Market Commentary for the week of August 1, 2011

Conflict.

Since the end of the internet bubble in the late 1990’s, the media’s search for the next “it” sector of the market has been incessant.  Let me suggest an area for your consideration:  crops and farmland.

While a debate rages about climate change and global warming, it is indisputable that the search for fertile natural resources is basic to humankind.  The displacement of populations in search of food and water is as old as time.  Today, any magnitude of population shift is based less upon need than vanity (climate, geography, etc.), but a focus upon survival in some distressed areas redirects our attention to the search for replenishable natural resources.  Usually, the most vulnerable are those most at risk.

There is little debate that resource conflicts have far-reaching implications for population stability and economic, social, and environmental security.  This creates a transcendent quality which changes moral imperatives and response to basic human issues.

Competition.

Competition for scarce resources is exacerbated in regions where climate and population are already in disharmony.  When lives are threatened people can flee, fight, or perish.  A major source of current tensions, of course, is water.  Engineers and investors seek innovation and cooperation in managing access to potable water and the “elimination” of drought in productive farmland.  Globally, there is as much variation in the uniqueness of each region’s environment as there are regions.  It is man who imposes solutions (or problems) upon the landscape through deforestation, exploitation, degradation and divergence of natural freshwater basins.  As the population grows, resource constraints might become the single most significant financial and social demarcation.

No one can predict with certitude about the future.  But we do know, empirically and anecdotally, that access to resources is the origin of civilization.  As territorial sovereignty issues become more in dispute, these “artificial” barricades can increase tensions and suffering, causing hoarding of crops, oil, water, minerals, and money.

Unification.

While it may seem as if Henderson, Nevada and Santiago, Chile have little in common, that which binds them is a boom-bust cycle in fertile agriculture.  We cannot know how many population centers are dependent upon outside resources, but access to and prices of commodities dictate their probability of survival.  Soaring commodity prices have driven the globe’s stock markets for the last half-decade.  They have either eroded or exploded earnings projections, depending upon the sector.  In that vein, weekly changes in speculation-driven commodity futures have the power to eradicate the financial survival of global population centers.  Once again, Wall Street’s reach exceeds the boundaries of lower Manhattan.  Everybody’s talking big things about commodity prices, and my numbers confirm the trend’s aggressive elasticity.

Despite the decline in equity prices last week caused by budget disruptions, credit crises, and a hostile political discourse, a major shift in demographics is taking place.  Asset classes and sectors which typify an explosion of agricultural, population, and climate shifts are only beginning to capture the market’s fancy, and to generate the probability of capital gains in the long run.

Before we can focus upon generational disruptions, however, we must address with competence, professionalism, and compassion the financial ills which are staring us in the face.