Food price hikes: Why I blame investors

By Andrew Hepburn - Monday, September 24, 2012 at 11:19 AM - 0 Comments

Andrew Hepburn is a former hedge fund researcher. He writes on commodities, the stock market and the financial industry–but without the jargon.

Once again, food prices are soaring. For the third time in five years, the world seems on the verge of a crisis. Prices for corn, soybeans and wheat have all skyrocketed on international markets, rising 21 per cent, 41 per cent and 31 per cent respectively since the start of the year.

The key question is: Why?

The standard answer is that there are a plethora of factors making food more expensive worldwide. The International Monetary Fund lists them in the following order, which is fairly typical:

• Strong food demand from emerging economies, reflecting stronger per capita income growth, accounts for much of the increase in consumption. Although demand growth has been high for some time now, the recent sustained period of high global growth contributed to depleting global inventories, particularly of grains.

• Rising biofuel production adds to the demand for corn and rapeseeds oil, in particular, spilling over to other foods through demand and crop substitution effects. Almost half the increase in consumption of major food crops in 2007 was related to biofuels, mostly because of corn-based ethanol production in the US; and the new biofuel mandates in the US and the EU that favor domestic production will continue to put pressure on prices.

(…)

• The policy responses in some countries are exacerbating the problem: (i) Some major exporting countries have introduced export taxes, export bans, or other restrictions on exports of agricultural products. (ii) Some importing countries are not allowing full pass-through of international prices into domestic prices (less than half a sample of 43 developing and emerging market countries allowed for full pass through in 2007).

• Drought conditions in major wheat-producing countries (e.g., Australia and Ukraine), higher input costs (animal feed, energy, and fertilizer), and restrictive trade policies in major net exporters of key food staples such as rice have also contributed.

• Financial factors: the depreciating US$ increases purchasing power of commodity users outside of the dollar area; falling policy interest rates in some major currencies reduce inventory holding costs and induce shifts from money market instruments to higher-yielding assets such as commodity-indexed funds.

Continue…

Listening for liars

By Colin Campbell - Thursday, August 26, 2010 at 4:00 PM - 0 Comments

Getty Images

There’s a good reason for investors to pay extra close attention to those quarterly-earnings conference calls. Researchers at Stanford University have developed a model that can help determine when company executives are lying. By studying the question and answer section of conference calls from firms that later substantially restated their earnings, researchers uncovered some tell-tale cues of deceitful behavior.

When lying, CEOs tend to speak with less hesitation (because they have more prepared answers or are answering planted questions), avoid using the word “I” and use more words expressing extreme emotion, like “fantastic.” They also avoid the phrase “shareholder value” and swear words. Lying CFOs, on the other hand, speak much more tentatively and avoid words that express extreme emotion. Both CFOs and CEOs share one trait: they often use phrases that reference general knowledge, like “you know.” So now, you know what they’re really saying.

Patience pays off

By Sean Silcoff - Wednesday, February 11, 2009 at 10:40 AM - 2 Comments

Vito Maida is arguably the most stubborn money manager on Bay Street, and he has paid dearly for it. A decade ago, when he was lead Canadian portfolio manager at mutual fund giant Trimark Financial Corp., he insisted soaring Canadian bank stocks were overvalued and stayed away from then-hot Nortel Networks. Instead, he invested in unpopular commodity stocks and gold. Investment advisers called for his head and pulled their clients’ money from his funds, and he was fired. Then the Internet bubble burst, Nortel crashed and commodities soared in value.

So Maida started his own money management firm, Patient Capital Management, based on the premise you should never, ever lose your clients’ money. For more than eight years, he kept 80 per cent of assets in government treasury bills, holding steady to the belief everything else was overvalued. As the TSX posted double-digit returns from 2004 through 2007, Maida earned between three per cent and seven per cent a year. Business was depressingly slow. “It was tough to sell a product that was 80 per cent cash,” Maida says. Today, Patient manages under $100 million, a pittance in the wealth management business. “We’d like to be bigger, quite frankly.”

Continue…

Dig out your old calendars, we're going back, waaaay back

By Jason Kirby - Friday, October 24, 2008 at 3:20 PM - 1 Comment

As markets continue to fall, analysts have simply started using historical dates to forecast how low we could go. Today Montreal-based BCA Research warned that U.S. equities could fall to levels not seen since 2002. As it is, the last time the S&P 500 was this low was in April 2003:

Panic has returned in full force: equity and commodity prices are gaping lower, while the dollar and yen continue to surge. Investor sentiment has been crushed and despite extremely oversold conditions and appealing valuations, the bleak growth outlook provides little reason to be upbeat.

…

Bottom line: Stay defensively positioned; a retest of the equity market 2002 lows (at least in U.S. equity prices) seems probable.

That’s gloomy enough. But it gets worse. Continue…