another site
It is oddly ironic to see BATS declare self help against EDGX (since the two are owned by the same company), and yet: here it is.
Perhaps CEO O’Brien can finally appear on twitter and explain a la Pisani how everything is running smoothly.
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You know it’s bad when… the red flashing headline that sparked the accelerating downward momentum in US equity markets to stop and reverse on a dime is…
Proving once again how insanely non-sensical this bad-news-is-good-news market has become. Fundamentals, schmundamentals. However, as we noted here, this bad news is not going to lead to the good news that stocks are hoping for…
What a farce!
Chart: Bloomberg
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Submitted by Lance Roberts of STA Wealth Management,
I have written extensively about the data behind the headline media reports. I have also discussed the importance of the relationship between the underlying data trends relative to broader macroeconomic perspectives. However, it is sometimes helpful just to view the various economic indicators and draw your own conclusions outside of someone else's opinion.
With the economy now more than 5 years into an expansion, which is long by historical standards, the question for you to answer by looking at the charts below is:
"Are we closer to an economic recession or a continued expansion?"
How you answer that question should have a significant impact on your investment outlook as financial markets tend to lose roughly 30% on average during recessionary periods. However, with margin debt at record levels, earnings deteriorating and junk bond yields near all-time lows, this is hardly a normal market environment within which we are currently invested.
Therefore, I present a series of charts which view the overall economy from the same perspective utilizing an annualized rate of change. In some cases, where the data is extremely volatile, I have used a 3-month average to expose the underlying data trend. Any other special data adjustments are noted below.
(Note: The Economic Composite is a weighted index of multiple economic survey and indicators – read more about this indicator)
If you are expecting an economic recovery, and a continuation of the bull market, then the economic data must begin to improve markedly in the months ahead. The problem has been that each bounce in the economic data has failed within the context of a declining trend. This is not a good thing and is why we continue to witness an erosion in the growth rates of corporate earnings and profitability. Eventually, that erosion combined, with excessive valuations, will weigh on the financial markets.
For the Federal Reserve, these charts make the case that continued monetary interventions are not healing the economy, but rather just keeping it afloat by dragging forward future consumption. The problem is that it leaves a void in the future that must be continually filled.
In my opinion, the economy is far too weak to stand on its own two feet. With the Fed easing off the current rate of bond purchases, it will be interesting to see what happens in the months to come. While there will certainly be positive bumps in the data, as pent up demand is released back into the economy, the inability to sustain growth is most concerning. From this perspective, it could become increasingly difficult for the Federal Reserve to remove their "highly accommodative stance" anytime soon.
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Today’s AM fix was USD 1,311.50, EUR 950.43 & GBP 784.06 per ounce.
Yesterday’s AM fix was USD 1,324.50, EUR 958.05 & GBP 792.21 per ounce.
Gold rose $8.90 or 0.68% yesterday, closing at $1,326.70/oz. Silver rose $0.04 or 0.2% yesterday to $19.99/oz.
Gold fell from a three week high today on speculation that very tentative signs of an improving U.S. economy will curb demand for the safe haven. A report yesterday showed U.S. retail sales increased more in March than economists forecast.
Gold in U.S. Dollars – Jan, 2009 to April 15, 2014 – (Thomson Reuters)
Palladium fell nearly 2% today, declining from the highest price since August 2011, after climbing the previous five sessions. Increasing tensions in Ukraine sparked concern that more sanctions will curb raw material supplies from Russia, the largest palladium producer and one of the largest gas exporters.
The worsening geopolitical tensions between Putin’s Kremlin and many governments in the West should support gold bullion and could lead to gold challenging the important psychological level of resistance at $1,400/oz. Gold has rebounded 9.1% this year after the sharp falls of last year.
Gold in U.S. Dollars – 20 Years – Jan, 1994 to April 15, 2014 – (Thomson Reuters)
Pensions ‘Timebomb’ – 85% of Pension Funds Will Go Bust
The “pensions timebomb” keeps on ticking and as societies we become less prepared by the day.
