Brexit: se consumió el divorcio, Lorenzo B. de Quirós

El Reino Unido ha dado por terminada su participación en la Unión Europea. Desde que, hace 70 años, Winston Churchill lanzó la idea de unos Estados Unidos de Europa hasta la creación del euro en una UE presidida por Blair, las relaciones entre Gran Bretaña y la Europa continental han sido un elemento central de la agenda política en ambos lados del Canal de la Mancha. En el momento del adiós, hay que rechazar un tópico convertido en verdad popular: la idea de un Reino Unido antieuropeo.

La situación actual de Europa guarda enormes semejanzas con la etapa de entreguerras

Margaret Thatcher fue la principal impulsora del mayor programa liberalizador acometido hasta la fecha en Europa, el Mercado Único; Blair fue el promotor de la Agenda de Lisboa, el ambicioso y aparcado plan de reformas estructurales cuyo objetivo era hacer de la economía europea la más competitiva del mundo, y los gobiernos laboristas y conservadores postacherianos fueron campeones de las sucesivas ampliaciones de la UE. Sin embargo, siempre ha existido una profunda discrepancia sobre el proceso de construcción europea entre la visión anglosajona de corte liberal, asumida también por las pequeñas democracias nórdicas, y la continental, de naturaleza corporativo-estatista. La concepción de una «unión más estrecha» abanderada por la Comisión y por un buen número de los Estados ha sido percibida en Britania como un reforzamiento de esa predisposición estato-intervencionista. Los británicos han creído imposible reformar la UE desde dentro y han optado por dejarla. Esta explicación tiende a olvidarse, pero resulta fundamental para entender las causas del divorcio británico y también la persistencia de un problema de fondo que la salida del Reino Unido no elimina. Ahora bien, el optimismo manifestado por muchos liberales partidarios del Brexit ha de relativizarse. Por un lado, una parte sustancial del rechazo a la UE no procede de los partidarios de una Britania abierta al mundo, defensores de un modelo de capitalismo competitivo, sino de los sectores de la sociedad británica para quienes la globalización constituye una fuente de inseguridad y de amenaza para su nivel de vida y, también, para su concepción de una sociedad estable y equilibrada. Por otro, el discurso adoptado por el Partido Conservador supone un retroceso hacia una especie de tercera vía comunitarista, similar a la del conservadurismo prethatcheriano y de evidente aroma corporativista. Su plasmación en políticas concretas haría inviable el plan tory de construir una Britania Global. Sería una recreación dentro del Reino Unido del modelo socioeconómico europeo, que es precisamente del que se pretende huir al abandonar la UE.

El proceso negociador GB-UE debería conducir a un acuerdo razonable que permitiese a ambas aprovechar los beneficios de la cooperación. Pero esta desiderata no parece fácil. Europa no hará un traje a medida para los británicos y éstos no aceptarán un esquema de relación similar al noruego o al suizo que, en la práctica, tienen casi todos los costes de formar parte de la UE y menos beneficios que los derivados de la plena integración. Por añadidura, si salir del marco institucional europeo es gratis, los incentivos para que se produzcan movimientos centrífugos en otros Estados son muy altos. En la presente coyuntura continental parece improbable que la racionalidad económica se imponga a la razón política. En coherencia con este planteamiento, el resultado sería un juego de suma negativa… todos perderemos…La evaluación de los costes del Brexit para el Reino Unido y para la UE es de una enorme complejidad. Existen estudios sólidos cuyas conclusiones son radicalmente diferentes. Las repercusiones de un fenómeno inédito dependen de variables difíciles de prever y de controlar, tanto si el divorcio concluye en una relación beneficiosa para las partes como si culmina sin un acuerdo amigable entre ambas. En este último supuesto, no es obvio anticipar quiénes serán los ganadores y los perdedores relativos de la ruptura. Contemplar el Brexit como un desastre para el Reino Unido es tan irreal como considerarlo una garantía de éxito; estimar que es inocuo para la UE tampoco resiste un análisis económico-político elemental. A priori, sus implicaciones son indudablemente negativas para la UE e inciertas para Gran Bretaña.

