By December 1922, Germany was unable to feed its population or provide employment for even 60 per cent of the labor force. People began to die in the streets from starvation and hypothermia…

USDA Designates Mississippi As Disaster Area

2009-11-18T13:50:00.000-08:00

The Daily Comet reports that USDA designates 79 Mississippi counties as disaster areas.

(emphasis mine) [my comment]

November 18, 2009
79 counties declared disaster
$500M in Miss. crops damaged by heavy rain, drought
LaRaye Brown

The federal government on Tuesday agreed to assist the state's farmers after excessive rains in the spring and fall and a summer drought damaged nearly $500 million in crops.

The Department of Agriculture designated 79 of the state's 82 counties natural disaster areas, opening the doors for farmers to apply for federal assistance programs. Farmers in three other counties - Kemper, Neshoba and Newton - also will be able to apply for assistance because they are contiguous to those declared primary disaster areas.

Among the state's five largest crops - soybeans, corn, cotton, rice and sweet potatoes - losses total more than $459.4 million, Mississippi State University's Agricultural Extension Service estimates show.

Tuesday's disaster declaration gives farmers up to eight months to apply for low-interest loans. They also can apply for the Supplemental Revenue Assistance Program, or SURE.

If approved for SURE, farmers could receive grant payments to help make up for revenue losses not covered by crop insurance. In order to apply for SURE, farmers must have crop insurance.

"It's a start," said George King, who farms in Chatham, about 25 miles south of Greenville, a region of the state hit hard by excessive rainfall. He won't be sure how he feels about the declaration until he learns more about the programs being offered. "A lot of those programs are hard to qualify for."

In this, his 22nd crop, King got only 40 percent of his expected yield on cotton and had to leave some soybean acreage unharvested because of excessive damage. This was the first time he had to plow over crops.

It's been a year of painful firsts for many farmers. Spring rains forced them to plant late or washed away seeds, leading many to replant.

Recent unseasonably heavy rains kept farmers from harvesting. What was harvested was of poorer quality and - in many instances - excessive moisture rotted crops which had to be plowed over.

To qualify for the declaration, counties had to show at least 30 percent crop damage.

The state office of the Farm Service Agency did not release information about losses in counties. But MSU Extension Service figures show many crops will take substantial hits this year.

The state's sweet potato crop is expected to record about a 64 percent loss. Soybeans are down nearly 44 percent and cotton suffered a 48 percent value loss.

The Daily Comet reports that disaster declaration for farm losses in 5 states.

Disaster declaration for farm losses in 5 states
The Associated Press
Published: Wednesday, November 18, 2009 at 7:00 a.m.
Last Modified: Wednesday, November 18, 2009 at 7:00 a.m.

JACKSON, Miss. - Federal agriculture authorities have declared disaster areas in parts of Alabama, Arkansas, Louisiana, Mississippi and Tennessee due to crop losses from a combination of severe spring and fall flooding and summer drought.

Agriculture Secretary Tom Vilsack said the declaration will "provide help to hundreds of farmers who suffered significant production losses to a wide variety of crops."

The declaration qualifies many farmers in the designated areas for low interest emergency loans from the U.S. Department of Agriculture's Farm Service Agency.

The primary disaster areas are in 79 Mississippi counties and contiguous counties and parishes in the other states.
…
To qualify for the declaration, counties and parishes in the five states had to show at least 30 percent crop damage.

"Unless something equivalent to the wasted money that we put into the (banking) bailout is done for farmers, they are going to have a long, difficult road, after which they still may not be able to come out of this," said Ernie Flint, an agronomist with MSU's Extension Service.

Flint said many farmers had debt before this season and giving them new loans - even if they are low interest - will only add to the burden.

Mississippi Gov. Haley Barbour began the process of getting the disaster declaration last month when he wrote a letter to the USDA asking the state's Farm Service Agency to begin tallying damages.

"While I am pleased these areas can qualify for much-needed assistance, we have to understand this crop disaster will continue to put downward pressure on tax revenues," Barbour said in a statement Tuesday. "The important agriculture sector faces a long road to recovery, just as does the state's economy as a whole."

The Daily Comet reports that USDA designates 79 Mississippi counties as disaster areas.

79 Mississippi counties disaster areas
Nov 17, 2009 4:50 PM

The U.S. Department of Agriculture has designated 79 counties in Mississippi as primary natural disaster areas due to losses caused by the combined effects of severe spring and fall flooding, and summer drought, that occurred March 1, 2009, and continuing.