Yet another report shows that the public pension system is in dire straits. This one comes from renowned investment manager Bridgewater Associates.
The study estimates that public pension funds will earn an annual return of 4% or less in the coming years due to near zero percent interest rates and financial repression. That, in turn, would cause bankruptcy for 85% of the pension funds within 30 years, the study warns.
Public pension plans now have only $3 trillion in assets to invest so that they can pay out $10 trillion of retirement benefits in coming decades, according to Bridgewater. The funds would need an annual investment return of about 9% to meet those obligations, the report says.
Many pension plans assume they will earn 7% to 8% annual returns, an assumption which is far too high. But even in the best case scenario of the pension plans achieving those returns, they will face a 20% shortfall, Bridgewater notes.
Bridewater looked at a range of different market conditions, and in 80% of the scenarios, the pension funds become insolvent within 50 years.
A little notice report issued earlier this year by the Rockefeller Institute of Government says state and local government pension systems have very significant problems.
“Bad incentives and inadequate rules allowed public sector pension underfunding to develop,” the study says. “They mask the true costs of pension benefits and encourage underfunding, under-contributing, and excessive risk- taking, trapping pension administrators and government funders in potentially destructive myths and misunderstanding.”
It is likely that many pension funds will go bust in the medium term and this may be a crisis that looms large sooner than the Bridgewater research suggests.
Pension funds traditional mix of equities and bonds may under perform in the coming years. Many stock markets appear overvalued after liquidity driven surges in recent years. Bonds offer all time record low yields and are at all time record highs in price. They will fall in value in the coming years.
Pensions allocations to gold are exceptionally low internationally and yet gold has an important role to play in preserving and growing pension wealth over the long term.
Pension funds over exposure solely to paper assets and lack of diversification has cost pension holders dearly in recent years. This will almost certainly continue in the coming years.
Residents in the UK and Ireland, the US, the EU and most countries internationally can invest in gold in a pension – through self administered pension funds. Self administered schemes continue to offer the widest investment choice to company directors and other eligible participants. UK citizens can invest in gold bullion through their Self-Invested Personal Pensions (SIPPs), Irish citizens through their Small Self Administered Schemes (SSAS) and US citizens in their Individual Retirement Accounts (IRAs). If interested, our bullion services team who will take you through the steps required to add the ultimate form of financial insurance to protect your retirement nest egg from the coming pensions timebomb.
To conclude, respected academic and one of the leading researchers on gold in the world, Dr Constantin Gurdgiev, has this to say about the value of gold in pensions:
“Gold is a long-term risk management asset, not a speculative one. As such it should be analysed and treated predominantly in the context of its role as a part of a properly structured, risk-balanced and diversified portfolio spanning the full life-cycle of the investment and pension horizon for individual investors and those with pensions – whether they be SIPPs in the UK or IRAs in the USA.”
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Germany appears to have capitulated. The Bundesbank has dropped its opposition to extraordinary measures, like ending the sterilization of the SMP bond purchases, and has even dropped its visceral opposition to QE, if it can be structured properly to keep within the ECB’s mandate.
As Jurgen Stark’s recent op-ed piece in the Financial Times makes clear, this is not an endorsement of a new policy initiative. The former ECB board member, who resigned over the Trichet’s sovereign bond purchase scheme (SMP), argues against the need to take fresh initiatives.
Stark argues that deflation in the euro area as a whole is unlikely and that no one is even forecasting it. Even the IMF, which is urging the ECB to take unorthodox measures, forecasts only Greece to experience deflation this year. He offers the usual refrain that the drop in inflation is primarily driven by a decline in energy prices, and commodities more broadly, and the euro’s appreciation. Stark also notes that past tax increases are dropping out of measures.