La razón es evidente…El Brexit se produce en un momento de crisis existencial del proyecto europeo. La actual situación del Viejo Continente guarda extraordinarias semejanzas con la del periodo de entre-guerras (1918-1939). La puesta en cuestión de las instituciones democráticas por partidos antisistema, el anémico crecimiento de la economía y la evidente pérdida de interés estratégico de Europa para la nueva Administración norteamericana configuran un panorama similar al de aquella turbulenta época. En este entorno, el abandono de la UE por parte de la quinta economía del mundo, de su primer poder militar y del Estado con la red de soft power más consistente de Europa tiene implicaciones sustanciales y adversas para la economía, para la política y para la estrategia de seguridad del Viejo Continente.

En este contexto, el Brexit debería ser una llamada de atención para Europa. Guste o no, el proyecto europeo ha perdido atractivo para amplios sectores de la sociedad. Esto no obedece sólo a los efectos de la Gran Recesión, sino también a problemas estructurales de fondo, el déficit democrático de la UE y la resistencia a adoptar las reformas estructurales necesarias para impulsar el crecimiento, la competitividad y la creación de empleo. La actual UE ha degenerado en una especie de Despotismo Ilustrado al servicio del mantenimiento de un statu quo estatista, que es la causa eficiente de la innegable decadencia del Viejo Continente. Si la afirmación de fe europeísta realizada por todos los Estados Miembros esta semana se traduce en consolidar el marco existente, el futuro de Europa será cuanto menos gris.  Para terminar, el Brexit constituye el mayor movimiento sísmico registrado en Europa desde la caída del Muro de Berlín. Además, se produce en un momento de elevada inestabilidad e incertidumbre en el mundo y en el continente. La magnitud de sus consecuencias no puede ser predicha y dependerá no sólo de cuál sea la relación que se establezca entre la Unión Europea y el Reino Unido en el horizonte del corto, del medio y del largo plazo, sino de las políticas que uno y otro adopten. Ello implica la asunción de un escenario abierto, en el que nada está escrito. Al final, la evolución de los acontecimientos no depende nunca de unas supuestas y quiméricas fuerzas inexorables que rigen la historia y el destino de los pueblos, sino de las decisiones de los individuos y de quienes les representan

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For Keynesians and Austrians, “Uncertainty” means two different things By G. P. Manish and Felicia Cowley

Keynesian economics has witnessed a remarkable resurgence since the crisis of 2008. The inability of mainstream economics to predict or explain the crisis led many economists to become skeptical of its core macroeconomic tenets. Several have turned the clock back to the ideas of Keynes to make sense of the housing bubble and the ensuing recession.
One such explanation inspired by the General Theory emphasizes the endemic uncertainty of the future and its implications for market stability. Championed by Paul Davidson1 and popularized by Robert Skidelsky,2 this line of thought blames the crisis and recession on the fickle expectations and “animal spirits” that guide investment in a market economy.3
Per this thesis, in an uncertain world, entrepreneurs and investors suffer from mood swings. Optimism regarding the future abruptly gives way to pessimism. Fluctuations in economic activity are the result of these variations in outlook.
With its focus on uncertainty, this line of thought bears a striking resemblance to Austrian ideas. Moreover, its rejection of mathematical probability as a foundation for expectations is echoed by several prominent Austrian economist.
Nevertheless, while Keynesians conclude that the uncertainty of the future renders a market economy inherently unstable, Austrians embrace uncertainty without losing faith in the order generated by a market economy. What lies at the root of this puzzle?
Keynes on Expectations, Uncertainty, and Market Stability

Think of Mary, a plastic bottle manufacturer drawing up plan to open a new factory. Given the durability of the investment, her decision is based on a set of long-term expectations. How does Mary arrive at these estimations of future prices?
In a neo-classical world, she does so by absorbing as much information as possible regarding past prices. Using this information, she calculates the numerical probabilities associated with various prices and forms her expectations based on these probability distributions.

