March 21, 2016

 

20th March marked the change in season with the Vernal (Spring) Equinox and spring cleaning begins with fervor for some of us.

Cleaning out the pantry can be full of nasty and pleasant surprises especially when you come across a veritable collection of sugar sachets that dates back over 20 years, just like that postcard advertisement fad that has come and gone. It had initially started as a cheap souvenir substitute of a particular fond memory of a coffee shop or a funky pack of sugar as the extra touch of a proud café manager.

In later years, the sugar sachets started piling up when you did those commodity trades, grabbing those Starbucks sachets in symbolic solidarity with your longs as Jim Rogers jokes about in his seminars too, coincidentally.

Sugar is one of the 10 foods that does not spoil (http://mentalfloss.com/article/67560/10-foods-never-or-almost-never-expire), along with whisky, my other favourite food stuff that does not go bad. And sugar has been the best performing soft commodity in the past month, rising 25% against the USD to a new 1 year high of $16.10.

 

Sugar Highs to Beat the Inflation Blues

The sugar collection crusade has done well for the past 12 months, through higher highs and higher lows and thankfully for the El Nino, that the “Silent Killer” (http://www.dailymail.co.uk/health/article-2574269/Sugar-not-fat-real-heart-disease-killer-We-got-wrong-diet-advice-claims-expert.html) commodity has turned out to be the best performer in the world.

And Sugar is not exactly the same “sugar” in the respiratory processes (http://cn5p.dromiga.top/c/photosynthesis-respiration-equations/)  of all things living.

Sugar Highs to Beat the Inflation Blues 4
Nonetheless, the rewards have been good for our Sugar call in July last year, although we cannot say the same for the AIGA LN (Agriculture) ETF which we have favoured a little over Olive Oil.

 

Sugar Highs to Beat the Inflation Blues 1

https://tradehaven.net/commodity-crackles-olives-oil-sugar-milk-2/

INFLATION

How convenient it would be for the global central banks if Sugar was all that was needed for inflationary pressures.

25% in 12 months !

Alas, Sugar is not Oil which has its foot in every piece of the pie in terms of contagion effects, stretching from agriculture (fertiliser) to industrial and to the R&D investment dollar, all closely tied to the financial system, global markets and even politics.

With central bankers all bent on an inflationary path, all the way to bringing interest rates into negative territory, markets’ first reaction has been one of rejection and we note the big snubs to the BoJ and the ECB on their  recent decisions as the markets took their currencies stronger, adding to financial stress in the system, adding to confusion and spreading the mayhem especially after the  US Federal Reserve revised their rate hike expectations last week where we got a reaction quite akin to the last QE3 announcement, further weakening the USD and undoing the BoJ’s and ECB’s efforts to date.
Preparedness

The time is nigh, surely, to believe in inflation again and to take up that cause that it would be the main event the markets would be unprepared (or rather, unpositioned) for in the months and weeks ahead. Because over 7 billion people still need to eat daily and prices as much a function of demand and supply as it is a currency story.

Sugar Highs to Beat the Inflation Blues 2

From the chart above, we see the US dollar has an inverse relation with the AIGA LN stock price, suggesting that agricultural prices are heavily influenced by the US dollar.

Commodity producers are bearing the brunt of the heat these days from Indian cotton farmer suicides, dying for the lack of inflation, to energy producers filing for bankruptcy, sordidly benefiting commodity prices.