June 28, 2009

The System Always Returns to Stability

-by The Mysterious Flying Miser

Everyone’s asking what’s next. In a world inured to bubbles, many are champing at the bit to multiply their cash on the next irrational boom. But is it possible that we are done with bubbles for a while? Could it be that we are entering into a period of relative stability, during which normal returns will be gotten based on actual production and good decisions? Not many are of this tack, but it could happen.

Agriculture?

From CNN Money: A Nebraska farm girl who went on to a globetrotting career as a derivatives trader for Goldman Sachs (GS, Fortune 500) and then as a hedge fund executive in London, Warner, 45, is back on the farm pursuing what she believes is a huge moneymaking opportunity. Two years ago Warner launched an investment firm, called Chess Ag Full Harvest Partners, with a fairly simple underlying strategy: Buy undervalued farmland in the U.S. and profit from the coming global agriculture boom.

Improving diets in the developing world will …help drive up prices. As per capita incomes rise in China, India, and other parts of Asia, hundreds of millions of people will be adding meat to their daily fare. …The Gulf States of Qatar, Abu Dhabi, and Saudi Arabia have already begun making deals to acquire or lease large tracts of farmland in Africa and Asia at bargain prices.

A lifelong “music nut,” (Warner) started visiting Clarksdale to hit the local blues clubs after getting divorced in 2000. In 2004, after selling her share of a hedge-fund-of-funds business in London, on a whim she bought a two-story, 19th-century brick building on Delta Avenue downtown that housed a general store, renamed the shop Miss Del’s (as in “Mississippi delta”), and added antique knickknacks and British chocolate to the inventory.

Maybe Not.

From CBS News: Owner Hyun Ku Kim started business 40 years ago in his native South Korea and moved production here in 1990 to use China’s cheaper labor, reports CBS News correspondent Barry Petersen. And Qingdao’s port makes for easy shipping to the U.S. - except these days there’s less to ship.

The numbers tell the story. In a good year they’ll sell 20,000 stirrups. This year they will be lucky to sell 8,000. And there was one month this past spring when they got no orders at all. Fewer orders means fewer workers; layoffs cut 500 workers down to 290.

Their empty chairs litter the factory

From Arabian Business: The region’s largest oil exporters (Saudi Arabia, Kuwait and the UAE) will slip into recession this year, the International Monetary Fund (IMF) said as it slashed its growth forecast for the GCC.

Gold?

Todd Tresidder, financial educator and former hedge fund manager, has a different idea of where the next bubble will form: “The next bubble to inflate will be gold. It should be the final bubble, as that bubble will only burst when we embark on a new path of stability. …It’s actually one long series of rotational asset bubbles. …Each bubble primarily result(ed) from the credit bubble …Each bubble has caused asset prices to inflate beyond a point that they can be supported by the underlying economics of the asset. …The further the economics deteriorate, the further asset prices must deflate. …The government’s unwillingness to accept this ultimate outcome is what will cause the final bubble: gold. Just as they caused all prior bubbles, they will also cause this bubble (unless, of course, they suddenly display economic wisdom that is fully unexpected). …The long-term rise in gold began in 2001-2002, and will likely accelerate at some point in the future. How long it takes to run its course I cannot say. … The system always returns to stability from instability.”

Maybe Not.

From Reuters: Gold’s upward potential is limited because of strong demand for the U.S. dollar to repay a burgeoning debt amid deflation, technical analyst Robert Prechter said on Monday.

“It seems to me the most popular opinion out there right now is hyperinflation. I think we are in an opposite environment, a deflationary (one). …Unfortunately, in this environment, what creditors …and debtors need the most are dollars, so I think the main thing that will return to substantial demand when deflation bites again is the dollar. …I think gold is a good thing to have. It would be a small amount, you should have some gold. For the most part, you want cash and cash equivalents,” he said.

Green Energy?

From Moneyweek: We’re not sure that investors have another bubble in them just yet. But with all that money floating around, it’s eventually going to go somewhere. And one area stands out as a prime candidate: alternative and renewable energy.

The sector has the heavy backing of the government. It has some great stories behind it (solar towers, wave farms, and electric cars), all linked together by smart grids, already being hyped as “the energy internet”. So the conditions are ripe in the alternative energy sector for a bubble.

Well, You Know.

But, from The New York Times: Like others before it, the latest “green bubble” was inflated during a highly polarized moment in American politics, two writers say, and now it has burst in the economic downturn. The writers say that “while utopianism has a bright side — it is a way of imagining a better world — it also has a dark side characterized by escapism and a disengagement from reality that marks all bubbles, green or financial.”

And Finally:

Michael A. Kamperman, author of “How America Can Escape the New Great Depression” and owner of Prometheus Wealth Management, says “In my opinion, there will not be another investment bubble in the near future. All of the investment bubbles in history were fueled by access to easy and affordable credit. The credit markets are broken and they have not been fixed.”




