Source: Monty Guild and Tony Danaher | Guild Investment Management

Food inflation as we have mentioned is here to stay. Corn prices may be peaking as the Mississippi river crests, but we see higher prices for other substitutable grains. A decline in food prices could happen temporarily in the autumn if the U.S. Government and others end set their aside programs and other countries start to develop underdeveloped farmland. This will not lead to a large increase in food production worldwide initially but in the long term production will rise.

The problem is that consumption is also rising at a rapid rate. While worldwide production will not go up by a huge amount, the main effect will be psychological. As people come to the conclusion that supplies may increase, speculators will exit positions. Over the longer term, global food stocks will be rebuilt as they are way too low. This rebuilding of inventories will keep prices firm.

As we have mentioned in the past, global food inventories have fallen in 7 of the last 8 years. These inventories must be rebuilt for many years before prices can really start to fall. The fact is, global food prices are lower in inflation adjusted dollars than they were decades ago. Even in the most optimistic case, inflation adjusted corn, wheat, soybeans, and other foods must rise for years to come just to get back to their inflation adjusted prices of 50 years ago.

An aside…developed country consumers spend less of their budget on food compared to consumers in other countries. We believe that this will change. Consumers in developed countries will be spending more of their total income on food as well. Read the rest of this entry »

The bear market in the U.S. Dollar is obviously accelerating with each passing day, prices are moving up across the board as the freshly created money increasingly pours into the market for hard assets such as commodities.

Indeed, at the extreme end of possibilities, most of today’s prognosticators believe in one of two potential outcomes:

1. The dollar collapses into complete oblivion, the United States dis-integrates, anarchy takes hold and society as we know it ceases, bringing about a dark age of chaos and upheaval.
2. Everything stays about the same, the markets recover in the near future, the economy begins recovery by 2009, and people continue to go further and further into debt; all remains well in the Goldilocks economy, where consequences never befall those who are irresponsible.

My research into these matters indicates that neither of these scenarios are likely, though it wouldn’t hurt to be prepared, at all times, for the first scenario, in case the system does end up coming apart.

During the course of my studies I have come across a brilliant solution, which, after another 30% slide in the dollar, the U.S. Dollar resumes its role as the reserve currency for the planet Earth, but with a modernized and revitalized Gold Certificate Ratio to regulate it, instead of edict-driven interest rate fluctuations. Read the rest of this entry »

Dan Norcini | Jim Sinclair’s Mine Set

The US Treasury Department today released its monthly International Capital Flows data for the month of March 2008. Among the main highlights was a significant NET OUTFLOW of foreign capital of some $48.2 billion compared to a revised INFLOW of $48.9 billion in February. That is nearly a $100 billion swing in one month’s time and illustrates how severe the distress in the US financial system was which forced the hand of the Fed to bail out Bear Stearns at the expense of polluting their balance sheet. Wouldn’t you have loved to have been a fly on the wall in those hidden offices where the various machinations took place as the monetary authorities and their pals in the investment banks plotted and schemed to come up with a way to avert the consequences of their reckless greed and idiocy when it comes to the derivative daisy chain mess they concocted?

That net outflow occurred when short term securities were included in the numbers. When those were stripped out, the data showed a large NET INFLOW of $80.42 billion.

Using the short term measurement, the flows were insufficient to fund the trade deficit for that same month which was at $58.2 billion. That is a shortfall of $106.4 billion. Employing only the long term dated securities, flows were more than sufficient to fund the gap. Read the rest of this entry »

Alan Kohler | Business Spectator

I don’t know whether to lie awake at night worrying about over-the-counter (OTC) derivatives or not, so I lie awake at night worrying about whether to lie awake and worry.

I should just buy a worry default swap and go back to sleep. But what happens if the counter party can’t pay? Who IS the counter party? And how many trillions of worry default swaps are out there, ready to collapse like an Egyptian block of flats and turn my dreams to nightmares?

The Bank of International Settlements says there are $US681 trillion worth of over-the-counter derivatives in the world, which sounds like rather a lot. Is that more than there are stars in the sky and grains of sand on the beach?

In any case, what does it mean? Should I worry about that number, or is it like saying there were 59.6 billion cappuccinos produced in the world last year. Is that concerning or not?

Last month the Financial Stability Forum (FSF), which was set up in 1999 as an inter-government body to promote international financial stability, solemnly presented a paper to the G7 in which it recommended, among other things, reform of the OTC markets. Read the rest of this entry »