Most of all Stark wants to draw a distinction between bad deflation and good deflation. Bad deflation depresses consumption as people and businesses defer purchases, waiting for lower prices. Good deflation is the relative price adjustments in the periphery to boost competitiveness.
Stark warns against the official talk of the need for urgent action. “With the economic recovery in the eurozone stabilising, and leading indicators pointing upwards, the most likely medium-term scenario is stable prices and a modest upturn over the next two years. No further action by the ECB is required.”
Perhaps, investors and other observers get too caught up with rhetoric. Many see Germany steadfast in its opposition to fresh initiatives and increasingly isolated. However, look at what is happening on the ground suggests something different. There are three separate developments that have gone largely unnoticed.
First, German consumers are shopping. In real terms, retail sales jumped 1.7% in January, the largest monthly rise since June 2011. Real retail sales rose another 1.3% in February. The back-to-back rise is the most in seven years. The March report is due out April 27.
Second, German wages are going up faster than inflation. Last month, the more than two million public sector workers got a 3% wage increase and a 2.4% increase for next year. Chemical workers struck a 14-month agreement that saw pay rise 3.7%. Last year, IG Metall negotiated a 3.4% pay in increase in 2013 and a 2.2% increase this year. Higher German wages mean that others may not have to squeeze wages down (unit labor costs) as much to restore competitiveness.
Third, Germany is buying more from other eurozone countries. In February, the latest data available, German imports from other eurozone countries are up 8.4% on a year-over-basis. Overall German imports were up 6.5% from a year ago.
We also note that the Bundesbank Target2 claims have been trending lower. In March, the claims stood at 470 bln euros, the lowest level since late 2011. This means that external imbalances within the euro area have been reduced in aggregate.
Some observers are worried that the sanctions against Russia will take a toll on Germany. Its exports to Russia were about 36 bln euros last year. This is about 4% of German exports. The ZEW survey did show a decline in investors confidence. While the events in Ukraine and tension with Russia may not be helping matters much, the expectations component has fallen for four consecutive months after reaching a multi-year high at the end of 2013. Moreover, the current assessment measure was not only stronger than expected, but stands at its best level since July 2011.
Germany is arguing against exaggerating the significance of low inflation, for which Stark teaches, the ECB does not target. Additional that additional measures will likely be ineffective and counterproductive. The last time that some the premiums that the periphery pays over Germany were this small, European officials were warning that the markets were mis-pricing risk. How much lower do the advocates of QE want those premiums and yields to go?
Moreover, there are positive developments in the German economy that are more promising for the euro area as a whole. Under the rubric of German’s ordo-liberalism, which (even) Draghi recognizes to be enshrined in the ECB, slow and steady wins the race.
via Zero Hedge http://ift.tt/1eLFF6C Marc To Market
Moments ago the Nikkei strategically leaked a report that the Japanese cabinet office, quite expectedly, will downgrade its economic assessment in its April report. “Expected” because as we reported, discretionary spending following the sales tax hike, has gotten crushed. Also not unexpected, the USDJPY took the news in stride and posted a modestly bounce in the face of today’s relentless selling of the pair. Why? Because to algos and many asset managers desperate for more training wheels from central banks (now that everyone has forgotten how to trade based soely on fundamentals), this means more QE from the BOJ right – after all horrible news for everyone is great news for the 1%.
Not so fast.
As the Japan Times reported yesterday paraphrasing Bloomberg, while the BOJ has succeeded in boosting inflation to near scorching levels, mostly for such trivial items as energy and food prices, it has failed miserably in raising wages which as we have been reporting, have failed to post even one monthly pick up in 21 consecutive months. As a result, “Prime Minister Shinzo Abe’s bid to vault Japan out of 15 years of deflation risks losing public support by spurring too much inflation too quickly as companies add extra price increases to this month’s sales tax bump.“
The report goes on:
Businesses from Suntory Beverage and Food Ltd. to beef bowl chain Yoshinoya Holdings Co. have raised costs more than the 3 percentage point levy increase. This month’s inflation rate could be 3.5 percent, the fastest since 1982, according to Yoshiki Shinke, the most accurate forecaster of the economy for two years running in data compiled by Bloomberg.
