Thursday, March 3, 2011

Of Nickel, Shadowstats, and Mung Beans



Let's see if we can figure out why the price might be so far above the median inflation adjusted price (again). I'm generally a believer in revision to the mean and/or median theories.

June 2, 2009
Shadowstats : Expect Hyperinflation within a year

Regular Gasoline – $12.49 dollars a gallon
1 gallon of milk – $13.24 dollars a gallon
Credit Card balance rate – 84%
Oil Change – $123.00
Whopper with Cheese – $18.48 + Tax


It has been more than a year. Perhaps I should also be a believer in revision to the estimate theories?

December 11, 2010
John Williams of ShadowStats Warns Hyperinflation Will Start in the Next Couple Months!

Williams is a respected economist who has a high level understanding of the fundamental numbers behind our economy, so his forecasts and recommendations should not be taken lightly...

Respected economist? Seriously? The hype in hyperinflation talk is accelerating now. At first it was within a year. Then it was within a couple of months. We'll be down to mere minutes soon. But what if the hyperinflation does not come on schedule again? Then what? Will there be even more revisions to the estimates? Call me crazy but I think there just might be.

May 31, 2010
Speculation, drought and hype behind price spikes

Hype -- claiming "garlic prevents swine flu" or "mung beans protect your health," for example -- is also a trick merchants touting high-priced farm produce have used.

Only mung beans protect your health and your wealth!

June 9, 2010
Mung bean price spike recedes 50%

However, economic experts said the price drop is largely due to market adjustments - the surplus of mung bean products and low import mung bean prices.

Or not. It would seem that the mung bean traders lost a small fortune over the following 9 days.

This post inspired by AllanF who wished to see a chart of nickel. The mung beans are just a bonus of course. :)


Source Data:
USGS: Historical Mineral Statistics
Kitco: Base Metals
BLS: CPI-U

18 comments:

getyourselfconnected said...

The bottom fell out of Mung Beans after better exonuleases for DNA manipulation were found. Just was not the same bean.

Stagflationary Mark said...

GYSC,

Yes, but mung beans are also a known weapon. These are uncertain times. And like all weapons, the authorities are quick to confiscate them.

Ubiquitous ballpoint pens

We used these plastic casings as the funnels for improvised pea-shooters. Of course, we used dried and raw mongo (mung) beans for ammunition, and we would shoot at each other and our teachers for as long as possible before being caught and made to stand in a corner or do jug. A particularly incensed teacher would confiscate our mongo beans and make offenders kneel on them in the same classroom corner.

getyourselfconnected said...

Where do you find this stuff????? LOLz

Stagflationary Mark said...

One more thought on the chart in regards to reversion to the mean.

I am basically arguing that the CPI will either come up to meet the price of nickel someday and/or the price of nickel will come down to meet the CPI.

Another way of saying this is that I think the CPI is undervalued relative to nickel.

That's one reason I like TIPS and I-Bonds. Both are tied to the CPI.

It could take decades for them to meet again. I have no idea on the time line. I could also be wrong to think this way. Time will tell.

getyourselfconnected said...

All we have are our wits and our friends. Great work all week man.

AllanF said...

Thanks Mark. Curious how aluminum seems to be the sole laggard immune to speculation.

I want to say it's uniquely too big a market to move, but the ag markets seem like they'd be pretty big and they were yanked around pretty hard in 2008.

I'm open to ideas/explanations here.

Stagflationary Mark said...

AllanF,

In my opinion, it is the difference between value and speculation.

Creating aluminum foil is energy intensive. If I hoard it over the long run it will probably meet my needs as an inflation hedge. However, I would never expect to see shortages. I don't expect to profit off of it. I don't expect an aluminum bubble. Ever. Unless we hyperinflate, then I cannot use debt to increase those profits. 10x nothing is still nothing.

Several years ago I remember seeing huge pallets of aluminum foil. It was around the time of the rice shortages. I found it very humbling. It made me question my desire to hoard anything. In hindsight, that would have been a good time to sell my TIPS and brace for deflation.

We take aluminum for granted but I think it is a miraculous metal. It tripled in price in the 1970s. If it is selling at $3 per pound 10 years from now we'll be in a world of hurt. I can only imagine what the other metals would be doing.

Just opinions of course.

Stagflationary Mark said...

The pallets of aluminum foil were at my local Costco. I've never seen so much aluminum foil all at once. It was on an end cap instead of its normal smaller spot within an aisle.

Charles Kiting said...

I'm waiting for US coins to be made from aluminium.

Stagflationary Mark said...

Charles Kiting,

They'd debase them too no doubt. Aluminum foil coins would follow soon thereafter.

