February 27, 2014

February 27, 2014

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Venezuela:  Why Bother To Look At Venezuela?

Venezuela’s evolving troubles are long-expected and unsurprising.  If this is the case, why do we bother to keep watching?

For one thing, Venezuela is such a perfect case study that it could serve as a concise example of the whole pattern — which is valuable to any investor who is now, or may in the future be exposed to international markets.

But also, as we noted above, we believe that political instability will be one of the key factors constraining growth in global oil production.  The continued slide of Venezuela into chaos is therefore worth examining in terms of its implications for other significant oil-producing nations following a similar trajectory.  It’s also instructive for evaluating other resource-heavy economies struggling to escape from the trap — and deciding what signs need to appear before it’s time to buy.

It All Boils Down to Economics… and Mismanagement

Is This The End Game for the Regime?

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Is Google Fiber Going to Eat Your Internet Service Provider?

Google has its fingers in so many technological pies that it’s hard to keep track of them — even the ones not hidden in Google X, the company’s development lab.

One of those pies is Google’s small and early-stage project to deliver high-speed internet through its own fiber-optic network.  And high-speed does mean high-speed — so-called “gigabit” internet at speeds 100 times those typical of current broadband.

The Sign of Things to Come?
Source: Kurzweil Accelerating Intelligence

What’s in it for the cities?  What’s the reaction from analysts?   Will we get better returns on investments?   

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Higher Inflation Expectations May Start With Breakfast

Much has been reported about the recent surge in coffee prices… but sugar prices have also risen to multi-month highs due to drought conditions in Brazil, the world’s number one exporter of these commodities.  Brazilian coffee and sugar producers and analysts have been slashing their production estimates as hot, dry weather threatens 2014’s crops.  According Somar Meteorologia, a Brazilian weather service, January and February have been the driest months in Brazil in 30 years.

Source: Finviz.com

Not Just Coffee and Sugar… and Not Just Brazilian Farmers Experiencing Challenging Weather

Some global agribusiness analysts are looking at the impact of too much rain in Indonesia as damaging that country’s large cocoa harvest, and in North America, brutally cold winter may have damaged the wheat crop.  With respect to other grains, in the U.S, farmers are expected to plant less corn in 2014 and more soybeans to take advantage of already high soybean prices…which is bullish for corn.

While soybean prices may have been strong for some time, corn and wheat prices turned higher in recent weeks after prolonged declines.  In fact, after a rough 2013 — in which the GSCI Agriculture Index suffered its biggest decline since 1981 at down 22 percent — the index has rebounded about 6 percent in the first two months of 2014.

Corn beginning to firm up after a weak 2013.
Corn2013.jpgSource: Bloomberg

Wheat too is starting to bounce off of multi-year lows.
Wheat2013Feb.jpgSource: Bloomberg

Living Standards Cannot Escape Rising Food prices

Food may not make up as significant a percentage of consumers’ budgets in the developed world as it does in lesser developed countries, but the impact of rising global food prices is profound wherever one lives.  This is why we watch food commodities closely.

Food items may only represent less than 10 percent of the consumers’ budget in the U.S., but it can be 50 percent of an Indian’s or Chinese person’s total spending.  In our Guild Basic Needs Index — which we publish in these letters and at www.gbni.info — food components represent 30% of the index.  The GBNI index only contains, necessary, basic, essential, needs (Food, Clothing, Shelter, and Energy), and is not meant to track all spending.

In the 14 years of data collected, the basic, essential needs in our GBNI Index are up over 86 percent.  This works out to an annual increase of about 4.5 percent… versus about 2.4 percent for the government’s often-adjusted, manipulated, and managed Consumer Price Index (CPI).

The GBNI is also getting a boost from non-food items lately.

Also conspiring to send or GBNI higher lately is the recovery in real estate prices and rising energy prices.  The entire commodity complex looks firmer in 2014 than it has been the past few years, which could accelerate inflationary expectations…which will have a profound effect on central bank policy, interest rates, and on global markets.  Stay tuned.

Guild Basic Needs IndexTM
GBNI Jan 2014.jpg

Rising cost of essential, basic needs can be tracked at www.gbni.info.

Market Summary

U.S. stocks are near their highs, and are backing a filling as they prepare to move ahead in 2014.  What are the positives the negatives and our view?   Find out today and start your 30-day complimentary trial.  Enter GIMPROMO30 participate in this limited time offer.  

In Last Week’s Global Market Commentary, We Also Discussed:

  • Africa, the Land of Opportunity?
  • Pension Funds’ Improving Health Internet Investment in China Attracts Scrutiny from Central Bank
  • Drug shortages — a vision of things to come?ew Analysis Shows More Unintended Consequences of the Affordable Care Act

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