The 79 counties are:

Adams, Alcorn, Amite, Attala, Benton, Bolivar, Calhoun, Carroll, Chickasaw, Choctaw, Claiborne, Clarke, Clay, Coahoma, Copiah, Covington, De Soto,

Forrest, Franklin, George, Greene, Grenada, Hancock, Harrison, Hinds, Holmes, Humphreys, Issaquena, Itawamba, Jackson, Jasper, Jefferson, Jefferson Davis, Jones,

Lafayette, Lamar, Lauderdale, Lawrence, Leake, Lee, Leflore, Lincoln, Lowndes, Madison, Marion, Marshall, Monroe, Montgomery, Noxubee, Oktibbeha,

Panola, Pearl River, Perry, Pike, Pontotoc, Prentiss, Quitman, Rankin, Scott, Sharkey, Simpson, Smith, Stone, Sunflower,

Tallahatchie, Tate, Tippah, Tishomingo, Tunica, Union, Walthall, Warren, Washington, Wayne, Webster, Wilkinson, Winston, Yalobusha, and Yazoo.

“President Obama and I understand these conditions caused severe damage to the area and serious harm to farms in Mississippi and we want to help,” said Agriculture Secretary Tom Vilsack. “This action will provide help to hundreds of farmers who suffered significant production losses to a wide variety of crops including corn, cotton, rice, soybeans, wheat, pasture and forage crops.”

Farm operators in Kemper, Neshoba and Newton counties in Mississippi also qualify for natural disaster assistance because their counties are contiguous.

Farm operators in the counties and parishes listed below in the adjacent states of Alabama, Arkansas, Louisiana and Tennessee also qualify for natural disaster assistance because their counties are contiguous.

Alabama: Choctaw, Colbert, Franklin, Lamar, Lauderdale, Marion, Mobile, Pickens, Sumter and Washington.

Arkansas: Chicot, Crittenden, Desha, Lee and Phillips.

Louisiana: Concordia, East Carroll, East Feliciana, Madison, St. Helena, St. Tammany, Tangipahoa, Tensas, Washington and West Feliciana.

Tennessee: Fayette, Hardeman, Hardin, McNairy and Shelby.

All counties and parishes listed above were designated natural disaster areas Nov. 13, making all qualified farm operators in the designated areas eligible for low interest emergency (EM) loans from USDA’s Farm Service Agency (FSA), provided eligibility requirements are met.

Below is the updated graphic showing counties designated as disaster areas by the U.S. Department of Agriculture (data from USDA).

My reaction: The USDA has basically designated the entire state of Mississippi as a natural disaster area.

But don’t worry, the USDA is also projecting a near record Mississippi soybean crop (sarcasm)! Just look at the chart below.

Conclusion: According to the USDA, both of the following is true:

1) 79 of the Mississippi’s 82 counties have suffered at least 30 percent crop damage.
2) Mississippi soybean production is only going to fall 1.7% from last year's record breaking crop.

Amazing…

China Plans To Drop Dollar Peg to Slow Inflation

2009-11-17T21:04:00.000-08:00

The Globe And Mail reports that China sets plan to let currency move higher.

China sets plan to let currency move higher
Andy Hoffman and Barrie McKenna
Nov. 11, 2009

China signalled it will allow its currency to appreciate against the U.S. dollar, bowing to international pressure days ahead of a visit from U.S. President Barack Obama.

The move to allow the yuan to rise against the greenback would provide much-needed relief to countries trying to compete against China's mighty export machine and put further downward pressure on an already battered U.S. dollar.

China's latest quarterly monetary policy report said its foreign exchange policy will now consider “capital flows and changes in major currencies,” indicating China will carefully expose the yuan's value to fluctuations in global markets.

The statement avoided the government's usual boilerplate language of keeping the yuan “basically stable at a reasonable and balanced level.”

China's trading partners have complained the government keeps the yuan at artificially low levels, providing an unfair price advantage for China's goods as they compete for market share around the world. Until now, China has largely ignored calls for greater currency flexibility.

The decision to allow the yuan to climb also points to the maturing of China's rapidly expanding economy, while giving its people and companies more purchasing power for goods and assets produced outside the country.

“China is exporting blood and sweat and importing copper and oil. Is that really good in the long term? You are sacrificing the local people's purchasing power in pursuing export growth,” said Na Liu, China analyst at Scotia Capital.

The rise in the yuan is expected to be gradual and is not likely to occur until next year. Still, China is likely to quickly draw increased capital flows into the country as international investors aim to benefit from an eventual rise in the currency and local assets. But that trend brings the risk of potential unsustainable bubbles in its real estate and stock markets.

