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Monthly Archives: October 2008
Driving Habits Revert Back to Normal
This New York Times article has broad implications for oil and gas prices and companies. Drivers are going right back to driving as normal and not permanently altering their habits.
New York Times article on gasoline and driving
Tom Kloza, chief oil analyst at the Oil Price Information Service, said: “Demand is trickling back among everyday people.” He added that gasoline retailers around the country were telling him “they are probably past the bottom of demand destruction for 2008, meaning they see subtle signs that gasoline demand is increasing.”
So proud
I’m a Georgia Bulldog. On Saturdays I bleed red and black. I cannot tell you how proud I am that Mark Richt is our head coach. I actually have had the opportunity to meet with him when I threw a charity flag football event for the Athens, GA Boys and Girls Club. And I can tell you, he is a truly great, genuine man. For those of you that don’t know him watch this video and you will see what kind of person he is:
Food Supply Catastrophe of 2009
You can stop driving and use less oil and gas. You can buy less things and use less copper, cotton and steel, but it is pretty hard to stop eating. It is in that simple thought that guides me to believe that we are heading to a global food catastrophe in 2009. How do I arrive at a conclusion that makes the energy crisis a walk in the park?
Let’s start with supply. Global inventories are at 30 to 40 year lows, despite the world having record harvests in 2008. Global inventories of grains (corn, wheat and soybeans) will be at 67 days of consumption before next year’s harvest.
Global demand continues to rise faster than production growth. It’s simple, world population keeps growing and large parts of the world are slowly starting to eat more like the Western world, with more meat and higher calorie content food.
Consider just China.
“If the Chinese people had consumed the same amount of meat, per person, in 2007 as in 1995, there would have been enough grain left over to support 927 million hungry people with enough grain for an entire year,” said Lane (Jim Lane is the editor of the Biofuels digest). The growth rate is so intense that, even if the US ethanol industry were completely shut down tomorrow, increased Chinese demand would soak up the excess grain by 2011.
“Even with all the growth, Chinese meat consumption is still 45 percent less than the average consumption in the US,” Lane warned. “An additional 277 million tonnes of grain would be needed to support China at parity with the US. That would take 68 million acres to grow. There isn’t that kind of arable land available anywhere is the world, whether we grow grains for renewable energy or not.”
This is from an article from Biofuelsdigest.com: China’s impact on corn
Now let’s get to why we may have a crisis next year. The credit crisis is hammering South American farmers, to the extent that they cannot get fertilizer. No fertilizer, no planting of crops.
Further, suppliers are asking farmers in the U.S. for more upfront money to make sure they aren’t holding delinquent debts, causing farming to be a bit more uncertain this year. Read all the details in a very important article from Bloomberg about how the credit crisis is affecting farmers in Brazil, Argentina and to a limited degree the US.
We had riots in dozens of countries in early 2008 due to shortages, what will happen with much lower production? What happens if combined with lower production, we have a drought? Markets aren’t exactly acting efficiently lately. I’m really getting worried that we could see a major spike in food prices in an awful world economy.
Starvation will become a major problem. Governments could easily fall when people can’t afford food. This may be the biggest issue of 2009, bar none. People have to eat.
Buffett addresses the market
This is an absolute must read to everyone scurrying for cash right now:
Looking out
I see two major sea changes coming due to the current financial crisis.
1) When things normalize in credit land (and it has already started normalizing, albeit very slowly), there is going to be a slew of M&A activity.
2) The next commodity bull run will be mind numbingly explosive.
Let me start with point number one. I think this whole crisis has shaken small companies to the core. Suddenly having the rug pulled out from you or realizing that your credit can be pulled at any time potentially threatening the life of your company or watching your company’s stock fall 50-75% just from panicked investors has been an eye opening experience. I’m guessing a lot of small to medium sized businesses are going to be looking for larger companies for protection or will start merging with other smaller companies to gain scale and size. I think this will start to happen in q1 or q2 of next year after a couple of mergers are announced before year end.
The second point is based upon the printing of money and debasing of currencies from every major government in the world, combined with the fact that we are still in relatively short supply for most commodities once the world starts to grow again, I think the next run in commodities will be enormous. And trust me one day the world economy will grow again. Unfortunately for the world, production was just getting ramped up to meet demand when the bottom fell out on commodity prices and worse the bottom fell out for financing. I’m guessing many levered commodity companies are going to go under or will not be producing from projects any time soon due to current market conditions. Further, it has become very, very expensive to start new projects from copper to iron ore to oil. The cost of lifting these commodities from the ground has soared, causing the break-even to be much higher than in the past. All of these factors will put a floor on commodity prices much higher than in past. And when the next run starts look out.
The 1970s show us what can happen. Oil went from $1 to $4. Then pulled back to $2, before going to $20. Could $750 oil be in our future by 2015? I think its more likely than $20 oil.
Perspective
Friday, I got a gift and ironically it came from the fact that I volunteer as a mentor to two kids, Anthony and Elvis. I was pretty down and feeling miserable on Friday.
And do you know what made their day on Friday? I let them get a 12 inch sub at subway instead of a 6 inch sub. And Elvis was super excited that he got to sit in the front seat on the way home from bowling. These two kids gave me tremendous perspective on Friday when I needed it most. And for that I’m very thankful.
Cramer Unwittingly Calls a Bottom
I’m calling it now. Jim Cramer, CNBC and Thestreet.com commentator and former hedge fund manager, has officially called the bottom.
Well, he actually went on the Today Show and told every investor to “PANIC!” The sky is falling! SELL! And this after the market has fallen 30%! This is the ultimate sign of a market bottom when an uber-bull reverses course. With every market indicator indicating that we are near a bottom including new highs/new lows, the VIX, stocks above their 52 week moving average, this is the ultimate sign.
I recommend that anyone waiting to invest, do so now. You rarely get a bell ringing for the sound of a bottom than as you did today. Here is the link: