Wednesday, April 23, 2008

Please Don't Panic

I can personally confirm that Costco is limiting rice purchases in Sacramento:

However, that does not excuse the Washington Times for this panicky headline and article (posted on Drudge, no less):

Americans hoard food as industry seeks regs

The article mentions no specific examples of "food hoarding," only the following generalized statement, which is inexplicably linked to Canadian Filipinos buying rice to ship back to the Philippines:

Costco and other grocery stores in California reported a run on rice, which has forced them to set limits on how many sacks of rice each customer can buy. Filipinos in Canada are scooping up all the rice they can find and shipping it to relatives in the Philippines, which is suffering a severe shortage that is leaving many people hungry.
I think this whole thing is a media-driven story that has the potential to create a real crisis. You already have crap like this happening:

Super Lucky Elephant White Rice - 50 lb. bag - $35 (sacramento)

I don't think it's time to panic. Yet. :)


Anonymous said...

Max, this is NOT a media driven event that will create a panic. Hoarding is the natural reaction to a loss of confidence in money and is part of the crack-up-boom Mad Max economics that Russ Winter is always on about. Put simply, the Arabs and Asians have been recycling huge sums of money into treasuries and agencies for some time. As the US economy slows, these FCB's (foreign central banks) have had to print money in their own currencies to maintain the currency pegs and continue recycling operations.

This has led to hyperinflation in THEIR currencies (not necessarily in the USD although we have seen some of this) and so the main crises of confidence is in these Asian and Arab countries currencies and that is why you are seeing a lot of food riots and hoarding in those countries.

The problem with CUB economics is that eventually this will lead to REAL shortages as rice exporters in Asia are forced to cut back on exports to satisfy local hoarding demand. This is true of petro as well. If oil continues the march higher and the refiners can't pass this cost along they will eventually have to cut supply. We saw this effect with airlines recently as Delta and Northwest (among others) are losing huge $$$ and will have to cut capacity. The CEO of Tyson came on CNBC today and mentioned that they will have to cut supply as they can't pass along the higher costs to the consumer. Also, I've heard numerous stories of ranchers culling the beef herds early because they can't pay for the feed and can't pass along the higher costs to the consumer.

The main problem is the petro-recycling operations. The Arabs need extremely high oil prices so they have enough money to float our treasury market. With the incessant putrefaction of the Treasury's and Fed's balance sheets, the bond market could easily collapse if the petro-recycling is not maintained.

I've already mentioned this but I'm sure some of you remember a couple of years back when oil dipped briefly below $60/bl and the Arabs promptly dumped boatloads of treasuries on the market which caused the 10yr to spike hard. The next day, the energy secretary came on and announced that we would be doubling the size of the strategic oil reserve and oil put in a solid bottom and has been going higher ever since and a few days later the 10yr. quietly went back down. Coincidence? Hardly. The Arabs just wrote the biggest check to the GSE's and the Treasury of all time last week for $26B and oil is at an all time high!

Bottom line: This CUB will not break until the recycling stops and this is not a media created panic but the result of the demise of an unstable and ill-conceived currency regime. I still think Russ' call for a massive treasuries implosion in the near future is right on the money. This will destroy what little is left of the RE market.

There's an old saying that goes: "He who panics first panics best." This fits well in this situation.

patient renter said...

I just saw a CNN article and was coming here to post it:

Thescrounger said...

The washington times is not a real news organization. I wouldn't worry about the rag's alarmist headlines

Anonymous said...

"I wouldn't worry about the rag's alarmist headlines"

Once again, this is NOT alarmist. This is a natural reaction to CUB economics. You will see many more headlines like this from what you consider reputable media outlets at some point, depending on how contained the Ministry of Truth can keep the story.

Max said...

There's an old saying that goes: "He who panics first panics best." This fits well in this situation.

No doubt, but it's hard to feel panicky about food supply while visiting a warehouse with enough food to feed the population of Woodland for a month.

The interesting part to me at least, is why they simply don't raise the price? I've heard of this "inability to pass on price increases" on multiple fronts.

This isn't Soviet Russia.

Anonymous said...

"I've heard of this "inability to pass on price increases" on multiple fronts."

Well there HAVE been dramatic price increases as well, especially with rice. I like the crack-spread analogy with refiners. Every time they raise the price of gas to compensate for higher oil it is met with REDUCED demand, therefore the margins with refiners (Valero, Chevron, etc.) are now razor-thin and sometimes even negative. So higher gas prices do come in eventually but there is also a supply reduction because they can't raise the price FAST ENOUGH to compensate for the increased costs. Valero has actually been cutting back and trying to sell refineries! This is where the CUB will result in ACTUAL shortages over time, as opposed to just hoarding effects.

Why don't they raise the price? JSP ain't got the money. He hasn't gotten a raise since 1999 and now the House ATM machine is broken. Its obvious to me where this ends. At some point JSP just doesn't get to eat very much or very often. :-( Hopefully the government and federal reserve will pull the plug on the CUB before this gets out of hand.

smf said...

I'll say this again:

This was not just a global housing bubble.

At the end of this it will be known as the 'Global Asset Bubble'.

Speculators of all stripes have created false and unreal demands for many commodities.

As originally with housing, you can find many justification for the higher prices.

In the end, the piper will be paid in one way or another.

Remember that in the collapse, $5 TRILLION was wiped out.

That $$ was shifted around, and used to create this one.

But the full day of reckoning is coming.

And once this is all over, the world will be much better for it.

Anonymous said...

WoW! Stockton is really getting killed in prices. Under 100 dollars sqft! 2yr old home. What's bad is the fact that it's going lower. Damn, we are in a mess.