Fertilizer Shortages

April 30, 2008

* Today’s NYT has an interesting article, filled with pictures, charts and video describing the global fertilizer shortage.

* For help understanding “scarcity economics”, read Jim Jubak’s latest article: Why we’re stuck with insane prices

As with every market bubble, we’re all looking back with 20/20 hindsight and thinking: “this agriculture boom was just so obvious!” In this case, I feel pretty good because I’ve owned Potash and John Deere for about a year, catching huge gains in both stocks. Even so, of course I wish I had been a couple years earlier!

Setting aside moral concerns for now (and I certainly have some), the recent sell-off in the sector could be a good time to initiate or add to positions. The demand for agricultural products — especially fertilizer — is white hot and not likely to decrease anytime soon.


Is Monsanto Evil?

April 30, 2008

Vanity Fair ran an incendiary article about Monsanto in its May issue: Monsanto’s Harvest of Fear. The article has rekindled the debate over whether Monsanto is “evil” and “immoral”. It is particularly timely given the global food crisis.

Monsanto is a major agriculture/biotech company that dominates the US – and increasingly, the World’s – market for genetically engineered seeds. The company is controversial because of its heavy-handed tactics in enforcing patents on its genetically modified seeds (G.M.) and bovine growth hormone (rBGH). Monsanto is also notorious for its aggressive political lobbying in countries across the world.

Here’s an excerpt from the article describing how Monsanto controls the market for seeds:

For centuries—millennia—farmers have saved seeds from season to season: they planted in the spring, harvested in the fall, then reclaimed and cleaned the seeds over the winter for re-planting the next spring. Monsanto has turned this ancient practice on its head.

Monsanto developed G.M. seeds that would resist its own herbicide, Roundup, offering farmers a convenient way to spray fields with weed killer without affecting crops. Monsanto then patented the seeds. For nearly all of its history the United States Patent and Trademark Office had refused to grant patents on seeds, viewing them as life-forms with too many variables to be patented.

But in 1980 the U.S. Supreme Court, in a five-to-four decision, turned seeds into widgets, laying the groundwork for a handful of corporations to begin taking control of the world’s food supply. In its decision, the court extended patent law to cover “a live human-made microorganism.” In this case, the organism wasn’t even a seed. Rather, it was a Pseudomonas bacterium developed by a General Electric scientist to clean up oil spills. But the precedent was set, and Monsanto took advantage of it. Since the 1980s, Monsanto has become the world leader in genetic modification of seeds and has won 674 biotechnology patents, more than any other company, according to U.S. Department of Agriculture data.

Farmers who buy Monsanto’s patented Roundup Ready seeds are required to sign an agreement promising not to save the seed produced after each harvest for re-planting, or to sell the seed to other farmers. This means that farmers must buy new seed every year. Those increased sales, coupled with ballooning sales of its Roundup weed killer, have been a bonanza for Monsanto.

This radical departure from age-old practice has created turmoil in farm country. Some farmers don’t fully understand that they aren’t supposed to save Monsanto’s seeds for next year’s planting. Others do, but ignore the stipulation rather than throw away a perfectly usable product. Still others say that they don’t use Monsanto’s genetically modified seeds, but seeds have been blown into their fields by wind or deposited by birds. It’s certainly easy for G.M. seeds to get mixed in with traditional varieties when seeds are cleaned by commercial dealers for re-planting. The seeds look identical; only a laboratory analysis can show the difference. Even if a farmer doesn’t buy G.M. seeds and doesn’t want them on his land, it’s a safe bet he’ll get a visit from Monsanto’s seed police if crops grown from G.M. seeds are discovered in his fields.

*******

The practice of prohibiting customers from doing what they want with the product you sell them is actually quite common. It falls under the realm of intellectual property law.

I blogged about this here, where I complained that software I had purchased expired before I could use it. I made the distinction between a product and a service. Once you purchased Microsoft Office, for example, you could use it forever on that computer — it never expired. For a service delivered over the internet though, it makes sense that it would stop working once I stopped paying for it.

When farmers buy patented seeds from Monsanto (or other agribusinesses such as Syngenta, ADM or Cargill), they sign contracts prohibiting them from selling, saving or reusing the seeds. Monsanto is dictating what people do with the seeds, even after they become property of the customer…

This is a subject that really makes me question my capitalist beliefs; I believe in private property, the rule of law, enforcement of contracts, and strong intellectual property protection. And though I haven’t made up my mind on whether or not Monsanto is evil, there’s something about it that seems shady.


Is US monetary policy to blame for food crisis?

April 28, 2008

Scathing editorial in today’s WSJ: The Fed’s Blunder

Eight months into the Fed’s most recent rate-cutting spree, the evidence is overwhelming that it has been a major policy mistake. Aggressive rate cutting – taking the fed funds rate to 2.25% from 5.25% last September – has had little effect on the banking crisis it was supposed to ease.

