Good Friday Morning! I’m writing this right before heading out for a trip. So, that means you’re getting a condensed issue this week. Things should return to normal next week. Thanks for hanging with me.
Where you can find me this week
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[04/04/2022] War Crimes and Heightened Contradictions in Ukraine – Conservative Institute
[04/08/2022] The Green Revolution Myth – Conservative Institute
Recession and food crisis.
Two stories caught my eye this week. The first dealt with domestic and foreign food supply. And the second story dealt with recession outlooks for the US economy.
Regarding the first point, a column in Reuters explored the current conditions of the upcoming winter wheat crop in the US. Karen Braun writes:
The U.S. Department of Agriculture late on Monday said 30% of U.S. winter wheat was in good or excellent condition as of April 3, well below the trade expectation for 40% and the year-ago 53%. That was the agency’s first national assessment of wheat conditions since late November.
Crop health has rarely been this poor in early April. Only 27% of winter wheat in 1996 was good or excellent within the first 10 days of the month, and 2018 was close behind with 31%. Final yields were poor in 2018 but terrible in 1996.
In fact, U.S. winter wheat yields have never been above the long-term trend when much less than 45% of the crop is good or excellent as of early April. Along with 1996, lousy harvests such as 1989, 2002 and 2014 were also in poor shape at this juncture. Records go back to 1986.
The critical part is that these estimates of our food supply aren’t coming from traders or anecdotal stories from farmers. These are the views of the US Department of Agriculture.
Braun adds some helpful context:
This year’s crop, which should be harvested in June and July, was in bad health last fall as crops were sown into very dry soils across the U.S. Plains and West. Precipitation over the winter months was among the lightest ever in those areas, almost ensuring wheat would emerge in tough shape come spring.
Not all crops end up in disaster when health ratings are low at this point. About 36% of the 2011 and 2013 winter wheat was good or excellent in early April, and adequate but not good rainfall during April helped those yields fall only a couple of percentage points from the trend.
The timeline is important here: we’re going to learn about the impacts of this harvest starting over the summer. We’ll also know the state of the next round of crops being planted now and have an idea of how the Russia-Ukraine war impacts global food supplies.
Right now, the signs are all bad. Adding to that is the price of fertilizer, which is skyrocketing. Farmers who can get fertilizer pass on much higher costs to consumers. But not everyone can get fertilizer of any kind.
High prices are combing with shortages to prevent some farmers from getting fertilizer. The same U.S. Department of Agriculture is forecasting lower crop yields due to less fertilizer available.
Where does that leave the food supply? It’s hard to tell. But France is already calling for a food security plan to deal with shortages. And there are predictions that parts of the world will deal with famine.
That leads me to the second story: “Fed will tip U.S. economy ‘into a recession by the end of next year’: Deutsche Bank economist.”
The economist in question said the following:
BRIAN CHEUNG: So, Matt, under the baseline scenario, let’s give you the benefit of doubt and say that is going to happen– the Federal Reserve will tilt the economy into a recession– how quickly would they get backed into zero rates again? Would it be more dramatic of a money printer that they’d have to roll out in the next recession than they did in 2020?
MATTHEW LUZZETTI: Yeah. So the past few recessions what we’ve seen is the Fed getting back down to the zero lower bound, basically cutting interest rates to zero as they’ve tightened– and, as you mentioned, doing QE asset purchases. Our baseline is that this is a relatively mild recession– two quarters of growth, but moderate, negative– one where the Fed does not have to cut interest rates all the way to the zero lower bound.
The reasons for it to potentially be more mild are, one, household balance sheets and corporate balance sheets are in pretty good shape. So you really don’t have a lot of deleveraging that needs to take place. And two, a lot of the cyclical sectors, whether it’s housing or capex, really are not overextended. Consumer durables are, but these other sectors are not.
What’s notable here is not his prediction of the recession’s severity but that we have a recession call coming from a major bank at all. It’s hard to avoid this conclusion because the yield curve has inverted, which is one of the better predictors of a recession.
It’s not unusual for banks and market prognosticators to refuse to acknowledge a recession until we’re in the midst of one. If you go back and look at predictions during 2007 and 2008, most stories said that the economy was fine.
I’ve laughed at Jim Cramer on CNBC for the last week. Cramer declared that the bear market was over at the end of March and stocks would increase. This week, he’s pivoted and said investors need to be conservative and careful.
I’m picking on Cramer because he’s an easy target. But it’s easy to find flip-flopping all over the place. The evidence exists for a recession, a food crisis, and continuing supply-chain issues to exacerbate matters. COVID-19 still exists globally, too, and is hitting China hard.
The stories coming out of Shanghai are dystopian in the extreme. Lockdowns continue, people can’t get food because of the mandated lockdowns, and disturbing viral videos are coming out. There are videos of Chinese regulators killing pets on the streets to prevent them from getting their owners to go outside. There are videos of drones flying over Shanghai neighborhoods blasting messages:
In the video, the drone is seen flying over buildings, and a robotic voice broadcasts the message: “Residents of Jiuting. During the pandemic, we request that you strictly abide by COVID-19 restrictions and related guidelines. Control your soul’s desire for freedom. Do not open the window or sing. This increases the risk of COVID-19 transmission.”
It’s real dystopian stuff. And I bring it up because Shanghai is one of the largest ports in the world for global commerce. Twenty-six million people live there, and trade is at a standstill. That will have an impact on us.
You may have heard of black swan events. An alternative is a “gray rhino.” Instead of being an out-of-the-blue scenario, gray rhinos are the things that hit that everyone can see and no one prepares for. That’s where we are right now: preparing for stormy economic times. Maybe everything works out, but it’s hard not to see a rhino at the moment.
Links of the week
Mines, Minerals, and “Green” Energy: A Reality Check – Mark P. Mills, The Manhattan Institute
Charge of the Left Brigade – Varad Mehta, The Washington Examiner
The Democrats’ Nevada Problem: Combining the Democrats’ Hispanic Voter and Working Class Voter Problems – Ruy Teixeira, The Liberal Patriot
Why So Many COVID Predictions Were Wrong: The eviction tsunami never happened. Neither did the “she-cession.” Here are four theories for the failed economic forecasting of the pandemic era. – Jerusalem Demsas, The Atlantic
U.S. Wants More Oil From Canada but Not a New Pipeline to Bring It: White House still opposes Keystone, but other options could include shipping more oil by rail or expanding pipeline capacity along existing routes – WSJ
Seven Worst-Case Scenarios From the War in Ukraine: Most conflicts end quickly, but this one looks increasingly like it won’t. The repercussions could range from global stagflation to World War III. – Niall Ferguson, Bloomberg
Twitter Thread(s) of the week
Satire of the week
Not To Be Outdone, Bill Gates Buys 9.2% Of MySpace – Babylon Bee
15,000 dead after longest Russian drill weekend ever – Duffel Blog
Thanks for reading!