Sugar hits 30-year top as cyclone lashes Australia

by Agrimoney.com

Sugar prices set a fresh 30-year high in New York, and a record top in London, as a cyclone bringing wind speeds above 180mph headed for cane plantations in Australia, the world's third-ranked exporter of the sweetener.

Cyclone Yasi, which Australian meteorologists on Wednesday upgraded to a category five storm, the maximum rating, reached land as "a large and very powerful tropical cyclone that poses an extremely serious threat to life and property".

"This impact is likely to be more life threatening than any experienced during recent generations," said officials in Queensland, ahead of the cyclone strike south of Cairns.

In agriculture, cane growers are expected to bear the brunt of the storm, which is being compared with 2006's Cyclone Larry, which caused nearly Aus$1bn of damage.

"Cyclone Yasi is following a similar path and severity to Cyclone Larry, which badly damaged sugar production and infrastructure in the northern sugar producing region," analysts at Australia & New Zealand Bank said, adding that the banana industry too sustained "significant damage".

Prices rise

Areas at most risk of damage from the latest cyclone account for one-third of Australian sugar production, on Commonwealth Bank of Australia estimates.

Queensland produces virtually all the sugar in Australia, the world's third-ranked exporter of the sweetener behind Brazil and Thailand.

"The cyclone could lead to a further price increase on the international sugar market," Commerzbank said.

While CBA analyst Luke Mathews proposed that mid-2011 sugar futures should be supported most by Yasi, given the timing of Australia's crush, it was the near-term March lot which led the rally in New York, hitting a 30-year high of 36.08 cents a pound.

The contract stood at 35.28 cents a pound at 17:30 GMT, up 3.9% on the day. The July lot gained 2.3% to 29.14 cents a pound.

In London, white sugar for March hit $857.00 a tonne, the highest for a spot contract since trading began in 1983.

Sugar prices are also being underpinned by a continued dearth of exports from India, where a return to a production surplus had been expected to go some way to meeting international as well as domestic demand.

Leftover cane

Mr Mathews added that prospects for damage this time have been exacerbated by the high levels of 2010-11 cane which growers left standing for cutting next season, after the wet weather which has already dogged Queensland for months prevented them harvesting it this time.

"Yasi is likely to result in cane losses because of the expected severity of the storm, and because of the significant proportion of standover cane," he said, estimating that up to 20% of cane had been left uncut.

"This standover cane is particularly susceptible to wind-induced lodging."

The northerly path of the storm meant cotton, grain and livestock farms should avoid significant damage, he adde

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Three Market Valuation Indicators Continue To Signal Caution

Doug Short, DShort.com

Yesterday I posted monthly updates of the three valuation indicators I routinely follow:

• The relationship of the S&P Composite to a regression trendline (more)
• The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)
• The Q Ratio — the total price of the market divided by its replacement cost (more)

This post is essentially an overview and summary by way of chart overlays of the three. To facilitate comparisons, I've adjusted the Q Ratio and P/E10 to their arithmetic mean, which I represent as zero.
Thus the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which I'm using as a surrogate for fair value.
Based on the latest S&P 500 monthly data, the index is overvalued by 66%, 45% or 42%, depending on which of the three metrics you choose.
I've plotted the S&P regression data as an area chart type rather than a line to make the comparisons a bit easier to read. It also reinforces the difference between the two line charts — both being simple ratios — and the regression series, which measures the distance from an exponential regression on a log chart.

Image: DShort.com

The chart below differs from the one above in that the two valuation ratios (P/E and Q) are adjusted to their geometric mean rather than their arithmetic mean (which is what most people think of as the "average"). The geometric mean weights the central tendency of a series of numbers, thus calling attention to outliers. In my view, the first chart does a satisfactory job of illustrating these three approaches to market valuation, but I've included the geometric variant as an interesting alternative view for P/E and Q. .. [..]

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Nice Copper Trade

Sta procedendo molto bene il trade sul Copper, che si sta avvicinando al suo Profit Target. La divergenza negativa presente sul grafico giornaliero consiglia di avvicinare lo Stop Trailing ai prezzi correnti.

It's going very well the trade on Copper, which is approaching its Profit Target. The negative divergence on the daily chart should approach the Stop Trailing at current prices.