The challenge for Abe and the Bank of Japan is to keep the public focused on the long-term benefits of exiting deflation when wages are yet to pick up and, according to BOJ board member Sayuri Shirai, most people still see price gains as “unfavorable.” Any jump in inflation that’s perceived as excessive by a population more used to prices falling could worsen consumer confidence and make it harder to boost growth.
“Households are already seeing their real incomes eroding and it will get worse with faster inflation,” said Taro Saito, director of economic research at NLI Research Institute, who says he’s seen prices of Chinese food and coffee rising more than the sales levy. “Consumer spending will weaken and a rebound in the economy will lack strength, putting Abe in a difficult position.”
And something missing in central banker jargon: logic.
Accelerated inflation would squeeze households, with wages excluding overtime and bonuses declining in February for a 21st straight month, down 0.3 percent from a year earlier, according to April 1 labor ministry data. Saito, ranked No. 3 forecaster last year, sees the risk of a 3.6 percent increase in the April core consumer price index, which excludes fresh food but not energy, after a 1.3 percent gain in February.
Even Goldman is cited:
“Consumer sentiment has been undermined to a large extent by rising prices,” wrote Goldman Sachs Group Inc. economists Naohiko Baba and Yuriko Tanaka in an April 12 note, predicting “a major retreat in sentiment from April as the tax hike drives inflation.”
And the punchline for all the liquidity and bail out addicts:
An acceleration in inflation would mean it’s “very unlikely” the central bank will bolster stimulus, said Saito. Shinke said while faster price gains could prompt economists to push back the projected timing of further easing, BOJ policy will depend on the economy.
…
Shinke sees two potential paths for the economy after a inflation surge. Under one scenario, households cut spending, with a weak economic rebound from a slump after the sales tax hike putting “Abenomics” at risk. Under the other, consumer spending bounces back, supported by a tight labor market that lifts incomes.
“High inflation could push the economy either way,” said Shinke.
So while in this case bad news is certainly bad for the economy, the already scorching inflation will mean that just like the ECB, but for different reasons, the BOJ is now stuck – the economy is once again foundering but Kuroda suddenly finds himself unable to do much more to stimulate the “wealth effect” which has failed at boosting that all important component of bening inflation: wages.
Which means that all algos hoping for more horrible news out of Plan B Japan, which will provide at least a brief hiatus from the beta and momo selling, may want to be recalibrated, and to finally index their BOJ QE expectations to surging prices that threaten to send Japan into all out recession once again. A recession which most likely was assured with the April 1 tax hike anyway.
It also means that like the rest of the global central banks, Kuroda and Abe will be forced to talk up the chance of QE “any minute now”… however never actually dare to push the switch.
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It is perhaps worth reflecting on the smorgasbord of free advice given out by the talking-heads after last night's closing ramp proclaiming the dip to be bought and that everything was fixed once again. It was not. Stocks are making fresh cycle lows and the Nasdaq and Russell 2000 are both now below the 200-day moving-average and appraoching the 10% (correction) from their highs. 10Y is back under 2.6% and the 30Y yield is back at 10-month lows… which perhaps explains why "growth" stocks are back at 7-month lows versus "value" stocks…
Nasdaq and Russell have revsersed all the spike gains…
Bonds are soaring…(as growth hope collapses)
indicated nowhere better than the tumble in growth stocks versus value…
Which one glance at the YTD performance of S&P 500 sectors shows clearly… Utes +11.6% YTD, Discretionary -7.8%
Charts: Bloomberg
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First it was the Russians who repeated they are “deeply concerned by the deaths in the Ukraine,” and now it is the turn of the White House, through its speaker, Jay Carney, to chime in as well:
And yet, despite all the priase, Ukraine is on its own.