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47 Comments »

Comment by VegasBob
2009-06-28 11:06:44

The credit markets are broken and they have not been fixed.

That is the operative sentence. Fixing the credit markets requires that losses on bad loans be recognized. So far, accounting trickery is preventing the full extent of the losses from being recognized. Recognizing the losses would clearly push most of the banking system into insolvency.

So, at this point, the next bubble can form only as long as the federal government is willing and able to borrow the money to fund the bubble. So far, the Administration has shown that it will not shrink from record borrowing. At some point, however, the credit markets are going to say NO MORE! Only at that point will the proverbial jig be up.

Comment by LongIslandLost
2009-06-28 13:53:27

No, the credit markets are busy fixing themselves. No further intervention is necessary.

Broken is when something doesn’t work correctly. And, the credit markets in 2006 were really messed up.

Comment by drumminj
2009-06-28 14:41:00

I was thinking about this in the shower this morning, actually. People bash the “free market” by pointing out certain aberrations and bad happenings. A “free market” is not guaranteed to not have ups and downs, or to never have bad actors.

The thing about self-regulating systems is that they tend to return to an equilibrium state. Look at a population of mice with a constant daily food supply. It’s not that the population doesn’t fluctuate - it does - it’s simply that the system regulates itself and will ultimately find some rough equilibrium value around which it will fluctuate mildly.

The same is true of the credit market, stock market, etc, etc. Aberrations may happen, but that doesn’t mean the system is broke. It just means that at some point a correction will happen until stability is again achieved. We need to let it happen, across the board.

 
 
 
Comment by Muggy
2009-06-28 11:31:01

I don’t think the masses will tolerate an Ag bubble on the order of the HB — that might actually cause civil unrest. I know I’d smash some windows, or at least shoot of some fireworks.

Comment by Az-Retired
2009-06-28 16:39:38

“I don’t think the masses will tolerate an Ag Bubble.” Muggie, Ag land values rise with the price of crops. However, the price of crops have no correlation to the sales price of farm land. Crop prices float with supply and demand which can be supported by government programs paying farmers to not plant crops.

Farm land is an asset like gold that always has a real value.It also produces rent income that is about as certain as any investment around. It is best to know the farming business if you plan to buy productive land.

 
Comment by sub. homesick alien
2009-06-28 18:37:49

“I don’t think the masses will tolerate an Ag bubble on the order of the HB — that might actually cause civil unrest. I know I’d smash some windows, or at least shoot of some fireworks.”

the market doesn’t care what we want. supply and demand won’t care. any reaction to the masses will just further the problem.

 
 
Comment by Muggy
2009-06-28 11:34:00

“what creditors and debtors need the most are dollars”

Gimme a C
Gimme an O
Gimme an M
Gimme a B
Gimme an O

Comment by Sweeping Changes
2009-06-28 11:39:58

a new bubble could be in nannies for the new nanny state.
Everybody could become a government worker and compete for Benefits!

Comment by exeter
2009-06-28 12:07:15

Benefits?!!!!!!!!! You mean to tell me that anyone outside the group of wealthy elite should have insurance???? Oh the humanity!!!!

Comment by desertdweller
2009-06-28 12:57:57

Sing it Ex! The unwashed masses are lucky to just be allowed to be here, much less have health insurance. pft pft

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Comment by exeter
2009-06-28 13:24:03

And of course we should pay the premiums…. but don’t file a claim…

The poor insurance companies!!!!!!

 
Comment by CA renter
2009-06-28 18:58:32

+1 :)

 
 
 
 
Comment by az_lender
2009-06-28 12:07:11

Is that “combotechie” you’re starting to spell out?

Muggy, I still have my Aug 7500 put on the Dow; it was “worth” more on Wednesday than now, but you said Let It Ride, so that’s where I am just now.

Comment by talon
2009-06-28 12:19:35

Put on what? The DIAs ?

Comment by az_lender
2009-06-28 18:39:55

(A put on the “diamonds”, effectively on the Dow at 7500)

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Comment by oxide
2009-06-28 12:06:48

Water as the next bubble?

Comment by james
2009-06-28 12:27:27

OK. The planet is covered in water. If there is really a shortage we can divert some effort into desalination plants world wide.

There will be some cost to this but its more of a pricing phenomena than an actual shortage.

 
Comment by arizonadude
2009-06-28 12:46:44

I think the next bubble will be in alternative energy.FSLR is just crazy hot.It will become the next dot.com fiasco.ESLR is at 2 bucks, any takers?

Comment by SDJen
2009-06-28 15:41:50

My mom indicator thinks solar, wind, and anything green is the next big thing. If she’s saying it, it’s over and done.

