Hoardable Asset Bubbles

November 16, 2010
China experiencing a runaway garlic price bubble

"From 2007 to April 2009 you could buy garlic for as little as 4 jiao [6 cents] a kilo, but now the price is about 13 yuan [$1.90]," said Wang Nianyong, director of the information office of the Beijing Xinfadi wholesale market.

That's a 3000% increase.

The government has already fined at least one company for hoarding, and has announced its intention to investigate unnatural price surges. China is the world's top producer of garlic.

November 19, 2010
A New Bulb Bubble

Firstly, you have mostly market speculators taking advantage of farmers without access to a wide range of information. Most farmers are still only receiving 1 – 1.5 Yuan per kilo for garlic, as speculators hoard the supply and release only small quantities to the market at a time, keeping the price elevated and demand high.

That being said, the farmers are still averaging three times more income from garlic this year than last year.

But the problem is, even though there’s a shortage of available garlic, many farmers are reluctant to plant bigger crops. The reason? They simply can’t afford the higher price of the seeds, and they don’t want to be left with goods they can’t sell.

Can't afford the seeds? It sure sounds like a tulip bulb craze to me. Someone, somewhere, will find a way to create more garlic seeds someday. I'm 100% confident of that.

In my opinion, if there is a provable bubble in one hoardable hard asset then there is probably a bubble in other hoardable hard assets. Just something to think about if you are a gold bug.

October 9, 2007
A Survey Of Hard Asset Investing Vehicles: Part 2

Technically, ETNs are senior unsecured debt notes that are designed to track the performance of different indexes ... including commodity indexes. They are bought and sold just like stocks, using a regular old brokerage account. They can also be leveraged, borrowed, and shorted just like ETFs.

Why does the term "Hard Asset Investing Vehicles" send shivers down my spine? Is it that I don't wish to own things that can be leveraged, borrowed, and shorted at a time when "deleveraging" is the word of the decade? Is it that the article was written just before the recession? Or is it the "investing vehicle" part that makes me cringe?

Structured investment vehicle

A SIV may be thought of as a very simple high quality, virtual bank.

Sounds good so far.

Though the assumption of ever increasing housing prices was the fundamental problem, there were other mathematical / statistical problems too.

You've got to be quite the speculator if you are choosing to hoard garlic AFTER it has risen 3000%. Right? Hoarding gold and silver after a 400% rise may be similarly speculative. Time will tell.

At these prices, garlic is only a safe store of value if vampires actually exist.

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All we really have is an Illusion of Vampires.

This should not be confused with "life blood" suckers though. Wall Street still has plenty of those.

September 25, 2008
Debate continues in congressional bailout hearing

BEN BERNANKE: So all this esoteric Wall Street stuff doesn't have any meaning to people on Main Street but it connects very directly to their lives. Credit is the life blood of the economy. If the credit system isn't working then firms cannot finance themselves, people cannot borrow to buy a car, to send a student to college, to buy a house.

"Esoteric Wall Street stuff" has been an extremely dangerous investment over the last decade.

Esoteric

understood by or meant for only the select few who have special knowledge or interest

And lastly, how can we know if there is a Wall Street commodity bubble? They don't exactly ring the bell at the top. Surely a warning sign would appear though.

November 11, 2010
Eliot Spitzer's Favorite Prostitute Is Now A Commodities Trader

One of Eliot Spitzers' favorite prostitutes has ditched the escort business to become a commodities trader on Wall Street, WSJ's Deal Journal reports.