Other Asian exporting countries such as South Korea, Singapore and Thailand, which should be able to compete better with China as the yuan appreciates, are likely to follow suit and let their currencies appreciate as well.

“A little gradual appreciation in the yuan will not naturally hurt China's exports because other Asian countries will follow,” Mr. Liu said.

China's currency has been pegged to the U.S. dollar since July of 2008 in an effort to shield exports from the global recession. But the latest economic data released Wednesday suggest a recovery is well under way in China. Industrial production rose 16.1 per cent in October, the most since March of 2008. Exports declined 13.8 per cent, the smallest drop recorded this year.

“It was inevitable,” Benjamin Reitzes, an economist at BMO Nesbitt Burns said of China's hint it will shift its foreign exchange policy.

“The reason they can do it now is because they see external demand from the global economy is improving,” he added.

Bloomberg reports that China will allow yuan gains to slow inflation.

China Will Allow Yuan Gains to Slow Inflation, Riverfront Says
By Allen Wan

Nov. 11 (Bloomberg) -- China will allow for faster appreciation of the yuan against the dollar next year as it seeks to curb accelerating inflation, according to Riverfront Investment Group and RBC Capital Markets.

“China can either let the yuan appreciate or allow inflation to accelerate at the risk of causing social unrest,” said Michael Jones, who manages $1.4 billion in stocks, including Chinese equities, at Richmond, Virginia-based Riverfront. “Inflation pressures will push China to allow substantial yuan appreciation.” [this is what I have been predicting]

The world’s third-biggest economy expanded 8.9 percent in the past quarter, the fastest pace in a year, according to official data. Money supply increased a record 29.4 percent in October from a year earlier, the central bank said today.

“Rapid Chinese money supply growth led to inflation in 2004 and 2008," Jones said. "It ~~could~~ [will] happen again."

He predicts the inflation rate may rise as high as 7 percent next year, with food prices double that estimate. Under that worst-case scenario, Chinese policymakers may be forced to revalue the currency by 25 percent, Jones said.

Consumer prices fell 0.5 percent last month, the smallest drop since declines began in February, according to a Bloomberg survey. Prices will rise 2.7 percent in 2010, according to the average of 16 economist estimates compiled by Bloomberg.

"Pressure from the international community to allow yuan appreciation is not that big," People's Bank of China Governor Zhou Xiaochuan said Nov. 6.

Economic Stimulus

China's 4 trillion yuan ($586 billion) stimulus spending and record lending may lead to a pick-up in inflation, prompting the government to allow for an appreciation of the yuan, said RBC's global head of emerging research Nick Chamie.

"Strong stimulus and very easy liquidity conditions are likely to stoke inflation pressures in the months ahead, suggesting that tighter policy will be needed -- currency appreciation will likely be part of the package," Chamie wrote in a note to clients.

…
"We believe that as other currencies continue to rally, China will likely resume a crawling peg strategy against the dollar," Jones said. "Such a shift in policy will likely motivate a rally as global financial markets breathe a collective sigh of relief."

'Material Revaluation'

China may resume the crawling peg as early as next week, when U.S. President Barack Obama visits the Asian country, Jones said.

Asian currencies such as the Taiwanese dollar and South Korean won may appreciate further if the yuan gains as governments in the region have been reluctant to risk further gains on concern they may become less competitive, he said.

"A material revaluation of the yuan could potentially unleash substantial domestic consumption in China, be a catalyst for a boom in global trade, and spark a secular bull market in equities,” Jones said. [“unleash substantial domestic consumption” would drastically increase the demand for food in the face of a global food shortage]

People’s Daily Online asks will China suffer from imported inflation?

Will China suffer from imported inflation?
11:12, November 12, 2009

When the shadow of the financial crisis still lingers on in the world, China's National Bureau of Statistics' recent statement that China will achieve its goal of 8 percent GDP growth for the whole year indicated its earlier recovery than other countries. Experts warned that early recovery may make China the first country to encounter inflation. In Fact, with dollar depreciation and rising commodity prices in the world market, there's now mounting imported inflation pressure on China.
…
Emerging pressure

Inflation, especially imported inflation, becomes another problem facing China. Countries around the world have injected huge liquidity into their markets.

U.S. monetary base, the stock of money in its banking system, doubled to 1.70 trillion U.S. dollars in August from 842 billion a year earlier. Central banks in Britain and Japan also implemented unprecedented loose monetary policies. In the first ten months, new Renminbi-dominated loans totaled 8.92 trillion yuan (1.31 trillion U.S. dollars) in China. Huge liquidity has generated increasing inflation expectations.