In such a world, expectations share a deterministic relationship with the past. The numerical probabilities associated with future prices are inferred mechanistically from those associated with past prices. Thus, Mary’s expectations of the future are objective in nature. Anybody else in her place would have come to identical conclusions regarding the future with the information at hand.

Keynes sharply disagreed with this approach. Long-term expectations, he argued, are formed in a fog of uncertainty. This renders mathematical probability useless as a basis for forming one’s expectations. Since the future may differ significantly from the past, information about past prices provides “no scientific basis on which to form any calculable probability whatever” regarding the likelihood of future prices.4
Entrepreneurs and investors cannot mechanically extrapolate probability judgments regarding the future from an analysis of information regarding the past. As a result, their expectations are subjective in nature. Mary’s expectations now bear a personal stamp.
These subjective expectations share no connection to the past. The inability to use probability to form expectations renders the future unknowable to entrepreneurs and investors. Unable to turn to the past to assess the likelihood of future events, they find themselves confronted by a radical uncertainty.
In such a world, Mary’s decision to build a new factory is not the “outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” Instead, it is governed by her “animal spirits;” by a sense of “spontaneous optimism” that results in an “urge to action rather than inaction.”
Nevertheless, even in a radically uncertain world, investments must be guided by some expectations regarding the future. Instead of grounding them in an analysis of the past, Mary bases her expectations on an assessment of what others believe regarding the future.
Lurking behind her animal spirits are expectations formed as the result of an attempt on her part to “conform with the behavior of the majority or the average.” A similar striving on the part of everyone else gives rise to a “conventional judgment” regarding the future, shared by the overwhelming majority of entrepreneurs and investors.
Based on the flimsy foundations of the psychology of opinion and with no moorings in experience, this conventional judgment is subject to sudden and violent change. Like a school of fish, investors and entrepreneurs swim this way and that, always taking their cues on what to do from others, without recourse to any solid foundations in which to ground their expectations.
Buoyed by an optimistic conventional judgment, investors, with positive animal spirits pumping through their veins, rush to produce more capital goods, lifting the fortunes of workers with them. Soon the judgment turns and pessimism sets in. Investors no longer have the urge to act. They become quiescent, and unemployment increases.
Thus, for Keynes the endemic uncertainty that surrounds the future gives rise to an inherently unstable market economy. Fluctuations in output and employment are endogenous to the market and are ultimately to be traced to the shifting sands that underlie the prevailing conventional judgment regarding the future.
The path to greater market stability requires heavy government intervention. It is the job of the state to counter the waxing and waning of animal spirits and help stabilize the level of investment, output and employment.
Uncertainty and Subjective Expectations in the Austrian Framework
Prominent Austrian economists such as Mises,5 Lachmann,6 and Rothbard7 agree with Keynes’s rejection of a mechanistic relationship between past and future prices.
This rejection is the result of a consistent application of the subjective theory of value. The prices of the past result from the individual valuations that prevail in a specific set of circumstances. Two individuals, however, can form different valuations in the same circumstances. Moreover, the same individual may react differently to identical conditions at two different points in time.
It follows that the reemergence of a similar set of conditions in the future need not result in the reappearance of the same set of prices as in the past. Thus, there is no simple, deterministic relationship between the past and the future. Instead, the future is inherently uncertain.
