Food

On the current food shortages and protests created by biofuels (as feared):

The mainstream ‘Malthusian’ world is one where the population grows to the size of the food supply.

Now we have a new twist on that theme.

The monetary system burns up the food supply as fuel to the point where the marginal agent facing starvation has sufficient political influence to stop this process.

The first phase is happening as politicians around the world are allocating more funds to people who can’t afford to eat.

This only drives up the price further as markets continue to allocate by price, with no sign of a sufficient supply response to keep many from starvation.

In fact, newly emerging nations are producing income distributions that allow their higher income groups to reduce the aggregate food supply by both consuming more fuel and also by increasing meat consumption.

I expect a lot worse before it gets better.

2008-04-11 US Economic Releases

2008-04-11 Import Price Index MoM

Import Price Index MoM (Mar)

Survey 2.0%
Actual 2.8%
Prior 0.2%
Revised n/a

2008-04-11 Import Price Index YoY

Import Price Index YoY (Mar)

Survey 13.7%
Actual 14.8%
Prior 13.6%
Revised 13.4%

This is a very strong inflation channel.


2008-04-11 U. of Michigan Survey

U. of Michigan Confidence (Apr P)

Survey 69.0
Actual 63.2
Prior 69.5
Revised n/a

From Karim:

  • Michigan survey takes out low from 1990-91 recession; prior lowest point was March 1982. Decline was from 69.5 to 63.2

2008-04-11 U. of Michigan Survey since 1980

U. of Michigan Survey since 1980

Interesting how low ‘confidence’ is in light of how much better GDP and employment is doing now vs then.

Part of it is the rising influence of the media, and part are the factors behind the export boom that are causing us to consume less and instead export more of our own output.

The channel this time around is rising costs for food and energy take away the purchasing power power needed to buy the rest of our output, and foreigners get to consume it instead via US exports.

  • 5-10yr inflation expectations move to higher end of recent range

2008-04-11 U. of Michigan 5yr Ahead Inflation Expectations

5yr Ahead Inflation Expectations

Yes, it’s part of the equation, as above, and the FOMC ‘knows’ it can’t allow inflation expectations to elevate.

While the Fed gives the 5 year more weight, it also watches the one year, particularly when it spikes.

2008-04-11 1yr Inflation Expectations

1 yr Inflation Expectations

In today’s report the one year survey hit 4.8%, they highest since one 4.8% reading in 1990. The only time it’s been higher was during the ‘great inflation’ of the 70’s- early 80’s.

  • Worsening confidence also visible in job leavers component of employment report-% of workers who voluntarily leave their jobs (chart 3). Tends to rise when times are good and vice-versa. When declining, tends to be associated with lower wage growth and core CPI (an important piece of the output gap argument).

Other comments from Michigan survey make from grim reading:

  • There have only been a dozen other surveys that have recorded a lower level of consumer sentiment in the more than fifty-year history of the survey.

  • Consumers expected gains in their nominal incomes of just 1.0% in April, the smallest gain expected in three decades.

  • Three-in-four consumers expected bad times financially in the overall economy during the year ahead, the largest proportion recorded since 1980, and the fourth highest proportion in more than fifty years.

  • A record 41% of all home owners reported that their home had lost value during the past year
  • Just 5% of all consumers expected the unemployment rate to decrease in the year ahead, the smallest proportion ever recorded.

  • Uncertainty about future income and job prospects has had a devastating impact on buying plans, with consumers citing these uncertainties three times as frequently as they did a year ago. Purchase plans for furniture, appliances, home electronics, and similar goods fell to their lowest level since the 1990 recession, with one-third of all consumers specifically mentioning their uncertainty about jobs and incomes as their primary reason. Vehicle buying plans also fell to their lowest level since the 1990 recession, with one-third of all consumers citing uncertainty about jobs and incomes as well as the future price of gasoline.

That’s the Bernanke vision as per his latest congressional testimony- less consumption and more exports and investment. Looks good, feels bad.

AP: Budget deficit up due to spending increases

While revenue growth is slowing, it is still positive.

Might be the suspected 2007 spending that was moved forward to 2008 that is helping spending increase so much and support GDP into the election. And the new fiscal package kicks in soon as well.

Government spending, this year, should top $3 trillion – still a modest percent of GDP by world standards.

Federal budget deficit at all-time high for first half

by Martin Crutsinger

The federal deficit through the first half of this budget year is at an all-time high, underscoring the pressure the budget is coming under as the overall economy slumps.

The Treasury Department reported Thursday that the deficit through the first six months of the budget year totaled $311.4 billion (euro196.2 billion), up 20.5 percent from the same period a year ago. That was the largest deficit for the first half of a budget year on record, surpassing the old six-month mark of $302 billion set in 2006.

The Bush administration, when it sent its budget proposal to Congress in February, estimated that the deficit for the whole year will total $410 billion (euro258.3 billion), putting it very close to the all-time high in dollar terms of $413 billion (euro260.2 billion).

However, private economists are forecasting a much bigger deficit, reflecting the U.S.’s current economic problems and a $168 billion (euro105.83 billion) stimulus package that Congress has passed in an effort to jump-start growth. Rebate checks will be mailed to 130 million households starting next month in an effort to boost consumer spending and make sure that any downturn is short-lived and mild.

