7 Color Lagoon

Photo © Howard Dratch.

It has been nearly a month since I have posted.  My other blogs are languishing while I try to survive in my own changed environment, changed circumstances and interests.  However, I miss writing even if only a little.

The plan is to continue this blog, 7 Color Lagoon, with changes.  It is less about travel and living as an expatriate as it will be about global economics, photography, economic news and whatever happens to catch my eye and interest.  Links will slowly be checked and redone and the ads and Amazon store re-arranged to reflect the new subject matter.  Please support the advertisers as it helps continue the blog.

Here is a current (5/16) report from Canal Once, the Mexican news and TV network from the Polytechnic Institute in the capital city.  The 5th annual meeting of leaders of the Latin American states is being held in Lima, Peru under guard by 9000 police.  A major issue being discussed is global food supplies in light of diversions to biofuels, poverty and climatic changes.

This is an excerpt from Canal Once in Spanish,

Sumida en la pobreza sobrevive una tercera parte de la población de América Latina, son 220 millones de personas que carecen de lo indispensable. A este sector se dirigieron los trabajos de la Quinta Cumbre de Jefes de Estado de Latinoamérica, el Caribe y la Unión Europea en Lima, Perú, a la que acudieron 45 gobernantes.

Desarrollo sustentable, cambio climático y energía fueron otros de los temas principales. Se llegó a un acuerdo para analizar un posible gravamen al consumo de petróleo y gas licuado a fin de conseguir fondos que serían destinados a mejorar el medio ambiente.

The Lima meeting is concentrating on the poverty that continues to affect one-third or the Latin American population — 220 million people.  President Garcia opened remarks with the declaration that hundreds of millions of people are threatened with hunger in the midst of abundance.  The European Union is the primary donor in  humanitarian aid.

Garcia warned of the consequences of eyes closed against the food crisis and proposed increasing by 2% world agricultural production.  The Spanish president, Josè Luis Rodriquez Zapatero, lamented the impact of biofuel production on  rising food prices.  Besides Hugo Chavez, Venezuelan president, trying to turn the meeting to the political crises between his country and Columbia; the major themes were sustainable development, climate change, energy needs and funds to improve the environment.

The food crisis is not just a Market manipulation.  It may well be partly a result of what Robert Heilbroner called a “revolution of rising expectations”.  Like global warming that revolution gathered momentum slowly and is now breaking out in a rapidly ascending line.  People want things they didn’t have before nor even thought to have.  More meat in their diet (healthy or not), regular meals, cell phones, national infrastructure, TV, education, credit and consumer goods, etc.  The revolution has been won in that the world is more and more demanding that its expectations be met.  Providing those expectations may strain resources on an over-crowded planet and change the political face of many parts of the world.

Photo © Howard Dratch, 2008.  Pasta & tofu.

The world may not be waiting for this heart-healthy dish of tofu, nopal cactus, chaya leaf and zucchini but it is tired of waiting for 2 or 3 meals a day.  Now that everyone - almost - watches TV they are aware that the world has plenty of food and toys and they want a piece of the action, a slice of the pie.

Photo © Howard Dratch, 2007.

Fears of Food Shortages Rise

Rice stirs fears as the prices mounted ever higher and poorer populations rioted in anxiety over the coming famine. In the US some hysteria seems to have hit as people began hoarding rice from major groceries. The Bush people said “We have plenty of food in the U.S.” (U.S. Secretary of the Treasury Paulson reported to Reuters). He predicted food prices to rise but that the rise will be less “significant” that the rise in gas prices.

Rice has jumped to $1000 a ton which is said to be 3 times what it cost at the beginning of ‘08. Thoughts of social unrest in Asia are mounting with the cost of their staple. Africa and Haiti have seen riots as well. Here in Mexico where rice is a home-grown commodity (not that I wouldn’t like some Jasmine or Basmati before the cost the same as gas) there appears no shortage and prices remain relatively even.

“In Bangkok, some traders said Thai 100-percent B grade white rice, the world’s benchmark, could hit $1,300 a ton on demand from the number-one importer, Philippines.”

Read the CNBC report from Reuters HERE.

Look down just beneath that big ole state where Mr. President lives.  It is The United States of Mexico and it is emerging, showing signs of growth and, perhaps, even some independence from the domination of the dollar.

Not that pesos will soon become an internationally sought after currency.

Investors are watching CX, Telmex and AMX.

But my favorite tequila for the price is partly made so fine by its great label.  The fresh-faced cactus-fed all-Mexican beauty from the days of courtly Mexico.

