Ships Passing in the Geopolitical Night

–On behalf of everyone at DR headquarters in Melbourne, we want to let everyone in Northern Queensland know you’re in our thoughts and prayers. It seems like we’ve had to write that a few times this summer. Here’s hoping you’re safe and well.

–While other Australians have more urgent personal matters to attend to, financial markets trundle on. In fact, there’s already been a direct response in commodities markets to Cyclone Yasi before the wind has even died down.

–Sugar futures have hit a new 30-year high, according to Bloomberg. Crop damage in Australia and India is crimping supply. Raw sugar for March delivery was up 4% to about 35 cents per pound in New York Futures trading. Wheat was up again and according to the Chicago Board of Trade is up 77% in the last year.

–How much of soaring agriculture prices can you attribute to supply-side issues and how much to the weak U.S. dollar? We ask the question to raise the possibility that maybe we’re over-reacting to these prices. Maybe they’re just normal in the cyclical life of commodities. Maybe they aren’t telling us what we think they are telling us.

–Or maybe they are!

–The biggest supply-side factor in commodity prices is the supply of cheap U.S. dollars and cheap credit to speculators on Wall Street. Dollar weakness translates directly into rising prices for real “stuff”. The trouble now is that dollar weakness is causing other things (like Egypt’s political arrangement) to break.

–This is problematic because it makes bets on higher commodity prices: bets! The best bet now, according to the research we’re set to publish later today in Australian Wealth Gameplan, is that oil will get a bid as the most strategically valuable commodity in the world. Not only does oil react to the weakness in the dollar, but it also becomes more attractive/valuable as the geopolitical scene becomes less stable.

–Expect more instability as the global dollar standard unravels and leads to higher inflation. Egypt is a case in point. It looked like the army had played its role perfectly in keeping law and order while arranging for Hosni Mubarak to save face and, more importantly, arrange for an orderly transition of political power.

–But overnight that arrangement seems to have unravelled too. People don’t always do what they’re told. And one thing we’re finding out from Egypt is that political legitimacy can vanish more quickly than the elites in power think possible from their entrenched view points. That’s worth keeping in mind when looking at Europe in America.

–Speaking of America, it’s becoming clearer by the day that America has a date with debt default and/or hyperinflation. With trillion-dollar annual budget deficits as far as the eye can see, the bankers who run America’s borrowing program are getting desperate. They are even floating the idea of 100-year ‘ultra-long’ bonds.

–What kind of jack ass would ever loan the American government money for 100 years? Only a brain dead jack ass, of course.  Or, if not  brain dead, perhaps a company with long-lived, long-term liabilities might try and match those liabilities with long-term Treasuries. But frankly, the whole exercise seems like the sign of an establishment that’s running out of ways to make its debt attractive to investors.

–People notice. “China’s gold imports are estimated to have more than doubled from a year ago in the run-up to Chinese new year, putting the country on track to overtake India as the world’s largest consumer of the precious metal,” reports the FT. The FT also reports the Federal Reserve has surpassed China as the leading holder of U.S. Treasury Securities.

–Let’s see. The Fed is set to replace China as the top buyer of U.S. bonds. China is set to become the top buyer of gold. Ships passing in the geopolitical night?

–The big danger for Aussie investors right now is that this is the beginning of another massive speculative bubble in commodity prices. The race out of the dollar has driven up precious metals, base metals, grains, and most of the commodity complex. Oil could be next.

–But how does it all end? In massive hyperinflation? Or massive deflation? Stay tuned…

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

Leave a Reply

4 Comments on "Ships Passing in the Geopolitical Night"

Notify of
Sort by:   newest | oldest | most voted

Ignore the industrial socialist food reserve solution which is a put up to solve a crony bankster socialist problem but the history is on the money (free unlimited gobs of debt finance for some).


Think Portugal ’75, the Hawke resubjugation solution in ’82, and the attempt for Egypt in ’11.

The Super Bowl Where Everybody Wins Annie Lowrey,, February 3, 2011: For nearly a half-century, traders have watched whether and how the big game impacts the markets, with a sense of humor more so than an eye for profit. And this year, they are gearing up for a bull market, one way or another… Wall Street has much more analytically intensive ways to figure out what pigskin means for the financial future. Most notoriously, there is the Super Bowl Indicator, also known as the Super Bowl Predictor. It holds that a win by a team whose original home was… Read more »
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to