If people didn’t load up their houses with solar panels when credit was easy, why would they do it now? I can’t think of a better way to spend a HELOC.

 
 
 
Comment by james
2009-06-28 12:25:07

“From CNN Money: A Nebraska farm girl who went on to a globetrotting career as a derivatives trader for Goldman Sachs (GS, Fortune 500) and then as a hedge fund executive in London, Warner, 45, is back on the farm pursuing what she believes is a huge moneymaking opportunity. Two years ago Warner launched an investment firm, called Chess Ag Full Harvest Partners, with a fairly simple underlying strategy: Buy undervalued farmland in the U.S. and profit from the coming global agriculture boom”

I don’t get this. Basically unless we are talking about people in China starving, aka the people that have some money. I hadn’t heard they were starving. How much more food do they need? This just doesn’t make sense but if some chick that was a hedge bubble chaser thinks its a great idea to have agricultural over production while driving farmers into bankruptcy through some kind of sick sharecropping system. Heck, lets all jump on the next really stupid idea. Great to see the TARP money is finding a home.

Comment by Muggy
2009-06-28 12:53:21

You gotta admit a globe-trotting, hedge fund farm girl is kinda sexy.

Comment by desertdweller
2009-06-28 12:59:50

hehelol-muggy-lol

 
Comment by pismoclam
2009-06-28 16:52:15

Is she as sexy as Olygirl ?

 
 
Comment by mikey
2009-06-28 22:09:21

I hope that she grows lots and lots of corn and then trys to sell it Wisconsin’s now defunct and BK enthanol plants.

That should end well.
;)

Comment by Timmy Boy
2009-06-29 09:06:06

.
Only cash crop that is truely PROFITABLE:

WWWWWWWWWWWWWWWWWWWWWWWW
EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE
EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE
DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD

Needs to be legalized. Will kill several birds w/ 1 stone:

1) Tax revenue from sales = helps CA budget
2) Takes $$$$ away from dangerous Mexican Drug Cartels (80% of drug sales is Marijuana)
3) Relieves overcrowded prisons (for non-violent drug offenses)
4) Makes me feel good - no alcohol calories/hangover
5) All natural. No processing. No chemicals.

 
 
 
Comment by 2banana
2009-06-28 14:10:45

Chess Ag Full Harvest Partners, with a fairly simple underlying strategy: Buy undervalued farmland in the U.S. and profit from the coming global agriculture boom.

Actually may turn out. And quite a few on this blog have been talking the same exact plan (although on a personal level).

A quick yahoo and google search do not turn up much on this “investment”

Last June, she closed her first fund with $30 million. She says her ultimate goal is to take the company public as the first farmland-only real estate investment trust in the U.S. “The returns in agriculture haven’t looked sexy for a long time,” she says, “but I think that’s about to change.”

Comment by drumminj
2009-06-28 14:42:08

And what happens when the US dept of agriculture stops subsidizing farmers? (a guy can dream, can’t he?!)

Comment by oxide
2009-06-28 18:51:17

Likely cause a collapse of the US food system. Too much of our cheap food is based on corn wheat and soy.

 
 
 
Comment by 2banana
2009-06-28 14:14:33

Chess Ag Full Harvest Partners, with a fairly simple underlying strategy: Buy undervalued farmland in the U.S. and profit from the coming global agriculture boom.

Actually may turn out. And quite a few on this blog have been talking the same exact plan (although on a personal level).

A quick yahoo and google search do not turn up much on this “investment”

Last June, she closed her first fund with $30 million. She says her ultimate goal is to take the company public as the first farmland-only real estate investment trust in the U.S. “The returns in agriculture haven’t looked sexy for a long time,” she says, “but I think that’s about to change.”

2nd try

 
Comment by ATE-UP
2009-06-28 14:37:12

Geo-Ducks are the next Bubble.

Comment by B. Durbin
2009-06-28 14:41:19

You can hear the diggers say
as they’re headed for the bay
‘Oh, I’ve gotta dig a duck,
Gotta dig a duck a day,
‘Cause I get a buck a duck
If I dig a geo-duck
So I gotta dig a duck,
Gotta dig a duck a day!’

Dig a duck, dig a duck, dig a geo-duck
Dig a duck, dig a geo-duck
Dig a duck a day!
Dig a duck, dig a duck, dig a geo-duck
Dig a duck, dig a geo-duck
Dig a duck a day!

Oh, it takes a lot of luck
And a certain kind of pluck
Just to dig into the muck
Just to dig a geo-duck
‘Cause it doesn’t have a front
And it doesn’t have a back
And it doesn’t know Donald
And it doesn’t go quack.

Dig a duck, dig a duck, dig a geo-duck
Dig a duck, dig a geo-duck
Dig a duck a day!
Dig a duck, dig a duck, dig a geo-duck
Dig a duck, dig a geo-duck
Dig a duck a day!