THE SECULAR BEAR MARKET COULD LAST UNTIL 2020

by Cullen Roche

 

Pring Turner Capital has an updated version of their secular bear market comparison.  According to them this bear is years from being over:

“Updating our duration and valuation benchmarks, again we find progress but not yet achieving the truly undervalued levels we expect to see toward the end of a secular bear market. Based upon previous cycles, it appears we are only slightly past the half way mark in terms of years, number of recessions, and valuations. A look at our chart and table comparing this to earlier secular bear markets illustrates our conclusion. We expect a major bottom for inflation adjusted stock prices is still years away before stocks finally gravitate toward the target area outlined below.” [..]

Source: Pring Turner

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Europe Situation

Wallison Reinvents History – and His Own Positions on the Causes of the Crisis

By Barry Ritholtz

The big news in U.S. regulation last week was the release of the Financial Crisis Inquiry Commission reports. (There’s a major article in the New York Times about Kabul Bank that supports warnings made in my earlier column on that scandal.) The Commission report and the two dissents discuss some of the most important topics in financial regulation, so I will devote a series of columns to the reports, beginning with the dissent of the nation’s leading anti-regulator – Peter Wallison. Wallison’s passion, for forty years, has been financial deregulation and desupervision. The Republican Congressional leadership appointed him to the Commission to serve as apologist-in-chief for the deregulation and desupervison that made the crisis possible.

We’ll explore Wallison’s dissent in greater detail in future columns, but this overview column addresses his three primary arguments: Fannie and Freddie are the Great Satans, they caused the crisis because of demands politicians put on it to purchase the subprime loans that caused the crisis, and all of this was compounded by the Fed’s easy money policies.

This column discusses Wallison’s views on the first two subjects while the crisis was developing. Wallison is well-known for his long-standing criticisms of Fannie and Freddie, but most people do not know the nature of those criticisms. Wallison praised subprime mortgage loan and complained that Fannie and Freddie purchased too few subprime loans. Wallison (correctly) explained that Fannie and Freddie’s CEOs acted to maximize their wealth – not to fulfill any public purpose involving affordable housing. He also explained that they used accounting abuses to make themselves wealthy. He predicted that low capital costs would increase economic growth. Wallison’s prior views contradict his current claims. Aspects of Wallison’s prior views were correct. They support the conclusion that Fannie and Freddie were accounting control frauds.

Wallison’s Ode to Low Interest Rates

http://www.aei.org/speech/16590

Testimony before the Subcommittee on Securities of the Senate Committee on Banking, Housing and Urban Affairs
By Peter J. Wallison | Senate Committee on Banking, Housing, and Urban Affairs
(July 19, 2000)

If capital costs are low, more capital will be available for companies that need it, capital will be allocated more efficiently, we will have faster and broader-based economic growth, and the welfare of all Americans will be enhanced.

(Parenthetically, Wallison’s July 19, 2000 Senate testimony disputed the claim that there was a high tech bubble – even as the bubble was collapsing.)

Wallison’s Ode to Subprime Lending

Wallison and his AEI colleague Charles Calomiris co-chaired AEI’s project on financial market deregulation . They were also members of the Shadow Financial Regulatory Committee (a self-selected group of deregulatory scholars and practitioners associated with AEI).

Statement of the Shadow Financial Regulatory Committee on Predatory Lending
December 3, 2001. Statement No. 173

The Federal Reserve is in the process of drafting detailed regulations dealing with alleged problems of so-called “predatory lending” in the subprime mortgage market, and the Congress is considering actions to curb various alleged abuses in this type of lending.
Because much of what is classified as predatory lending involves loans to low-income, minority, and higher-risk borrowers, a central principle that should guide legislation and regulation in this area is the desirability of preserving access to subprime mortgage credit for such borrowers, who are most at risk of losing access to this market in the wake of misguided and punitive regulations. The democratization of consumer finance that has occurred over the past decade has created new opportunities for low-income consumers. This is now threatened by chilling effects that inappropriate regulations and laws might have on the supply of subprime credit to these consumers.
Subprime credit to low-income consumers necessarily entails higher interest rates.
As recent evidence of increasing loan defaults demonstrates, this line of business is risky, and institutions will only be willing to provide such credit if interest rates are sufficiently high relative to risks and other costs of servicing consumers. One of the risks that must be borne by intermediaries is regulatory risk. Laws or regulations that place lenders at greater risk of legal liability for having entered into a loan agreement (for example, state and municipal statutes that penalize refinancings that could be deemed contrary to the interests of the borrower) generally will reduce the supply of beneficial lending as well as predatory lending. Illegal lending, however, would not be reduced; indeed, it would be encouraged. .. [..]

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