Economics & Finance

Official Stupidity

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Indian pols revert to Third World type:

NEW YORK (MarketWatch) — India is reportedly considering a ban on futures trading in food commodities, as the government struggles to curb soaring inflation and the rising cost of food has become a major international concern.
 
India’s finance minister Palaniappan Chidambaram said Monday that he was considering a blanket ban on trading in food futures, according to a report in The Financial Times.
 
Chidambaram said that governments across Asia share his worries over speculation in the commodities markets, the FT reported.
 
India is “facing a very grave crisis on the food front,” the minister said on the sidelines of the Asian Development Bank’s annual meeting in Madrid, according to the FT.
 
India has already banned futures trading in rice and wheat. The latest remarks from India’s finance minister come as his government confronts growing pressure at home to curb rising inflation.
 
On Friday, official data showed that India’s inflation hit a 42-month high of 7.57% in the week ending April 19.
 
“It’s indicative of the fact that there’s a real issue here and governments are scrambling to find some kind of solution,” said Cameron Brandt, global markets analyst at EPFR Global, about India’s idea to ban trading in food futures.
 
“I don’t think it’s a great idea especially given that their food futures market is fairly modest,” Brandt said. “If you take that away, you lose pretty important market signals. One thing the food futures market is telling us is plant more food.”
 
[…]

There’s not much to say about this except that India still has a ways to go to become a first-rate country.

Also, the ignorance about basic economics of many of the commenters on economics and finance websites never ceases to surprise me.

ChicagoBoyz Eatin’ Cheap Contest Winner

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This post generated a lot of interesting comments and great ideas not only for cheap foods, but for great ways to prepare your food and make it last longer. The pork shoulder (butt) was mentioned a few times and I will admit that I use those once in a while to eat cheap myself. Top Ramen was king with several people, and seems to have helped many survive their college days. Various ways to prepare chicken also garnered several comments as did PB and J sammiches. Some things I just can’t eat, like the roadkill mentioned or the Jose Ole burritos (3 for $1!). I have heard of people here in Wisconsin taking roadkilled deer and butchering them on the spot and taking the meat home for freezing. Out of so many good ideas I had to narrow it down, and I got it down to two.

Our runner up is Ozmo, whose wife, using a combination of newspaper coupons and a loyalty card purchased food and toiletries for a total of $50, but in the end with the coupons and loyalty bonuses $13 was paid to HER.

But our clear winner reminded me of myself back in my college days, where free food was my main draw. I will let John say it as he did in the comments:

Margarita Mondays at Acapulcos. Go into the Cantina during happy hour and for $1 you get a margarita (cheap tequila, but it still works) and all you can eat buffet. I swear, for a while there in college that was the only fresh vegetables I was getting. They also had these great little taquitos. You just had to make sure to get out before the karaoke started (or if you had at least $5 you could be drunk enough to last through it).

For this Eatin’ Cheap submission John, you are the man!

*Special thanks to Jonathan for making this certificate, which will entitle John to great respect wherever he goes, as well as the best tables at America’s finest restaurants.

People Magazine or WSJ?

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In Friday’s Wall Street Journal was an article titled “The Accidental Renters” with the subtitle “After Losing Homes to Foreclosure, Tight Rental Market Poses More Indignities”. The article ostensibly covers the difficulties that people who lost lost their homes face trying to rent.

It is incomprehensible to me how the WSJ, which usually is a very well written newspaper, occasionally slips in an article so badly written, conceived and executed that I think I am reading People magazine. Isn’t that why they have editors? Let’s take this apart…

The most typical flaw of mainstream journalism in my opinion is 1) “humanizing” a complex problem with a few interviews or out of context “examples” 2) not challenging basic flaws in logic in these “examples” 3) failing to add a knowledgeable and topic-based analysis of the facts at hand based on experience.

Here are the examples in the article:

“Ray and Trish Vangas recently found themselves contending with the indignities of renting. The couple lost their first home… after their adjustable rate mortgage reset and the bill jumped by about $900 a month, to $3300… the couple moved into a rented townhouse… almost immediately, they discovered problems, including a deck that wobbled, dead electrical outlets, missing smoke detectors, and bad plumbing. With the help of the town’s health department they moved out… paying $2250 a month. “I can’t believe I worked so hard for a house, only to lose it.”

The interviewer never takes the Vangas to task for their obvious mistakes. They picked up an adjustable rate mortgage which was scheduled to reset to a level of payments that they could not afford. Why did they do this? And the odd part is that the mortgage didn’t reset very far – it moved from $2400 to $3300, a large but seemingly manageable increase. Were they living that close to the edge? The article doesn’t mention them losing a job or suffering any sort of financial crisis, so that doesn’t seem to be an explanation.

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Agflation Watch

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Financial Times (4/24) has an interesting article titled commodities boom drives up land values. In the UK, farmland prices have risen 40% over the past year. There is at least one UK investment fund dedicated to the purchase of farmland, and the operation of farms, on behalf of investors. In the Ukraine, prices for the best farmland are expected to double over the next year. And in Serbia, there’s an increase from of more than 40% over the past year. Farmland prices have been going up significantly in the US, too, although the FT article doesn’t mention any numbers.

On the same page, FT has another article: EU warned over cut in number of pesticides. Excerpt:

European Union plans to restrict chemical use by farmers in Europe could reduce harvests at a time of global food shortages, farmers, academics, regulators and pesticide makers warned on Wednesday.

Crops such as apples and hops could no longer be grown on the continent if EU draft plans are not amended, they said. Wheat and potato yields could drop by almost a third, according to industry-sponsored research.

and

Research commissioned from Italian consultancy Nomisma forecast drops in yields of about 30 per cent by 2012. The EU would lose its self-sufficiency in wheat, potatoes, wine and cereals.

(Here’s a letter to the editor from someone who strongly disagrees with the thesis that these pesticide controls will be devastating to European agriculture.)

Via the interesting site Gongol, here’s an article about the growing shortage of fertilizer, with comments by Norman Borlaug.

As a counterpoint, both John Hussman and Anatole Kaletsky argue that the current commodities situation has some attributes of a bubble.

US inflation at lowest level since 2003!

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According to the Commerce Department, the US economy expanded by 0.6 percent in the first quarter of this year:

The U.S. economy expanded at a 0.6 percent annual pace in the first quarter, reflecting an increase in inventories as consumers retrenched and companies cut investment.

 
The gain in gross domestic product, the sum of all goods and services produced, was more than forecast and matched the rate of the previous three months, the Commerce Department reported today in Washington. …

To get the 0.6 percent growth number, nominal GDP had to be adjusted for inflation (from the same article):

The report’s price index increased at an annual rate of 2.6 percent, lower than forecast, compared with a 2.4 percent gain in the prior quarter.

The Fed’s preferred inflation gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 2.2 percent pace, down from 2.5 percent.

The report ´s 2.6 percent rate of inflation is especially interesting in comparison to the 2006 rate reported in January 2007:

Last year, the nation’s inflation rate declined to its lowest level since 2003. But now, economists are wondering if the 2.6 percent rate may be about as low as it’s going to get for a while.

So if the inflation rate in Q1 2008 still is 2.6 percent, it also means that, despite all the increases in the price of crude oil, gas, food and a whole range of other commodities, the rate also still is at its lowest level since 2003! Amazing!

Just for example, the price for potash, a vital fertilizer, rose 29% in Q4 207 alone and it had no impact on inflation at all. Downright eerie!

This is especially welcome news because if inflation had been any higher, GDP growth in Q1 2008 would have actually have been negative. Whew, I am so relieved!