This has implications for the formation of expectations. Entrepreneurs cannot study past prices, calculate the numerical probability associated with them and then simply extrapolate these numbers into the future. As a result, mathematical probability is not a suitable foundation on which to base expectations. However, this does not imply that we know nothing about the future. The past can still serve as a guide to action.
Entrepreneurs can still estimate the likelihood of future events. They do so by trying to understand the motivations underlying the valuations of market participants in specific situations in the past. They must peer beneath the veil of past prices and must analyze why market participants acted the way they did under the given conditions.
This analysis of unique, heterogeneous situations as they arose in the past, and not the numerical probabilities associated with past prices, provides the raw material to appraise the valuations and prices that will prevail in the future in a different set of conditions. Thus, in the Austrian framework, expectations do not rest on utilizing numerical probability but on interpreting and understanding the past.
This, as in the case of Keynes, lends them a subjective flavor. Nevertheless, the subjective expectations of entrepreneurs do not coalesce into a homogenous and ever-shifting conventional judgment regarding the future. Instead, these expectations are heterogeneous. Two entrepreneurs may come to different conclusions regarding why individuals behaved the way they did in the past. Moreover, their grounding in the past gives them a basis in reality. Thus, they are not whimsical and subject to random fluctuations.
Subjective Expectations, Profit and Loss, and Market Order in the Austrian Framework
The expectations of entrepreneurs, while subjective, exhibit a discernible pattern. The ability to appraise the future is not distributed evenly across market participants. Instead, in a market economy there are leaders, or those who are better able to formulate a judgment of the future based on the past, and there are others who are less proficient at doing so.
The profit and loss system ensures that the better appraisers are rewarded for their more successful judgments and accumulate capital. Those who are less successful at this endeavor are, meanwhile, gradually stripped of their capital. Thus, they lose influence in shaping the course of the market.
This process of entrepreneurial selection allows for the coordination of the decisions of producers and consumers. It ensures that, at any given moment in time, the best appraisers of the future are in control of making the key production decisions in the economy. Thus, in the Austrian framework, uncertainty and subjective expectations are compatible with market order and stability.
The key to ensuring this is a price system that results from the voluntary decisions of market participants to engage in mutually beneficial exchange. The prices that emerge on the various factor markets must reflect the appraisements of the participating entrepreneurs. Any interference with such a system of prices can interfere with this process of coordination and the order generated by the market.
An artificial reduction of the interest rate that results from an expansion of the money supply is an example of such an intervention. The increase in liquidity interferes with the process of entrepreneurial selection. In fact, it turns this system on its head.
Profits no longer reward those entrepreneurs who allocate scarce resources to the highest ranked ends of the consumers. Instead, they reward those who, misled by the artificially low interest rate, embark on production projects that are unsustainable. Those entrepreneurs who correctly perceive the underlying unsustainability now lose control of the capital at their disposal and gradually lose the ability to influence the course of affairs.
Thus, it is monetary expansion and an artificially low interest rate and not the endemic uncertainty of the future that generates booms and busts and market instability. In a free market, thanks to the profit-loss system, resources are allocated primarily by those who are best at grappling with uncertainty. In a world of artificially cheap credit, however, the very same system rewards those entrepreneurs who engage in the consumption of capital and the malinvestment of scarce resources.