In other words, as we said last week, if it is Ukraine’s gambit, that its allies will come to its rescue upon a lethal escalation and provocation, “it will be sorely disappointed.” It seems Ukraine is about to figure this our first hand.
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Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The emerging economy is opening up new ways to reconnect workers to their work and the profits from their work.
One of the most striking blind spots in our collective angst over the lack of jobs is our apparent disinterest in the nature of work and how work creates value. This disinterest is reflected in a number of conventional assumptions.
One is the constant shedding of tears over the loss of mind-numbing manufacturing jobs. I doubt a single one of the innumerable pundits decrying the loss of "good manufacturing jobs" spent even one shift in an actual assembly line. There is a reason Henry Ford had to pay the then-astronomical salary of $5 per day to his assembly-line workers: the work was so physically demanding and boring that workers quit after a single shift. The only incentive that would keep people doing such hellish work day in, day out, was a big paycheck.
Henry Ford's $5-a-Day Revolution
After the success of the moving assembly line, Henry Ford had another transformative idea: in January 1914, he startled the world by announcing that Ford Motor Company would pay $5 a day to its workers. The pay increase would also be accompanied by a shorter workday (from nine to eight hours). While this rate didn't automatically apply to every worker, it more than doubled the average autoworker's wage.
While Henry's primary objective was to reduce worker attrition–labor turnover from monotonous assembly line work was high–newspapers from all over the world reported the story as an extraordinary gesture of goodwill.
Another is the confusion over what constitutes the means of production in a knowledge economy. The term means of production has its origins in Marx's analysis of capitalism, but the means of production change along with the processes of creating value.
As a result, Peter Drucker identified the worker's knowledge (human capital) as the means of production in a knowledge economy in his book Post-Capitalist Society.
Many readers have misunderstood Drucker's point; their objections include 1) the software workers use is essentially owned by Microsoft and other corporations; 2) only corporations have the means to use workers' knowledge and 3) means of production is an outdated Marxist term that is being mis-used by Drucker.
These objections miss the point. A skilled knowledge-worker can create $100,000 of value with a $500 PC and $300 of software. What percentage does the software represent of the output ($100,000)? Not even 1%.
As for corporations being the only owners of capital who can deploy workers' knowledge, millions of self-employed people suggest that this blanket statement is not entirely true. Yes, enterprises that deploy billions of dollars in material capital (oil drilling rigs, shipyards, etc.) cannot be replaced by the self-employed, but what percentage of the economy requires billions of dollars in capital to operate? In a service-dominated economy, capital-intensive industries are a shrinking slice of the pie.
Rather than focus on employment, why don't we examine the nature of work? Why don't we ask how work creates value in a knowledge economy that is commoditizing/automating whatever labor can be commoditized/automated? How about asking if work can be re-shaped to become meaningful beyond the paycheck being earned?
Let's review the idea that work that isn't controlled and owned by the workers is inherently alienating.
In Marx’s view, workers were alienated from the product of their work because they did not own the product or control the means of production. Marx argued that the absence of ownership and control was also an absence of agency (control of one’s destiny) and meaning. Workers were estranged from the product of their work, from other workers and from themselves, as the natural order of the product of work belonging to the one who produced it was upended by capitalism.
Marx characterized this separation of work from ownership of the work and its output as social alienation from human nature. Capitalism, in his view, did not just reorder production into enterprises whose sole goal was profit and accumulating more capital; it destroyed the natural connection between the worker, the processes of work and the product of his work.
Marx was thus one of the first to analyze work not just in terms of economic output but in social and psychological terms.
This tradition was carried on by writers such as Eric Hoffer, who saw work as the source of life’s meaning, and Christopher Lasch, who saw the rise of consumerism as the basis of meaning and the rootless cosmopolitanism of the modern economy as the source of a culture of narcissism. For Lasch, the relentless commoditization of life disrupted the natural social relations of family, social reciprocity and the workplace, depriving individuals of these sources of meaning and replacing them with an empty consumerism that worshipped fame and celebrity.