Driven by the depreciated dollar, rising commodity prices in the world market are adding the pressure of imported inflation to China. A report presented in October by Chinese Academy of Social Sciences (CASS) showed that oil prices have increased by 60 percent compared with the beginning of this year, and prices of nonferrous metal and iron ore have grown by around 40 percent. The pressure of imported inflation has increasingly direct influence on China's consumer prices.

The hike of commodity prices was the result of dollar depreciation. As Renminbi exchange rate to dollar remains stable, China will inevitably feel the pressure of imported inflation, explained Zhao Qingming, a senior researcher with China Construction Bank.

…
Zhao said China should allow Renminbi to appreciate moderately to reduce the influence of the price hike of imported products.

Bloomberg reports that dollar overwhelms central banks from Brazil to Korea.

Dollar Overwhelms Central Banks From Brazil to Korea
By Oliver Biggadike and Matthew Brown

Nov. 13 (Bloomberg) -- Brazil, South Korea and Russia are losing the battle among developing nations to reduce gains in their currencies and keep exports competitive as the demand for their financial assets, driven by the slumping dollar, is proving more than central banks can handle.

South Korea Deputy Finance Minister Shin Je Yoon said yesterday the country will leave the level of its currency to market forces after adding about $63 billion to its foreign exchange reserves this year to slow the appreciation of the won. Chile Finance Minister Andres Velasco said the same day that lawmakers approved an increase in local debt sales to finance spending, a move that will allow the government to keep more of its dollar-based savings overseas and slow the peso's rally.

Governments are amassing record foreign-exchange reserves as they direct central banks to buy dollars in an attempt to stem the greenback's slide and keep their currencies from appreciating too fast and making their exports too expensive. Half of the 10-best performers in the currency market this year came from developing markets, gaining at least 14 percent on average, according to data compiled by Bloomberg.

'Slow the Advance'

"It looked for a while like the Bank of Korea was trying to defend 1,200, but it looks like they've given up and are just trying to slow the advance," said Collin Crownover, head of currency management in London at State Street Global Advisors, which has $1.7 trillion under management.

…
International Investment

An unprecedented net $47 billion flowed into equities in India, Indonesia, the Philippines, South Korea, Taiwan and Thailand in the last three quarters, according to data compiled by Bloomberg. That eclipsed the previous full-year high of $33 billion in 2005, nine year of data show.

"The dollar is weakening because the U.S. has the lowest short-term interest rates in the world will be the sell side of the carry trade as long as that remains true," Chris Low, chief economist at FTN Financial in New York, wrote in a note to clients yesterday.

…
'Hard to Fight'

Brazil's economy emerged from a recession in the second quarter, swinging to a 1.9 percent expansion after six months of contraction, a Sept. 11 report from the statistics agency showed. Six straight months of job growth, coupled with tax breaks and record low borrowing costs, pushed up consumer spending and helped Latin America's largest economy rebound from the global financial crisis.

"I hear a lot of noise reflecting the government's discomfort with the exchange rate, but it is hard to fight this," said Rodrigo Azevedo, the monetary policy director of Brazil's central bank from 2004 to 2007. "There is very little Brazil can do," said Azevedo, who runs $1.8 billion at JGP SA in Rio de Janeiro, in an Oct. 16 interview. [Brazil could buy more dollars to weaken its currency, but that is evidently not even being considered.]

My reaction: China is signaling that it will drop the dollar peg and appreciate the yuan to contain inflation. So when food prices start rising fast in the next few months, the dollar will start falling just as fast.

Keep in mind that:

Chinese (and world) CPI numbers are about to turn positive

Below is a chart showing China’s monthly CPI. As you can see, since February, CPI numbers have been negative, but that is about to change…

The reason CPI turned negative last year was the collapse of commodity prices. Oil and agricultural commodities started trading at lower prices than they did a year yearlier, which drove the cost of food and gas down. However, this November things are about to change.

Below is a chart of oil prices last year. See the price plunged from $90 in October to $60 in November?

Oil prices are now at $80 higher, which is $20 more than a year ago. Higher year on year commodity prices will quickly start showing up as positive CPI numbers around the world and in China.

"The stimulus is working" (humor)

2009-11-17T09:02:00.000-08:00

Below is a fun clip from last week’s Saturday Night Live about how “the stimulus is working”.

Two other bits of news:

1) The Globe And Mail reports that China sets plan to let currency move higher.

2) Gold is still going up: