Daily Digest

Daily Digest - June 28

Sunday, June 28, 2009, 10:26 AM
  • Fungus threat hangs over world wheat production (Repost)
  • Appraise Local? (Video)
  • Commodity Snapshot (Charts)
  • Another Hotel Defaults on Mortgage Debt (Repost)
  • Mass. is housing homeless in motels
  • Fannie, Freddie asked to relax condo loan rules: report
  • LEI, Leading Edge Indicators
  • Buffett Opines on Green Shoots, Inflation, Apple Disclosure, and Bernanke
  • Cap-and-Tax or Cap-and Create Another Bubble?
  • The End of the Recession?
  • The impending end of the bear market rally (Video on page)
  • FSN New Hour, 3rd Hour with Jim and John Part 3A and 3B

Economy

Fungus threat hangs over world wheat production (Repost)

Brown spores on wheat head showing the effects of the deadly fungus that caused the new strain of stem rust dieases that is decimating wheat plantations in eastern Africa, as seen in a file picture.

OTTAWA — Scientists in Canada and around the world are racing to find a way to stop a destructive fungus that threatens to wipe out 80 per cent of the world's wheat crop, causing widespread famine and pushing the cost of such staples as bread and pasta through the roof.

Canadian officials say that the airborne fungus, known as Ug99, has so far proved unstoppable, making its way out of eastern Africa and into the Middle East and Central Asia. It is now threatening areas that account for more than one-third of the world's wheat production and scientists in North America say it's only a matter of time before the pest hits the breadbasket regions of North America, Russia and China.

"I think it's important people start recognizing what a big threat this is. This could mean world famine. This is quite the deal," said Rob Graf, a research scientist with Agriculture and Agri-Food Canada's research centre in Lethbridge, Alta.

The United Nations calls Ug99 "a major threat" to the world's food security.

"Anything that one part of the world gets, another part of the world will eventually get," said Doug Robertson, president of The Grain Growers of Canada. "Stem rust can be a really devastating disease."

Ug99 — so named because it was first found in Uganda in 1999 — is a type of stem rust. Spores from the fungus attach themselves to the stalk of a wheat plant and a pustule that causes the reddish-brown rust colour grows. The pustule takes over the plant's nutrient and water system to nurture more pustules and spores instead of grain.

Rust is a problem wheat growers have been dealing with since biblical times. Canadian wheat producers last dealt with a massive rust problem in the 1950s.

(More)

Appraise Local? (Video)

Commodity Snapshot (Charts)

Another Hotel Defaults on Mortgage Debt (Repost)

From the WSJ: Red Roof Inn Defaults on Mortgage Debt (hat tips to all in the comments!)

Red Roof Inn Inc. ... defaulted on $332 million of mortgage debt ... Red Roof confirmed the defaults Tuesday.

All told, Red Roof's properties carry at least $1 billion in debt, including mortgages, mezzanine loans and other notes.

"As a result of the extraordinary stress in the hospitality industry and the economy overall, we have entered into some restructuring discussions with our lenders," said Andrew Alexander, an executive vice president of Red Roof.

Occupancy at Red Roof's properties, which averaged 62% when the mortgages were originated in 2007, sank to 50.7% in the first four months of this year.
The drop in occupancy rates are similar to the overall industry decline. And not only are occupancy rates off sharply, but so are room rates. Smith Travel Research reported last week that revenue per available room (RevPAR) was off 18.6 percent for the comparable week last year. I think this is just the beginning for the hotel related defaults.

Mass. is housing homeless in motels

MASSACHUSETTS (WPRI) - A record number of families are being put up in motels in Massachusetts. High unemployment and the rising number of home foreclosures is the reason the state is taking this action.

Housing Massachusetts’ homeless is costing tax payers around $2 million per month. It costs an average of $85 per night to have families, including nearly 1000 children, stay in motels.

The Interagency Council on Housing and Homelessness admits that the use of motels for the homeless is not ideal, but is the best that can be done at this time.

Homeless advocates are worried that families are not getting the support of shelters with living rooms, kitchens, and play areas.

Fannie, Freddie asked to relax condo loan rules: report

In a letter to the CEOs of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper.

LEI, Leading Edge Indicators

Buffett Opines on Green Shoots, Inflation, Apple Disclosure, and Bernanke

As far as green shoots in the economy, Buffett said he is just not seeing any. He even joked about a cataract surgery being a month ago and he still can’t see green shoots. He noted the weakness in retail and manufacturing, and said demand is “down like we’ve never seen it.”

Cap-and-Tax or Cap-and Create Another Bubble?

The "razor-thin vote in the House spells doom in the Senate," said Sen. James Inhofe, R-Okla., the top Republican on the Senate's environment panel.

The End of the Recession?

walked into the office yesterday evening and there was someone on CNBC talking about how the 50-day moving average of the S&P 500 rising above the 200-day moving average was telling us the market was getting ready to rise and the recovery had started. I listened to his babbling for another 2-3 minutes and couldn’t take it anymore

The impending end of the bear market rally (Video on page)

FSN New Hour, 3rd Hour with Jim and John Part 3A and 3B

Part 3A

  • 19:00 1.6 Trillion Health Care and Cap and Tax
  • 25:00 Where is the money coming from?
  • 27:00 How the Social Security Trust Fund Works
  • 32:00 Foreign Investment, Safe Haven and Bond Yields
  • 38:00 Catch 22 for the Fed, Save the Economy or the Dollar? A or B?
  • 40:00 Imports
  • 43:00 Next Bubble
  • 46:00 Ben Bernanke Can't Remember (Page 10/18)

Part 3B

  • 2:00 Energy Consumption
  • 4:00 Not center of the universe
  • 26:00 Cap and Trade a 2 trillion dollar hidden tax that will be a $3,000.00 tax to American Families

18 Comments

Davos's picture
Davos
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Re: Daily Digest - June 28

Funny

fujisan's picture
fujisan
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Re: Daily Digest - June 28

FRB: Commercial Paper Rates and Outstandings

Outstandings
Weekly (Wednesday), seasonally adjusted
Graph of CP Outstandings: Weekly Wednesday, Seasonally Adjusted, Date vs. Billions of Dollars.

JAG's picture
JAG
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Jim Puplava

I guess I'm alone in this, but I think the commentary in the 3rd hour/Big Picture section of the weekly podcast is worthless. Puplava has never changed his tune over the years. As if saying "Oil will Rise!" a thousand times somehow makes your argument any better.

To put his argument in context, go back and listen to his 3rd hour commentary a year ago. A good place to start might be: http://www.netcastdaily.com/broadcast/fsn2008-0621-3a.mp3

That commentary was from June of last year. After which oil dropped by 76% in price over the next few months. If the oil price of oil was really determined by supply and demand, that would infer that the demand of oil dropped by 76% over the same period, which we know to be false.

How did Puplava react to this slap in the face by the market? He used it to somehow justify his "Oil will Rise!" argument. This is a perfect example of being blinded to reality by your own beliefs.

I did however enjoy the 2nd hour interview with Jeff Rubino. I just wish Puplava would limit his own opinions to 20 minutes of the podcast.

yoshhash's picture
yoshhash
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Re: Daily Digest - June 28

the link didn't work for me, I noticed you had http:// in there twice.  Here it is again for anyone else who has a problem with it-

http://www.theonion.com/content/video/us_to_trade_gold_reserves_for?utm_...

and another good one-

http://www.theonion.com/content/video/treasury_department_issues

Davos's picture
Davos
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Re: Daily Digest - June 28

Thanks Yoshhash

fujisan's picture
fujisan
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Re: Daily Digest - June 28

China's banks are an accident waiting to happen to every one of us - Telegraph

China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December.
Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump.

Fitch Ratings has been warning for some time that China's lenders are wading into dangerous waters, but its latest report is even grimmer than bears had suspected.

"With much of the world immersed in crisis, China appears to be one of the few countries where the financial system continues to function largely without a glitch, but Fitch is growing increasingly wary," it said.

"Future losses on stimulus could turn out to be larger than expected, and it is unclear what share the central and/or local governments ultimately will be willing or able to bear."

Note the phrase "able to bear". Fitch's "macro-prudential risk" indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al). This is a surprise to me but Michael Pettis from Beijing University says China's public debt may be as high as 50pc-70pc of GDP when "correctly counted".
...

FireJack's picture
FireJack
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Re: Daily Digest - June 28

Chinese consumers key driver of growth

China's citizens are eager to spend but are driven to save. The world will have a new engine of growth if Beijing can turn hundreds of millions of hoarders into mass consumers

I want to rip my face off when I see stuff like that. The article actually ends on a rather doomerish note though as it points out the Chinese have no money and 1.3- 1.6 billion people living beyond their means would not last long.

I get the feeling that my prediction of a major crash at the end of this summer may be coming true. Looks like there was actually a crash last fall but it was all hidden by a massive wave of government debt. Whats going to stop it this time?

philv's picture
philv
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Re: Jim Puplava

Jag you said : " After which oil dropped by 76% in price over the next few months. If the oil price of oil was really determined by supply and demand, that would infer that the demand of oil dropped by 76% over the same period, which we know to be false."

This is not how it works, when something is vital prices can rise dramatically even with little shortage.

If a group is in the middle of the desert half dehydrated and there is water for each individual but one, everybody will be ready to pay very high price to avoid to be that one. If there is water for everybody nobody will care.

Oil is the same, the part of the economy that can survive with higher oil price will survive the others will die and after their dead there is again oil for everyone.

The financial crisis is just a symptom of the peak oil. Our economy is dependent on growth and with the existing technology growth is dependent on oil. The high price of oil have damaged the growth and because the financial system is heavily leveraged it was the first to crash.
The only pacific solutions are : 

- Find another source of cheap energy to power the growth of the system and compensate de deficit in oil

- Or to invent a system that is sustainable without growth.