Lasch explained these dynamics in his landmark book The Culture of Narcissism: American Life in an Age of Diminishing Expectations.
The marketplace's commoditization of everyday life–both parents working all day for corporations so they could afford corporate childcare, for example–created two alienating dynamics: a narcissistic personality crippled by a fragile sense of self that sought solace in consumerist identifiers ( wearing the right brands, etc.) and a therapeutic mindset that saw alienation not as the consequence of large-scale, centralized commoditization and financialization but as individual issues to be addressed with self-help and pop psychology.
In Lasch’s view, both of these dynamics ignored the loss of authenticity that resulted from the commoditization not just of production but of every aspect of everyday life. In this sense, Lasch’s social analysis is an extension of Marx’s original insight into the alienating dynamics of commoditized wage-work, in which workers and their work were both interchangeable.
Lasch’s analysis brings us to the source of modern alienation: it’s not just employees who are interchangeable–employers are equally interchangeable. The interchangeability of work, employees, employers, products and services is the key characteristic of commoditization.
What is the takeaway for those seeking a job or career? There are several takeaways.
One is that the sources of value creation are linked to the level of agency (control of one’s work) and ownership of the work: work that is not process-based (i.e. that cannot be commoditized) and that is experientially sensitive to mastery enables a higher level of agency and ownership because the worker owns the means of production–his human and social capital.
The second is that the dramatic lowering of barriers to education and the ownership of tools powered by the Internet has greatly expanded the opportunities to escape an alienating dependence on the state and cartels for employment and on superficial consumerism for meaning.
If we trust networks rather than states or corporations for our security, we automatically gain agency (control of our work and lives) and an authentic sense of self gained from owning our work and the results of our work.
It is important to understand that corporations exist to make a profit and accumulate capital, for if they do not make a profit and accumulate capital they will bleed capital and disappear. To believe that organizations dedicated to making a profit could magically organize society in ways that benefit every participant is nonsense. Corporations organize labor and capital to accumulate capital. It is absurd to expect that such organized self-interest magically optimizes the social order.
This is not to blame all the ills of society on corporations; it is simply to note that corporations are limited by their limited purpose. Their purpose is not to organize a healthy, sustainable economy; it is to organize labor and capital in such a way that the corporation can accumulate capital in a marketplace controlled by supply and demand.
Corporations have profited greatly from the alienation of work and the social order, as narcissistic debt-based consumerism is a highly profitable economic order, even if it is socially dysfunctional, unsustainable and destructive to individual agency and meaning.
The expansion of decentralized, distributed networks, the near-zero cost of knowledge and the declining cost of the means of production (digital memory and processors, software, 3-D fabrication machines, robotics and tools) offer newfound opportunities for workers to reclaim their agency and ownership of their work and output.
Rather than rely on centralized states and corporations to organize labor and capital, collaborative networks can do so without alienating workers from their work and disrupting the sources of meaning.
The emerging economy is opening up new ways to reconnect workers to their work and the profits from their work. These include traditional models such as self-employment and worker-owned cooperatives and new models of collaborative project-based work.
How do we change a dysfunctional, unsustainable and alienating system? By investing in new ways of creating value and alternative models of cooperative work and ownership.
++++++++
This essay was excerpted from my new book Get a Job, Build a Real Career and Defy a Bewildering Economy which is on sale through Tuesday evening (Pacific Standard time) at a 20% discount for my regular readers ($7.95 for the Kindle edition, 20% off of the list price of $9.95. The print edition is $20).
You can read the introduction and first section of the book here.
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Two rather amusing, and quite opposing views on surging food inflation (recall that as we first reported beef prices are at record high), which was confirmed by this week’s PPI and CPI reports: one from Goldman, the other from IHS Global. We let readers decide which one is right… and which one will determine the Fed’s “thinking” about soaring good inflation.