Photo © Howard Dratch, 2008

Yahoo today reported on a newly proven link between male sexual hormone levels (testosterone strikes again) and market risk taking and success in financial markets.  This British study from Cambridge shows that elevated levels of testosterone in male traders boosts aggressivity and risk-taking and often supports success in the market.

Photo © Howard Dratch, 2006.

However, a continued hormonal rush finally backfires causing irrational risk-taking and behaviors that eventually compromise the success factor.  Those men with high testosterone in the mornings were “more likely” to make a financial gain during the day.

The second hormone involved — cortisol — is considered linked to “uncertainty, novelty and unpredictability” which, the researchers pointed out was “pretty much” what traders needed to be.

One comment was that the markets needed more women and old men to temper the excesses and irrationality of the financial alpha males.

The conclusions of the researchers were that:

“Cortisol is likely, therefore, to rise in a market crash and, by increasing risk aversion, to exaggerate the market’s downward movement. Testosterone, on the other hand, is likely to rise in a bubble and, by increasing risk taking, to exaggerate the market’s upward movement.”

And that, Coates and Herbert wrote, “may help explain why people caught in bubbles and crashes often find it difficult to make rational choices.”

Financial markets and expectations have spent months in turgidity.

As spring begins they have become turbid.

1 a: thick or opaque with or as if with roiled sediment <a turbid stream> b: heavy with smoke or mist2 a: deficient in clarity or purity : foul, muddy <turbid depths of degradation and misery — C. I. Glicksberg> b: characterized by or producing obscurity (as of mind or emotions) <an emotionally turbid response>

It was a fascinating day in the financial markets today.  Chicken Little made an appearance again to speak on the possibility that the sky may fall.  Or not.  The bankers spoke of this and that and were smiled upon by the man from the Fed who knows Mr. Little and seems a little fearful of his powers.  With some luck the sky could stay above the fray.

Just to remind us all of the reasons for the present turbidity I post this picture again:

Photo ©Howard Dratch, 2007.  (Credit to photographer and link to www.7colorlagoon.com/blog1)

The NY Times reported today in their World Business section about the future for commodities — the things we must consume. Wheat, corn, soy beans, mustard seeds with the other staples of life are rising in price, in demand and in scarcity.

There have been droughts and failed harvests here and there but the major culprit is demand. Global demand. Rising demand. Desperate demand. It is Dr. Heilbroner’s famous “revolution of rising expectations”. The world is growing richer and growing more aware from the dissemination of technology. The Times reports on a Nigerian man’s hunger for bread and tea for his breakfast, Italians want pasta as do the people of other cultures. The Chinese want rice and noodles and the port to flavor it. Americans want everything that can fit in a super-sized market the size of a city block. And they want ethanol for their cars along with corn on the cob for dinner, corn to feed the cattle and whatever proportion of real food is put into fast food.

Where once the then primitive populations who are now referred to as “emerging” wanted enough of their historic staples to survive; they want enough food to enjoy their lives, different foods and even America’s deadly exports of fast food. Here in Chetumal, Mexico on the edge of the jungle in a region just recently emerging from jungle poverty, we now have a McDonalds, Burger King, a few Dominoes and a Sam’s Club. Money is being made and people want that which was denied and that which, a few years ago, was not available here. Ten years ago when I came here it was hard to find olive oil let alone extra-virgen. There was aceite comestible (edible oil) or manteca de cerdo (pig fat) for cooking. Now the supermarket stocks 6-12 brands of olive oil and even oregano oil, pasta from Mexico, Italy, Spain and France, soy sauce from China and Asian noodles.

For farmers it is obviously a gusher or profits as they try to decide how to allocate their seemingly scarce acres to the most profitable crops. Investors vie to move money from stock equities into commodities and commodity-driven stocks.

There is more to the story than just the growing affluence and power of farmers and agri-businesses. There is more than the soaring profits of farm machinery and of agricultural chemicals.

Perhaps most important to the world (rather than just the investment community) is that revolution which is gaining momentum. Watch all the cooking channels and vlogs on cooking. China’s billion people continue to want rice and noodles, pigs and chickens, chiles and spices. They want more of the same and maybe a hamburger now and again. I would not be surprised that many pine for pine nuts to put in the pesto, black olives from Greece and truffles from France.

The most cogent comment in the excellent Times article is “Everyone wants to eat like an American on this globe,” said Daniel W. Basse of the AgResource Company, a Chicago consultancy. “But if they do, we’re going to need another two or three globes to grow it all.”

The next factor has been the demand for foodstuffs to be used for non-feeding of the world’s population — obese or hungry. Ethanol is a case in point. All that corn being used to power vehicles is hard to believe while living in a society that calls itself “the people of the corn”. When the Maya had nearly vanquished the Mexican/Spanish population from Yucatan during the Caste Wars in 1848-49 (which continued into the early 20th c.); the corn god announced the time for planting and the uprising failed when they all went back to their milpas to plant corn, beans and chiles.