Meanwhile, the Fed’s decision to open the general monetary spigots has inspired a global commodity boom unlike any since the 1970s. Oil has climbed to nearly $119 a barrel today from $70 in late August, a 70% increase. Farm and other commodities have seen a similar surge, with corresponding increases in food prices leading to shortages and riots in Egypt and other places, and to rice hoarding even in Southern California.

The popular media explanation is that this price surge is a result of rising global demand, greedy speculators and human profligacy. All of a sudden, without warning, the world is said to be running out of food. After 30 years in intellectual hibernation, Thomas Malthus and the Age of Scarcity are back in style.

As for food prices, it’s true that government policies supporting biofuels have created new demand for corn and other grains. This and price controls in some countries have contributed to the food panic. But the price surge has been so rapid and so broad across nearly all commodities that it can’t merely be a function of supply glitches or new demand for specific grains.

I agree with almost everything here except the editors’ certainty that rising prices are caused by monetary policy alone. As with all inflationary periods, the current one is caused by some combination of two factors: rising demand and monetary policy.


Michael Pollan Interview

April 21, 2008

Here is a great interview with Michael Pollan, author of the recent bestseller, The Omnivore’s Dillema. He is one of my favorite writers and I can’t wait to read the book.

Related Post:
How Sustainable Are Current Food Production Methods?


Not Smart

April 19, 2008

I have been suffering from a flu/stomach-flu thing since Thursday. By yesterday afternoon, I was fed up with it and decided I wanted a milkshake. I pulled on my hoodie sweatshirt and flipflops and walked to Baskin Robins on 1st Avenue.

I am often skeptical of conventional wisdom and yesterday I paid the price for this arrogance. As it happens, it’s a bad idea to eat dairy when you have an upset stomach.


Update to Q1 Portfolio Review

April 14, 2008

Q1 ’08 Portfolio Review


Real Estate is Cooling All Across the Globe

April 14, 2008

NYT: Housing Woes in U.S. Spread Around Globe

In Ireland, Spain, Britain and elsewhere, housing markets that soared over the last decade are falling back to earth. Property analysts predict that some countries, like this one, will face an even more wrenching adjustment than that of the United States, including the possibility that the downturn could become a wholesale collapse.

Further east, in India and southern China, prices are no longer surging. With stock markets down sharply after reaching heady levels, people do not have as much cash to buy property. Sales of apartments in Hong Kong, a normally hyperactive market, have slowed recently, with prices for mass-market flats starting to drop.

Is a global real estate slow-down factored into equity markets?

This is the reason I’m avoiding the financial and consumer discretionary sectors — too much risk there and I don’t think it’s reflected in current prices.


WSJ: “A wave of rising prices is washing over the world economy”

April 10, 2008

Front page of today’s WSJ: Inflation, Spanning Globe, Is Set to Reach Decade High:

Inflation is back.

After several years of relative stability, a wave of rising prices is washing over the world economy.

Some of the factors driving inflation vary from country to country: union-negotiated wage hikes in Germany, pork shortages in China, an electricity squeeze in South Africa, pay rises for civil servants in India.

But the fact that inflation is rising almost everywhere suggests some of its causes are global. As crops are sold for alternative energy production, food prices have soared: The price of rice, the staple for billions of Asians, is up 147% over the past year.

The “several years of relative stability” annoyed Barry Ritholtz of the Big Picture blog — he points out that prices have been rising for years. I think he misinterpreted the author’s meaning of “relative stability.” In this context I think it is meant more about the social order; how the Chinese define the word, that is. Although prices have been rising for years, they are now causing social unrest and “instability”, especially in the developing world.


Investing in Agriculture

April 8, 2008

Unlike the global water shortage, the global food shortage has presented compelling investment opportunities.  Farms, farm equipment makers, seed/fertilizer/herbicide companies are all raking it in.

I have owned Potash (POT) and John Deere (DE) for about a year.  Now that every stock in the sector has doubled it seems so obvious — sure wish I had bought more!  Fortunately, the agriculture sector is in a mega-boom that will last for years.

See today’s Jubak’s Journal for an overview of the reasons for the boom and why it will continue for at least a decade.


Q1 ’08 Portfolio Review

April 5, 2008

I am pleased with how the portfolio held up in the first quarter of 2007. I have completely avoided financial and “consumer discretionary” stocks – both of which were big losers in Q1.

My investments are focused in areas that are working: energy, agriculture, mining/materials. I am content with my 44% cash position and 9% gold position. I am also staying disciplined with my sell strategy: sell anything in 15-20% loss territory. This has saved me from blowups in the past and also helps to reduce taxes.

Changes to the Portfolio:

Going Short China: On 4/3/08, I bought FXP (ProShares UltraShort FTSE/Xinhua China 25) at $78.56 per share. I am a short-term bear on China; FXP goes up when Chinese stocks go down. FXP also has embedded leverage, which explains some of the volatility.