El Manantial

La obra filosófica de Ayn Rand tiene dos puntos de anclaje ya convertidos en clásicos: La rebelión del Atlas y El Manantial. Este último, además, inmortalizado en la gran pantalla por King Vidor y con Gary Cooper como personaje principal. Su lectura es perenne y, como buena novela, su relectura siempre suma. Se trata no únicamente de una apasionada historia de amor protagonizada por dos caracteres fuertes descritos con una prosa muy angulosa y bien perfilada, sino también un gran tratado de filosofía política entorno al eterno conflicto entre lo colectivo y lo individual. El genio de Rand al describir los diferentes arquetipos es lo que le da carácter universal a la obra que permite extraer mensajes y lecciones de gran interés actual.

1) Never compromise. Nunca comprometas tus ideas ni tus principios por intereses espurios, corto placistas, por el miedo al que dirán o por la presión de la corrección político. No se trata de ser dogmático en el proceso de aprendizaje sino precisamente lo contrario: gracias a tener una actitud abierta (en el sentido más poperiano de la palabra) luego es posible poder contar con criterio propio y poder defender ideas propias sin necesidad de ir haciendo la media a cada momento para conocer la opinión propia.

2) Ligado con lo anterior, no te preocupes por los resultados ocúpate únicamente de hacer las cosas bien, acorde a unos principios. Procura simplemente hacer lo que creas correcto en cada momento.

3) Haz y dedícate a lo que te gusta. No sigas el “dinero”, como se suele decir: las modas y los gustos cambian (hoy, además, de manera acelerada), tomar decisiones en base al entorno es una manera segura de equivocarse.

4) No trabajes nunca gratis. Se el primero en valorar tu trabajo.

5) Se constante. El éxito necesita de acumulación de capital: no hay nada gratis, lo que rápido llega, rápido se va. Sin constancia en el trabajo es imposible la acumulación de capital, y sin esto el éxito -en su definición más amplia- es imposible (o es flor de un día).

6) Se resiliente. La vida es una carrera de obstáculos y dificultades. Sin error no hay aprendizaje (i.e. acumulación de capital): la resiliencia es la capacidad de ser constante en la adversidad. Ten fe en lo que haces y como lo haces.

7) Ten visión largo plazo.

8) Cultiva la paciencia: todo lo que vale la pena requiere esfuerzo y tiempo.

9) Desarrolla criterio propio, desarrolla la capacidad de defender y argumentar tus propias opiniones. Trabaja según tus propias normas: preocúpate por leer y formarte, un proceso que tiene principio pero no final.

10) No te compares, no sigas modas, ni el comportamiento de los demás como guía para tus propias decisiones.

Más problemas para Putin

Después de la tormentosa caída en el precio de las materias primas que ha castigado con dureza la economía rusa, parece que la caída de algunas divisas en el escenario global podría agudizar más aún la caída del PIB de Rusia.

En un comunicado el pasado lunes, el servicio Nacional de Estadísticas reportaba una caída del PIB del 4,6% en el segundo trimestre en tasa interanual. Esta caída duplica el retroceso de 2,2% registrado el trimestre anterior. Esta cifra es ligeramente peor que la esperada por el consenso de analistas que facilita Bloomberg situada en un también pesimista 4,5%.

El país, altamente dependiente de los ingresos del gas y el petróleo para mantener a flote sus ingresos fiscales, aún se recupera de las severas correcciones en las materias primas, los vaivenes en su divisa que han erosionado su poder de compra y las sanciones impuestas por la crisis de Crimea que de facto le limitan su acceso libre al mercado de capitales.

El Banco Central ruso acumula ya cinco bajadas consecutivas de los tipos de interés de referencia en lo que va de año pasando del 17% al 11% lo que ha conducido a una devalución masiva del rublo con respecto al dólar: un 43% en los últimos 12 meses, el peor comportamiento que registra Bloomber al margen de países rotos como Venezuela.

Los entes oficiales han empeorado ligeramente sus previsiones y esperan una caída de la actividad económica del 3,2%. Esta por ver como Rusia cerrara un año para olvidar.

Greece’s Biggest Problem Is Its Anti-Capitalist Culture by Russell Lamberti (Mises Institute)

It’s considered politically incorrect to criticize culture these days, but whether using euros or drachmas, in or out of the European Union, Greece really has to, somehow, sort out its cultural dysfunction. I’m not talking about its customs, traditions, architecture or music, and I’m definitely not talking about its food. I’m talking about its cultural anti-capitalism. The negotiations, deals, counter-deals, referenda, protests and everything in between all mean very little if Greeks, by and large, don’t ditch their statist zeitgeist and rediscover Greek capitalistic exceptionalism.

