Here, at their apex for the
last eight months, global markets are trying desperately to find the next
super-upleg from amongst a vast array of economic data, market fundamentals,
and existing capital gains winners. The
solutions are not as obvious as simply riding the current uptrends. Many of those, for example, are losing
momentum and sustainability. As I review
the current landscape of short-cycle measurements, I am more worried about the
potential for distribution and dissolution at the top than about sustainability
or magnitude. Very few trends are in their “initiation phase,” those most likely to achieve upside magnitude.
The conditions have changed
drastically since the inception of last year’s summer rally. Primary amongst those changes are that the
rallies are no longer expected, they have already occurred. Add to this the markets are climbing a wall
of worry, led firstly by consumer skepticism about entering the market at all,
let alone at the top of a rally.
Most significantly, though, is
that these short cycle upswings are taking place within a broader secular bear
that is now 5 years old.
Therefore, unlike bull markets
during which a buy and hold strategy is appropriate, cyclical upswings within
bear markets require greater alacrity and more trading.
Key drivers.
What we can observe through
historical precedent, however, is that bold demographic themes typically lead
the markets out of recessions. I believe
that one of those innovative explosions will come from agriculture and food
related products.
The strain on the global food
network is both man-made and natural.
War related strife produces hoarding or famine, and natural disasters
create harvest imbalances, all of which resonate far beyond the scope of the
local geography in which they occur. As
citizens we should be horrified that anyone on this planet goes to bed
hungry. As investors we might be able to
capitalize upon solutions to these problems.
(Of course, therein lies the bane of social investing. We might observe the demographic, but we are
sometimes morally or remuneratively deficient in solving the issues of our
day.)
Caution.
There is a lot of talk about
the direction of interest rates and the cost of money. Sometimes, exogenous influences also exert influence
over monetary factors. Today, tightening
supplies of natural resources have created a subterranean inflation whose gross
result has been to raise prices at the production and consumption sites. Corn, sugar, coffee, soybeans and other crops
are at their lowest reserve levels in a generation. Demand, however, has not ebbed.
There is no wiggle room. If global conditions worsen prices might rise
further. Consumption of natural
resources is at its highest in history. For all the development of industrialized
and emerging markets, there is a price to pay if replenishment is not part of
the program.
As policy debates about
subsidies and taxation gain momentum, it is likely that prices will be
adversely affected, raising further the spectre of inflation.
It is likely that eco-friendly
technology and agribusiness innovation could become the dot.com sector of
another time. Health, social
responsibility, and well-being are not mutually exclusive. In fact they might be the catch phrase for
those who, at present, cannot turn off their cell phones and BlackBerry’s long
enough to look up and see the world they have left in their wake.
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