The current US drought is impacting commodities heavily with many futures going up nearly 40 percent just in one month. The NOAA does not expect drought conditions to improve until October and that is a long-time away when the markets are punishing the current market because of Mother Nature slamming food crops. We are so disconnected from our food supply. In the Dust Bowl era that permeated the 1930s and conjures up memories of The Grapes of Wrath we realize how deeply an agriculture problem can have on the overall economy and the lives of people. Yet a very tiny portion of our population now works in the farming business. Yet we will pay the price at the grocery store because of these droughts. In developing nations where food constitutes a large part of a family’s budget, the impact is going to be much larger and profound.
For all of our technological advancements we still do not have full control over some things.
The Chinese economy has slowed down partly due to the global recessions hitting in many European countries. The slowdown is also coming from the US as Americans cut back on spending. The issue of the China’s inflation rate have been front and center as pressure has put on allowing their currency to float. However, due to the recent contraction around the world economies are slowing down and demanding less goods. It is hard to keep prices moving higher and higher when demand is going in the opposite direction. The internal market in China is not developed enough to support their large export machine. There is also the question of whether any global slowdown would impact their internal economy. Hard to see a scenario where an impact is avoided given the massive export base in their economy.
The slowdown is definitely here and the question of a soft or hard landing will be put to the test in China.
Pending home sales are starting to turn brisker but this is expected over the summer. The real question will come from the sustainability of this trend. Yet a good amount of this bounce is coming because of low inventory and banks still figuring out how they will dispose of troubled properties. “(CBS) WASHINGTON – Americans signed more contracts to buy previously occupied homes in May, matching the fastest pace in two years. The increase suggests consumers are gaining confidence in the housing market and a modest recovery will continue. The National Association of Realtors said Wednesday that its index of sales agreements increased to 101.1 last month from 95.5 in April. That matches March’s reading, the highest since April 2010, when a home-buying tax credit boosted sales.”
There is definitely a bounce but does this have legs?
We’ll soon find out.