A perfect example is Argentina. A default and sovereign crisis is supposed to chasten a nation into a sensible, market-oriented direction as the folly of debt-addicted big state crony socialism gets utterly discredited. It’s a nice theory. But Argentina, thirteen years after its 2002 default, and after years of soaring inflation, dollar shortages, and economic malaise, clings to its completely clueless, hyper-interventionist, socialist overlords who continue to run the economy into the ground. The reason is the core culture never changed. When your culture is toxic, up is down, black is white, socialist failure is capitalist failure.

In The Anti-Capitalistic Mentality Ludwig von Mises described this cultural anti-capitalism:

As John Doe sees it, all those new industries that are supplying him with amenities unknown to his father came into being by some mythical agency called progress. Capital accumulation, entrepreneurship and technological ingenuity did not contribute anything to the spontaneous generation of prosperity. If any man has to be credited with what John Doe considers as the rise in the productivity of labor, then it is the man on the assembly line. …

The authors of this description of capitalistic industry are praised at universities as the greatest philosophers and benefactors of mankind and their teachings are accepted with reverential awe by the millions whose homes, besides other gadgets, are equipped with radio and television sets. 

The biggest risk to Greece is not austerity or fauxsterity or default or the euro or the drachma. And it’s certainly not the bogeyman of being frozen out of sovereign credit markets — it’s that Greek culture remains antagonistic to free, unfettered markets and is chronically state-dependent.

Take another Latin American country: Venezuela. After suffering crippling inflation rates throughout the 1980s and 90s, the electorate went on in 1998 to vote in another central planning inflationist in Hugo Chavez. They re-elected him in 2000, 2006 and 2012, and his successor Nicolás Maduro in 2013, even while the country was in a hyperinflationary death spiral and heading toward outright economic collapse. Venezuela’s problem ultimately is not fiscal mismanagement — it’s an anti-capitalist culture.

And so it is with Greece. After already securing debt relief and effectively being allowed to default by restructuring its debts over the next fifty years at subsidized interest rates — and after actually achieving economic growth in 2014 by cutting taxes and slashing the size of its sclerotic, bloated government — this toxic Greek culture prevailed once more and elected a team of socialist die-hards to drag it back into the mire. Of course it doesn’t help that on the other side of the negotiating table is another bunch of central planners in the EU, IMF, and ECB. Nevertheless, Greece sits stuck between two central planning negotiation parties because its people have been too busy demanding goodies instead of freedom.

Most Countries Get Into Trouble — But Some Bounce Back Better Than Others

Any sovereign nation can overspend and get into financial trouble, and most have. It wasn’t that long ago that Britain was forced to go cap in hand to the IMF in 1976 and cede its fiscal sovereignty to that institution. By the latter half of the 70s, Britain was a downright mess. America stealth-defaulted on its international obligations in 1971 and suffered a rolling inflationary economic crisis for the rest of the 1970s. Both these countries bounced back. As did Chile, Uruguay, and the Philippines after their fiscal and financial turmoil of the 70s and 80s.

But some don’t bounce back, and I believe this happens when the national culture is, or has become, fundamentally anti-capitalist and resigned itself pathetically to cradle-to-grave state-dependency. In addition to Argentina and Venezuela, we’ve seen prolonged economic and financial malaise following painful crises in the likes of Zimbabwe, Ghana, Bolivia, Nigeria, Russia, Turkey, and now southern Europe. These countries don’t seem to learn from their mistakes because they don’t seem to want to or can’t locate the lesson amid the intellectual haze of their cultural zeitgeist.

But really the lesson is clear. An economic crisis can jolt a fundamentally pro-capitalist (or mostly pro-capitalist) nation that had lost its way back onto the straight and narrow. But there is no guarantee of recovery when the culture has descended into infantile anti-capitalism, dysfunctional statism, and an antagonism toward entrepreneurial dynamism and self-reliance. For these a crisis may not herald recovery but instead a longer, deeper national decline. Only a culture shift resulting from the spread of sound ideas can make Greece (and other countries) a fertile ground to accept real solutions. The need to spread the good news of liberty and free markets is clearly as urgent as ever.