First, some unintended humor from David Mericle, the latest addition to Goldman’s economics team, which lost all credibility some time in 2010 when Hatzius got his first (of many) tap on the shoulder.
Impact of Higher Food Prices on Core Inflation Should be Modest
Agricultural commodity prices have risen sharply in 2014, with the S&P GSCI Agriculture & Livestock Index up about 15%. In addition, concerns ranging from droughts in California and Latin America to political tensions in Ukraine threaten to push food prices higher this year. Today, we assess the implications of higher food prices for the inflation outlook.
In the aftermath of spikes in agricultural commodity prices in 2007-2008 and 2010-2011, both retail food prices and core and headline inflation increased substantially. However, those episodes differed from the current one in two key respects. First, the food price spikes were about four times as large. Second, there were simultaneous spikes in oil prices that likely accounted for most of the pass-through to core inflation.
Our statistical model suggests that while agricultural commodity prices show moderate pass-through to food goods and food services prices, they have little impact on non-food core inflation. Both our model and the US Department of Agriculture’s projections suggest that food prices should boost core inflation by roughly 0.05pp and headline inflation by about 0.15-0.2pp by end-2014. While ongoing droughts pose upside risk, a reversal of recent increases in grain prices–in line with our Commodity strategists’ forecast–poses downside risk.
…
Looking ahead, we do not expect the recent spike in agricultural prices to continue through 2014. Our Commodities research group expects prices for wheat, soybeans, and corn to fall later in 2014, and our food equity analysts expect their Cost of Goods Sold Index to rise only moderately this year. Projections from the US Department of Agriculture point to roughly 2.5-3.5% growth in both food goods and food services prices, a bit higher than our model would predict if the Agriculture Index were to remain flat from its current level.
If the USDA forecast proves correct, it would imply that food prices will contribute about 0.19pp year-over-year to core PCE inflation by end-2014 (vs. 0.13 as of February), 0.39pp to headline PCE inflation (vs. 0.17), and 0.45pp to headline CPI inflation (vs. 0.21). Overall, we expect higher agricultural commodity prices to contribute about 0.2pp to headline PCE inflation and about 0.05pp to core PCE inflation. Food goods and services prices could of course also rise for unrelated reasons as the labor market tightens and new state minimum wage laws take effect.
In terms of risks to our forecast, further tensions in Ukraine or worse-than-expected drought effects pose upside risk, while declines in grain prices expected by our Commodities team pose downside risks. In addition, the forecast for an El Niño weather pattern developing this summer creates additional upside risk to soft commodity prices (palm oil, cocoa, coffee, sugar) and to a lesser extent to wheat prices. However, the El Niño weather pattern is also typically favorable to US summer growing conditions, which would create downside risk to our Commodity strategists’ already-bearish forecasts for these crops, which are among the largest components of the S&P GSCI Agriculture Index.
In other words, as we also predicted previously, soon everything will be El Nino’s, aka the “Solar Vortex” fault. As for Goldman’s statistical model saying that all should be well, who are we to dispute it.
In the meantime here is a completely different view, one actually somewhat grounded in non-model reality, from IHS Global via Bloomberg:
Limited inventory of cattle and other herds contributing to rising costs this quarter, Chris Christopher, economist at IHS Global, writes in note.
Rising prices “a kick in the stomach for those households that have a hard time making ends meet.” “Main story” of March CPI was food, with meat, dairy and fresh vegetables contributing to higher costs. Outside of food, inflation “relatively bland.” However, “living standards will suffer as a larger percentage of household budgets are spent on grocery store bills, leaving less for discretionary spending.”
But… core inflation will be untouched. Goldman’s model said so. Which means nobody be concerned: certainly not Goldman partners and their live-in chefs.
The one thing that the two agree on, however, is that food inflation is surging. However there is good news:
One thing is not quite clear – whose households? Dimon’s and Blankfein’s?
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