"I just tore my coin again!"

AllanF said...

I'm sorry Mark, but I don't think your answer addresses the question: why has aluminum, seemingly alone, been immune from speculation?

Steel, rice, wheat, corn, oil, silver, gold, nickel, copper, moly, the list of commodities that have spiked above trend since '08 is surprisingly long. The only one not on the list is aluminum.

You do have this passing sentence: "However, I would never expect to see shortages."

Well, I can remember news reports of shortages of each of the spiked commodities, whether any actually occurred it another question. But it makes me think, if even the steel producers were able to create the impression of a steel shortage to spike the price, why not the aluminum guys? Something about aluminum is definitely different here. Maybe steel was just a lucky fluke, an outlier, throwing me off the theme? Because excluding steel every one of those commodities either has a very inelastic demand curve (wheat, corn, rice, oil) or a thin market with few suppliers and not much slack capacity should a few thousand people out of the 1 billion with a little disposable income decide they need to make even a trivial stockpile... kind of like buying milk before a big snowstorm.

Hmmm, if true there's comfort there since in my experience the snowstorms are never as bad as people fear and the cows are always back doing their thing the next day.

Stagflationary Mark said...

AllanF,

Okay, here's another attempt. Since aluminum is 8% of the earth's crust and is therefore one of the cheapest and most common base metals, perhaps it is simply last in line? You start with the most expensive metals and work your way down?

February 23, 2011
Hedge funds now eye aluminium

Aluminium is the only metal left behind in the race for growth in base metals in the past year, which is why global hedge funds are seriously looking at it, said Jayanta Roy, an analyst with rating agency Icra.

Go figure.

Perhaps I should qualify what I said earlier. I would never expect to see long-term shortages.

Stagflationary Mark said...

Also keep in mind that the world produced 37.3 million metric tons of aluminum in 2009. That's about 12 pounds per man, woman, and child on this planet.

Aluminum Statistics

AllanF said...

So did you run a search on hedge funds and aluminum to find this stuff? I can't imagine it is both in your daily reading and something you remember being out there to reference?

I still think we need to know why steel was spiked, but not aluminum. Perhaps that Indian fellow that owns all the steel mills nowadays was more amenable to the idea, and moreso subject to a lot less scrutiny than the also-rans at Alcoa?

(I call them also-rans because for a generation the smart engineers have gone to Tech and the smart MBA's have gone to Financial Services.)

AllanF said...

Again, aluminum guys are a bunch of pikers compared to steel: "World crude steel production reached 1.4 billion tonnes in 2010. This is an increase of 15% compared to 2009 and is a new record for global crude steel."

B as in billion, or 40X aluminum.

Stagflationary Mark said...

AllanF,

Yeah, I just search.

You make good points. Aluminum guys are indeed a bunch of pikers compared to steel, lol.

I never really thought much about steel. It is a difficult commodity to track. It is made up of many different elements from the periodic table and there are many different varieties of steel.

Once we throw in steel, might just as well throw in cement. There was 3 billion tonnes of that produced in 2009. That's nearly 1,000 pounds of cement for every man, woman, and child on this planet.

Rising coal prices will impact cement companies

Round and round we go.

Perhaps this is the reason aluminum prices are low.

China’s aluminium boom

The Chinese government recently confirmed that efforts to calm growth in its aluminium industry have met with limited success. A report from the National Development and Reform Commission (NDRC) admitted that the industry is ‘over-expanding’, and noted that this perpetuates the domestic consumption problem.

...

“There has been massive expansion in China, which the government has not managed to slow down. There has been some delay in the last two years in terms of new projects, as there was uncertainty over the availability of raw material. Now the situation has been solved. China has built so much new alumina capacity that those fears have evaporated,” says James King, independent consultant and adviser to the industrial metals and raw materials industries.

...

“China is its own worst enemy. It is so efficient that it can make anything, so it moves into base metals, increases production and then prices fall when the market is flooded,” notes Man Financial’s Edward Meir.

Fascinating.

Thanks for keeping this topic alive.

Stagflationary Mark said...

That last link was from 2006.

eRingsider - Autumn 2006

Stagflationary Mark said...

Here's a current snapshot from an article today.

March 4, 2011
Chalco Q4 disappoints and sees overcapacity headwinds

China is the world's largest producer of aluminum and represents about 40% of global demand. But with the country's output of the metal expected by Chalco to reach 19 million tonnes this year outstripping consumption by 1 million tonnes competition in the home market will be fierce. Still, Chalco expects aluminum prices to drift up this year in part because of broad based inflation and currency factors.