Rice’s Price Could Head Sharply Higher (S. Constable, Barron)

Observers of the rice market worry that there could be a repeat of the food crisis of 2008. If there is, prices could soar from current depressed levels.

In 2007-08, a combination of export restrictions from major rice-producing countries and speculative investment purchases caused shortages of the grain. Consumers across Asia panicked, buying and hoarding whatever rice was available, while Haiti saw riots.

 In the U.S., certain grocery stores limited rice purchases.

As the supply situation worsened, prices catapulted to more than $24 per hundred pounds by April 2008, from about $13 near Thanksgiving 2007.

This time, prices have been on an almost continuous slide for the past 17 months, discouraging growers even as demand increases. Rice is trading around $10 per hundred pounds, down nearly 40% from the end of 2013.

“Current levels of supply against demand are very similar” to the food crises of 1972-74 and 2006-08, says Shawn Hackett in a recent edition of the Hackett Money Flow Report.

The stocks-to-trade ratio, a measure of how much rice is in storage relative to how much is shipped around the globe, is 225%, a tad lower than the 233% seen in 2007-08 when prices started to surge, according to the Firstgrain Rice Market Strategist newsletter. The lower ratio means smaller stockpiles.

“Rice production is projected at a new record,” the U.S. Department of Agriculture reported in May. But “consumption is forecast to surpass production for the third year in a row, drawing down stocks to the lowest since 2007-08.”

TIGHT INVENTORY ISN’T the only issue. Short positions in the futures markets by speculative traders hoping to profit from further drops in the price have grown dramatically. In late-May, the number of bearish hedge funds and other money managers was more than 300% larger than those betting on higher prices, according to data from the Commodity Futures Trading Commission. That’s up from 49% more speculative shorts than longs a year earlier.

Big short positions can be bullish for the price because sooner or later those short positions will need to be closed out. When that happens, the speculators must buy an equivalent number of contracts, and as they do, it’s likely that rice prices will rally.

There’s more: Hackett sees unusual weather harming crops. Specifically, he pinpoints a “super” El Niño weather system in the Pacific Ocean as a potential problem. It “has the potential to cause production setbacks at a time when buffer stocks do not exist to offset them,” he writes, pointing to the major rice-producing countries of India, Indonesia, and the Philippines as particularly vulnerable to crop difficulties.

El Niño tends to cause droughts in the summer and floods in the fall from typhoons in all three countries, which produce about a third of the world’s rice.

Low prices for rice and bad weather are also causing some U.S. growers to reduce their planting. Firstgrain estimates that the acreage for long-grain rice in the U.S. will drop 5% this year.

Rough rice for July, the most actively traded contract, recently traded at $9.945 a hundred pounds on the Chicago Board of Trade. 

8 Reasons to Take a New Shine to Gold (K. Tan, Barrons)

The formerly precious metal is in a slump, but could top $2000 over the next decade with Asia’s boom.

Gold should be ashamed of calling itself a precious metal these days. Since it peaked near $1,889 a troy ounce in August 2011, the price of gold has fallen almost 40% into a perennial bear market. This year alone, gold has underperformed stocks in China, Japan, Hong Kong, Taiwan, Korea, Australia, the U.S., Russia, Switzerland, Italy, Portugal, Ireland, Germany, Poland and Israel; government bonds of countries from China to Russia; the dollar, Swiss Francs, Picassos, Warhols, Rothkos, Manhattan real estate, cocoa, eggs, cotton, silver and – gasp – even lead! Like frankincense and myrrh, gold has been relegated to the heap of has-beens, overlooked by fast money chasing momentarily hotter assets.