The Treasury’s monthly budget report showed that revenues for the first six months of the budget year, which began on Oct. 1, totaled $1.146 trillion (euro720 billion), up 2.2 percent from last year. However, government spending was up by a much faster 5.7 percent, rising to $1.457 trillion (euro920 billion). Both the spending and the revenues were records for the first six months of a budget year.

The difference between revenues and spending left a deficit of $311.4 billion (euro196 billion), compared to a deficit for the same period in the 2007 budget year of $258.4 billion.

Market update

Inflation ripping:
Oil up, grains and commodities up, and dollar down, as continued US demand at higher prices for energy transfers more $US to foreigners who don’t want to accumulate them.

Weakness continues:
Stocks down and credit spreads looking wider, and claims lower but have nonetheless worked their way higher since year end and only rising exports keep GDP at ‘muddling through’ levels.

Interest rates down:
As markets continue to believe Fed won’t even begin to act vs inflation, and will do ‘whatever it takes’ to narrow the output gap to zero, in total contrast to mainstream economic theory.

Re: Pension fund passive commodity strategies

(an interoffice email)

>
>   On Wed, Apr 9, 2008 at 4:05 PM, Pat wrote:
>
>   What about the continued allocation increases from non-end
>   users of commodities? From what I’ve read allocations by
>   pensions have gone higher even with the rising prices as well
>   as a whole host of new entrants (ETFs, HF’s, etc…) Are these
>   compounding the problem or are they the root of the
>   commodity price inflation?
>
>

passive commodities are part of the landscape for sure:

  1. put upward pressure on competitive commodity spot prices
  2. put downward pressure on the $
  3. add to gdp
  4. in general, help ‘monetize’ saudi crude price hikes
  5. put upward pressure on crude futures
  6. serves no public purpose

2008-04-10 US Economic Releases

2008-04-10 Trade Balance

Trade Balance (Feb)

2008-04-10 Trade Balance TABLE

Trade Balance TABLE

Survey -$57.5B
Actual -$62.3B
Prior -$58.2B
Revised -$59.0B

Exports still accelerating- up 2% over last month, a 26%+ annual rate, and 20.8% year over year.

Looks like an anomaly with imports, up 3.1% month over month and petroleum imports down. Very odd for non petroleum imports to be up – look for adjustments with next month’s number.

While this February number means Q1 GDP will be revised lower, the March report is likely to more than reverse this.


2008-04-10 Initial Jobless Claims since 1998

Initial Jobless Claims (Apr 5)

Survey 383K
Actual 357K
Prior 407K
Revised 410K

Back down but 4 week moving average still inching up some.

Not at recession levels yet.


2008-04-10 Continuing Claims since 1998

Continuing Claims (Mar 29)

Survey 2935K
Actual 2840K
Prior 2937K
Revised n/a

This lags a week. It has moved up over the last year, but still far from previous recession levels.


2008-04-10 ICSC Chaing Stores Sales YoY

ICSC Chain Stores Sales YoY (Mar)

Survey 0.9%
Actual -0.5%
Prior 1.9%
Revised n/a

Consumer remained weak in March – that’s what an export economy looks like.


2008-04-10 Monthly Budget Statement

Monthly Budget Statement (Mar)

Survey -$70.0B
Actual -$48.1B
Prior -$96.3B
Revised n/a

2008-04-11 Monthly Budget Statement TABLE

Monthly Budget Statement TABLE

WSJ: Taul Paul chimes in

The FOMC take this very seriously:


Volcker’s Demarche

On the dollar, Mr. Volcker’s blunt talk of crisis is a welcome tonic to the devaluationist consensus that now dominates Washington. The world has been staging a run on the greenback, with damaging results if it continues. Mr. Volcker noted that when “concerns about recession are rife,” the central bank will be tempted to “subordinate the fundamental need to maintain a reliable currency” to the impulse to shore up a flagging economy. The danger is that you lose both battles, as the U.S. did in the 1970s, and wind up with stagflation.

The present climate, Mr. Volcker told his audience, reminded him of nothing so much as the early 1970s. Then as now, certain commodity prices were rising fast – he cited oil and soybeans as two examples. Then as now too, these were explained away as speculative price run-ups and not as a harbinger of a broader inflationary trend.

We all know how that ended, and Mr. Volcker knows better than anyone. He was the one who, at the end of that decade, had to step in and raise interest rates to punitive levels to break the back of that bout of inflation. With commodity prices spiking again – soybeans are $12 a bushel today compared to $7 a year ago – Mr. Volcker is warning the Fed not to let inflationary expectations become embedded once again.

Bloomberg: Exports booming

(Yes, I know, just anecdotal.)

Honeywell Wins $23 Billion Jet Award, Its Biggest, From Embraer

by Courtney Dentch

(Bloomberg) Honeywell International Inc. won its biggest business jet engine order, beating two rivals for a $23 billion contract from Empresa Brasileira de Aeronautica SA.

Honeywell will build engines for two new Embraer planes over the next decade, the companies said after the close of U.S. stock markets yesterday. The contract is the Brazilian company’s first engine order with Morris Township, New Jersey-based Honeywell and includes repair parts and services.