Eating seems to be a basic desire that transcends even trade. It is doubtful that it will lose its importance in the near term. The revolution of rising expectations has raised the minimum in most places from bare survival to a full plate and the hope of another meal in the near future. The desire will not diminish but the supply could fall under the onslaught of demand.

For investors it could mean commodities and commodity-based equities will be a place to hide from the avalanche of bad news. It is probably a trend that will continue. But farmers learned long ago that the gods of agriculture are strong and fickle. For now the producers of foods (ADM, CAG, SJM and others), the purveyors of fast foods, convenience foods and the new staples (KO, YUM, KFT, HRL,DM, PAS, MCD) and the agri-chemical and agri-businesses are swinging the weight of rising food prices around.

When you go home the market realm will give way to the new prices for bread, pasta, milk, eggs. Buen provecho!

Photo ©Howard Dratch, 2008. Lunch buffet in a country club in the land of plenty.

Photo ©Howard Dratch. Market vendor in the state of San Luis Potosì.

The Times ran an interesting piece on another form of solar energy for the coming fossil fuel crisis — solar thermal power. Mirror farms focus desert sunlight onto pipes or towers that contain a liquid. The heated liquid powers a generator to produce electricity. Not new and not without its own dangers; but fascinating.

Check out their story about “Turning Glare Into Watts”.

Hot stuff, commodities. Gold and silver still drive the sane mad with greed. Food is getting popular in the financial world.

Oddly, food has been popular for a long time. Many people eat it, only some invest in it. Too large a proportion don’t have enough of it while some advanced countries grow their population super-sized.

Here in Mexico signs are needed as visuals for those who can’t read, as decoration where color is almost as necessary as food. This fellow is on the wall of a small shop that sells farm feeds, insecticides, some chile plants, seeds and such.

©Howard Dratch, 2007.

Photo © Howard Dratch, 2007.

In the face of the coming US recession — or so thinks Latin America — President Calderòn launched a new “Programa de Apoyo a la Economia”. The Program of Economic Support is to have 10 measures with which to push economic activity, investment and employment, according to Once Noticias, the website of Canal Once’s national TV network.

The purpose of the program, the new release explained, is for 60 billion pesos (about $US561,000,000) to be channeled into programs, services and discounted business services in order to expand productivity during a time of global adversity.

Agustin Carstens, secretario de Hacienda (Home Office/State Department) was quoted as saying, “La mayoría de estas medidas tendrán un horizonte temporal, pues lo que se busca es auxiliar a la economía durante el periodo en que la economía de Estados Unidos muestre una debilidad pronunciada”. Most of the points in the plan have a time horizon and are planned to help the economy of Mexico “… during the time in which the US economy shows a pronounced weakness.”

Eduardo Sojo, secretary of the Economy, stressed the need to reduce substantially costs and charges for businesses — especially small and medium — with savings of both time and resources. In a country where shipping a package from one state to another requires a long drive to a border customs station for examination, interrogation and possible corruption. It is not an economy in which it is easy to do business. However there are more and more US companies “going global” and global enterprises servicing both the developed world and the “emerging” markets.

The plan will reduce business taxes by 3%, stimulate business creation with additional support for a million entrepreneurs and simplify the arcane, usually endless commercial “tramités” (packages of forms for applications). It goes on to promise that the government will pay 5% of the costs for social security (IMSS) in order to promote more employment. Six hundred fifty million pesos will be used to set up a national employment system. In a society where people pay corruption money to obtain work in both private and public employment, this is a great undertaking to help Mexico’s labor force enter the 21st century.

Ten billion pesos will be designated for the renovation of the state-controlled oil industry’s pipelines and as an accelerant to employment. Pipelines built and maintained under the traditional system probably need renovation far sooner than those in more businesslike regions. The present government has been pushing for some privatization of the state oil industry to increase efficiency.

It is also promised that development will be especially supported in areas of poverty and special incentives will be directed at businesses in “vulnerable zones”.

The last is far more important than it would seem. The capacity for civil insurrection and violence pulses in the marginalized areas and in the indigenous tribes of the rural landscape. President Fox immediately de-clawed the would-be guerillas in Chiapas state by inviting them to Mexico City to speak in the Congress. It was a daring, needed and successful move. President Calderòne is doing something similar in an economic move that could not only co-opt future political problems but provide economic stimulus in previously ignored regions of a complex country.

The weakness of the American economy is certainly the catalyst for these actions. The possible benefits on a long-range basis far outweigh the dangers of American recession.