This, of course, is to be sung at high speed. And since I learned it as kid, I can.

Comment by ATE-UP
2009-06-28 15:07:02

LMAO!! Where’s OLY, when ya need her B.??

Comment by ATE-UP
2009-06-28 15:16:27

Hey B., I don’t know where that lil’ critter OLY is, but you have to promise me you will give her your song. If you do so, you have won her heart! :)

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Comment by B. Durbin
2009-06-28 16:29:18

Aha! I found a transcription of the music!

Except… this is interesting. That’s not the tune I remember. It’s probably the more accurate one, but the one I remember is rather reminiscent of “Turkey In the Straw”– not he same tume, but similar feel. And I learned it in grade school.

 
 
 
Comment by Curt
Comment by CA renter
2009-06-29 01:33:11

Priceless! :)

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Comment by B. Durbin
2009-06-28 16:37:59

I found the music and an extra verse, but it seems that the music there isn’t the song I remember. Rather reminiscent of “Turkey In the Straw”, the version I know.

 
Comment by ACH
2009-06-28 16:44:33

“But is it possible that we are done with bubbles for a while? ”
What?!?!?!? NAAAAAAAAAAAAWWWWWWWWWWWWWWWWW!

Roidy

Comment by Ben Jones
2009-06-28 18:14:25

Of course, anything could happen. But I’m guessing this bubble was so historically large, that a repeat on any sizable scale won’t be repeated in our lifetimes. I got asked on Opensource in 2005 about what caused it. I replied that it was a confluence of events, and I still think that. The idea that the stars will align in such a manner again are unlikely, IMO.

The Fed is losing credibility by the day. I doubt we will ever again have a person like Greenspan get in control of the central bank for as long as he did. He alone was responsible for much of the complacency. Corporations that have been around for decades are gone. Things are still in flux, and all indications are that mania mentality is being flushed from the system.

Comment by ATE-UP
2009-06-28 18:30:35

Ben, I think you are right. The stars will not align again.

 
Comment by sub. homesick alien
2009-06-28 18:41:28

the next bubble is in inflation. I also like water and alt-energy. farmland seems like a good bet.

 
Comment by WT Economist
2009-06-28 18:58:43

That’s what I thought after the 1980s housing bubble — people learned their lesson, and it wouldn’t happen again. Instead it happened again, and in more places.

I’m still not sure the lesson has sunk in, but five more years of falling to stagnant home and stock prices might do the job.

 
Comment by ACH
2009-06-28 19:31:28

I’m sorry. I just don’t see any lessons being learned. The banks, hedge funds, and all should have been allowed to go insolvent. Since they weren’t, and since there appears to be no instantiation of regulation to prevent anything like this from re-occurring, one can bet there will be another and soon. I think 5 years IF there isn’t an Alt-A, Credit Card, Commercial Loan debacle.

That might do it.

Roidy

 
Comment by mikey
2009-06-28 20:21:03

“I replied that it was a confluence of events, and I still think that. The idea that the stars will align in such a manner again are unlikely, IMO.”

Hopefully this is true Ben…let’s just hope that we as a nation survive this man-made worldwide FIRE Bubble Asteroid Shower and learn our lessons without getting completely wiped out !

Make no mistake about it , the well being of this country and the world economy is and will be flirting with disaster on this one !

I hope your lucky stars provide for a fly-by :)

 
Comment by CA renter
2009-06-29 01:38:56

Ben,

It would be great if we could live a bubble-free life for at least a few years, but that’s not what I’m seeing right now.

The housing market is on fire in San Diego, and no different than what we witnessed during the most manic portion of the housing bubble.

We spend at least a day or two per week “on the street” looking at houses and monitoring traffic and sales. When realtors tell us about multiple offers on overpriced pieces of junk, we think they are lying…then see the houses go pending and then sold.

While prices looked to dip to about 2001 levels in the low-end neighborhoods and 2003/2004 levels in the higher end, I’m seeing more sales go for above peak prices (2005/2006) all of a sudden.

I don’t know where the money is coming from (hard money and investment pools???), and not sure what’s driving it, but the tax credits and ultra-low rates are often cited as reasons for all the buying activity.

Not sure when (if????) this will end, but it’s certainly a bit alarming to me.

Comment by CA renter
2009-06-29 01:41:13

Clarification: it’s the mid/higher-end properties that are going for around peak prices. The lower end seems to have moved up to 2002/2003 prices again. :(

Mind you, we were ahead of the pack, and the bubble was well on its way in 2001, so these prices are quite high, IMHO.

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Comment by Little Al
2009-06-29 05:54:47

Signs of last gasps of the bubble on the way down. Wake me up in 2011.

 
 
 
 
 
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