Without one of these solutions years to come will be a succession of little recoveries killed by an increase in oil prices once the production limit is reached.

A temporarly solution to have the system "working"will be to generate inflation and create an illusion of growth (in the accountability) but that will have a end when people will lose confidence in fiat currencies

Philv

Brussels - Belgium

ernie's picture
ernie
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Re: Jim Puplava

JAG wrote:

I guess I'm alone in this, but I think the commentary in the 3rd hour/Big Picture section of the weekly podcast is worthless. Puplava has never changed his tune over the years. As if saying "Oil will Rise!" a thousand times somehow makes your argument any better.

Why would he change his tune? Of course it's going to rise, for starters pretty much everything does eventually due to inflation, secondly oil is a high demand commodity with a finite supply that's running out. I would say Jim's claim is a pretty safe bet.

- Ernie.

JAG's picture
JAG
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Re: Jim Puplava

ernie wrote:

I would say Jim's claim is a pretty safe bet.

A safe bet that you lose 76% on?

Peak Oil may be a fact, but you can't let your belief in it prevent you from seeing the reality of the market. If you want to take financial advice from him, please don't let my opinions of his advice discourage you.

JAG's picture
JAG
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Re: Jim Puplava

philv wrote:

The financial crisis is just a symptom of the peak oil. 

I believe that $147 oil was just a symptom of the financial crisis. I guess we can agree to disagree on this.

pinecarr's picture
pinecarr
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Re: Daily Digest - June 28

Fujisan.  I was just going to send the link to Ambrose Evans-Pritchard's article on China's banks to Davos, but saw you'd already posted it.  It is an interesting article, offering a different perspective on China's state of affairs.  A lot of writers push the idea that China (and the rest of the BRIC countries) is the ultra-new strong economic force,  I agree that they do have many strengths.  But I think sometimes the huge challenges they have to deal with are understated.  I think China's situation is a lot more complex than it is often portrayed.

If you go to the link, don't skip the comments.  They tend to be pretty interesting at the Telegraph as well.

Woodman's picture
Woodman
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Re: Daily Digest - June 28

Oil is marginally priced. There's a great chart from theoildrum.com I posted a while ago that shows this based on empirical data, and CM has noted this in some of his past reports.  Small changes in demand seem to produce huge price swings when demand is close to the peak rate of production capacity.

I hadn't heard about that wheat fungus in the mainstream media.  Maybe it's a good time now to stockup more on pasta and flour?

Tom

ernie's picture
ernie
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Posts: 39
Re: Jim Puplava

JAG wrote:

ernie wrote:

I would say Jim's claim is a pretty safe bet.

A safe bet that you lose 76% on?

Peak Oil may be a fact, but you can't let your belief in it prevent you from seeing the reality of the market. If you want to take financial advice from him, please don't let my opinions of his advice discourage you.

Rule number one, you don't loose if you don't sell. Not that I would buy futures or other leveraged investments in the first place! I am sure you will see some more leverage fed oil price rallies before too long.

- Ernie.

Ed Archer's picture
Ed Archer
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Re: Daily Digest - June 28

The wheat rust problem is scary, wiping out 80% of the worlds crop? I don't tend to be one for scare mongering but with todays industrialized farming and monoculture crops. This could kill a lot of people in a worst case scenario and last for years until scientists manage to grow a hybrid, then make enough of it to spread around.

tedsan's picture
tedsan
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Posts: 20
Re: Jim Puplava

JAG wrote:

...

I guess I'm alone in this, but I think the commentary in the 3rd hour/Big Picture section of the weekly podcast is worthless. Puplava ...

That commentary was from June of last year. After which oil dropped by 76% in price over the next few months. If the oil price of oil was really determined by supply and demand, that would infer that the demand of oil dropped by 76% over the same period, which we know to be false.

...

Pricing and supply and demand doesn't work like that. Let's say you have an excess supply and demand rises but is still below the supply, well, prices may barely budge. But once you cross that critical threshold where supply cannot meet demand, you have a tremendous rise in prices.

While it's clear that speculation was partly responsible for the meteoric rise in oil prices, that speculation was based on market realities - everybody saw that the world oil production capacity was being surpassed by demand. In fact, if you go back and look at the stats, we were drawing down petroleum reserves as usage exceeded supply. The economic collapse we have experienced was the only thing that "saved" us from continuing increases in oil prices.

tedsan's picture
tedsan
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Re: Daily Digest - June 28

Zombie210 wrote:

The wheat rust problem is scary, wiping out 80% of the worlds crop? I don't tend to be one for scare mongering but with todays industrialized farming and monoculture crops. This could kill a lot of people in a worst case scenario and last for years until scientists manage to grow a hybrid, then make enough of it to spread around.

It is scary. But there's light on the horizon. While it involves yet another GMO, at least it is a possible (temporary) solution.

The last thing we need is one MORE thing to frighten us!

JAG's picture
JAG
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Posts: 2490
Re: Jim Puplava

Pricing and supply and demand doesn't work like that. 

Just listen to the podcast that I linked to.

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