Buying Chip Stocks: I have bought a few deep-in-the-money calls on the SMH and Intel.

*I funded these purchases by selling some losing stocks, generating a ST capital loss in the process.

Thinking About Financials: I plan to dip my toe in the financial services sector through purchasing shares in a high quality bank. I might balance it out with a position in SKF (Proshares UltraShort Financials).


Ethnic Unrest in China

April 5, 2008

From today’s WSJ: China’s Ethnic Tension Isn’t Limited to Tibet

Xinjiang is strategically critical for China. It accounts for a sixth of China’s territory, and is an important oil-producing region and home to China’s nuclear-weapons test sites. It also has more than 5,600 kilometers (3,480 miles) of borders with eight neighboring states.

The cause of Uighur human rights has drawn far less international attention than that of Tibetans. Tibet activists have gained a global following thanks in part to backing by celebrities and the charisma of the Dalai Lama, Tibetan Buddhists’ exiled spiritual leader. Another factor, Uighur human-rights advocates say: Uighurs are predominantly Muslim. Since the September 11, 2001, terror attacks in the U.S., China has sought to portray its battle against Uighur-rights campaigners as a fight against Islamic terrorism.

Now, the Tibetan protests and the pending Beijing Olympics, which are set to begin in August, are spurring Uighurs abroad to speak out — and to explicitly link their aspirations to those of Tibetans. Thursday, hundreds of Uighur demonstrators gathered in Istanbul for an anti-China protest during the Olympic torch relay passed through the city.

In 2004 I traveled to Xinjiang with my friend Kanchan. We spoke to many Uigher people who were eager to practice their English. Despite what would have been ferocious penalties, a few of them were not shy about expressing their hatred towards China and the Han Chinese people who had settled Xinjiang.

I’m posting this only because I feel like I understand what’s happening there. World news becomes a lot less abstract if you’ve been to a place that’s in the news. That’s why I like traveling in China: the country is changing so fast in ways that are affecting everyone in the world. It’s a fascinating place and the best way to gain context for understanding is to visit.


Federal and State Estimated Tax Payments – How to Pay Online

April 3, 2008

Your Federal and State taxes must be paid throughout the year on a “pay as you go” basis.  For employees – people who receive a W2 – taxes are withheld from each paycheck.  For self employed people, or people who have income in addition to earned income, quarterly estimated taxes are required.

How to Calculate Estimated Tax:
The best way to calculate your estimated tax payments – for both federal and state – is to prepare a projected 2008 tax return.  Each quarter you should estimate what your full-year 2008 income will be and calculate the tax you will owe based on this amount. 

For example, let’s say you received $100,000 of income in Q1 on which zero taxes were withheld.  Let’s also assume that you don’t know what you will receive in the next three quarters – could be more, could be less.  Project your 2008 income by annualizing the amount you earned in Q1.  In this example, you would project your 2008 earnings to be $400,000.  Calculate the federal and state tax you would owe based on this projection.   Pay ¼ of this amount by April 15, 2008.  Do this each quarter and “true-up” your payments so that you are on track to pay 100% of your tax liability by January 15th, 2009.

 

2008 Estimated Tax Payment Due Dates:

Q1: April 15, 2008

Q2: June 16, 2008

Q3: September 15, 2008

Q4: January 15, 2009

 

How to Make your Quarterly Estimated Payments Online: 

Federal:
Enroll in the Electronic Federal Tax Payment System – EFTPS.  Each quarter when you determine your tax liability, login to the site to make a payment.  Alternatively, write a check and mail form 1040-ES each quarter.

New York State:
Go to the New York State Online Tax Center Website:  http://www.tax.state.ny.us/nyshome/online.htm and register.   Each quarter when you determine your tax liability, login to the site and make a payment.


Adjusting to a new lifestyle

April 3, 2008

This is week number two of my mini retirement.  It wasn’t easy at first, but I am learning to adjust.  Actually, I think I could get used to this.

Yesterday I woke up around 8:30, read the WSJ and drank coffee until 9:00.  Then I worked on a partnership tax return until 12:30.  For a good chunk of time, I reached the “zone” while working – a highly focused state where I lose track of time and do my best work.  I listened to Patsy Cline on a whim and discovered her music is amazing.

In the early afternoon I had lunch with a friend downtown and then a meeting nearby with my law firm client.  At 4:30 I went to my new gym, Crunch in SOHO.  I love that gym – it feels like a nightclub, the music is so loud.  After lifting weights for twice as long as usual, I was headed for the locker room when a dance remix of Madonna’s “Hollywood” came on.  I stayed for an 8 minute ab workout that has me feeling very sore today.  Can’t wait to go back today! 

In the evening I had dinner with my friend Chris, who will be my roommate at Duke next Fall.  We schemed about bschool while drinking Coors Light and eating bbq.

Can’t wait for summer!!


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