So why is now the time to take a new shine to the old metal? Let us count the ways:

1) Once a hedge against market turmoil and inflation, gold has lost its calling in a world where stocks keep rising and inflation stays maddeningly meek. But Asia’s surging stock markets represent the last big reflation trade – where money managers snap up risky assets in anticipation of central bank easing, and which had paid off in markets including the U.S., Europe, Japan and China. But this popular playbook is now running out of pages, and if the volatility that has lately plagued currencies and bonds starts spilling over into stocks, then watch out.

2) Stocks have been a big – and logical – beneficiary of the trillions printed by global central banks, but valuations cannot climb indefinitely. How many indexes across the planet are already pushing record highs, even while economic growth remains middling? The MSCI World Index, for instance, already commands a price nearly 18.6 times what its components earned, while the Russell 2000 index of small U.S. stocks fetched 44 times.

3) While gold has gone nowhere over the past four years, the formerly precious metal seems to have found a floor near $1,200, with buyers stepping in each time prices slide below this threshold.

In addition, gold is a famously expensive metal to mine, and producers are unlikely to increase new supply until gold prices rally well above $1,200. All this helps limits the downside risk of adding gold at current levels, near $1,174.

4) Rising wages and purchasing power across Asia will improve the demand for gold, especially in tightly-regulated economies with under-developed financial systems where gold is still a store of wealth.

ANZ chief economist Warren Hogan and commodity strategist Victor Thianpiriya reckon that average gold demand amounts to just 0.70 grams per person among Asia’s emerging economies – half the per capita consumption of more developed countries. “Per capita gold demand in emerging economies of the Asia 10 has the potential to double as these countries become richer and more industrialized,” wrote Hogan and Thianpiriya, who expect gold demand among individuals and institutions to reach 5,000 tonnes per year by 2030, up from 2,500 tonnes recently. They see gold prices rising gradually and breaking through the $2,000 level within the next decade.

 

5) Central banks, especially those in emerging economies, will need to stockpile more gold to shore up confidence in their liberalized exchange rates. “If all central banks in the world were to hold at least 5% of their foreign exchange reserves as gold, this would require the purchase of almost 8,000 tonnes of gold,” argued Hogan and Thianpiriya. Emerging market central banks should remain net buyers of gold to bring their allocations more in line with developed countries’ – to the tune of about 75 tonnes a year, they added.

China, in particular, not only wants to establish the yuan as a global reserve currency, it wants to build Shanghai into a global hub for gold trading. Having supplanted South Africa as the biggest gold-producing nation, China is also the biggest importer of gold. Yet its share of global gold trading is still modest. Don’t be surprised if China’s central bank is buying up the country’s own domestic production, while also amassing gold from abroad.

6) Already, sentiment toward gold couldn’t get much worse. Once upon a time, gold bugs were as loud and as legion as Benedict Cumberbatch’s teenage fans. But Barron’s latest “Big Money Poll” showed a whopping 71% of money managers who said they’ve become bearish about gold, while the huddle of bulls shrank to just 29%.

Meanwhile, Newmont Mining ( NEM ), which mines the unloved and allegedly precious metal, quietly became the fourth best performing stock in the Standard & Poor’s 500, and has shimmied up 41% this year.

7) Of course, rising U.S. interest rates threatens to siphon money from assets including gold. But the prospect of rising real rates has become one of the longest drum rolls heard in the financial markets, and may already be amply factored into current prices.

Nearly 83% of the planet’s stock market cap recently is supported by zero interest rate policies, and more than half of all global government bonds still yield less than 1%, according to BofA Merrill Lynch. Even if U.S. rates were to climb spiritedly – a big “if” given the fragile state of global growth – rates from Europe to Japan won’t necessarily join the party.

8) Central bank largesse, quite arguably, has become the biggest driver of asset prices in recent years, but the bill for all this wanton money-printing will one day come due. Either central banks will eventually succeed in inflating prices, or the surplus liquidity and leverage will suck money from the economy’s productive sectors into its more speculative fads, and central banks will then have to wean us from the lavish stimuli. In either scenarios, gold benefits. And when that happens, some of what glitters just might be gold.