Saturday, July 31, 2010

Cacao: Lucrative Commodity Du Jour?

While the reading economic powers around the world are busy searching “creative” ways to stimulate our post credit crunch economy, has cacao unexpectedly become the speculative commodity du jour?

By: Ringo Bones

With the world’s leading economic powers are now busily printing money like there’s no tomorrow in order to lower the cost of borrowing money to stimulate our post credit crunch global economy. Seasoned investors have now resorted to commodities speculation as a hedge against the resulting inflation brought about by the widespread availability of cheap money. But is cacao – the raw material for chocolate making that had recently reached a 32-year price high the lucrative commodity du jour?

Though the moral hazards of commodities speculation has been around since there had been commodities speculation, there is also that risk of generating a hyper-inflated commodities bubble – as in a chocolate bubble. Anthony Ward, CEO of primo Mayfair street chocolate maker Armajaro has not just only recently earned the moniker “Choc Finger” but also been dubbed by the press as a real-life Willy Wonka when he used his company to single-handedly cornered the global chocolate market by spending 600 million dollars to buy a significant portion (7%) of the world’s “strategic” supply of cacao – the raw material for making cocoa and chocolate. Reminiscent of what the Hunt Brothers did during the late 1970s of cornering the silver market, Ward almost single-handedly managed to send the price of cacao on a 32-year price high. But is this “speculative” move economically viable in the long run?

At present – i.e. July 2010 – commodities are still a very attractive investment because they provide a very reliable hedge against the inevitable inflation resulting from the stimulus packages initiated by most governments around the world – i.e. lowering the cost of borrowing money. Unfortunately, commodities on our present austere fiscal environment of a post credit crunch world would make them a relatively thin market for the “foreseeable present”. The international commodities speculators –assumed that Anthony Ward had recently discovered a sort of commodities speculators’ “gold mine” at cacao attempted to mirror his move. Unfortunately this caused the chocolate bubble to burst – cacao commodities prices diving a precipitous 7% during the week of July 19 to July 23, 2010. Will cacao prices go any lower?

Wednesday, July 28, 2010

EU Banks’ Stress Tests: Redundancy in Accountancy?

Despite of being labeled as “too soft” by leading economists, are the recent EU banks’ stress tests really capture the big picture of the Eurozone’s current economic health?

By: Ringo Bones

The recent EU banks’ stress tests, which are conducted by independent auditors – which publicized its findings last July 23, 2010 – showed that of the 91 major Eurozone banks evaluated, only 7 had failed the stress tests. Germany’s Hypo Real Estate failed, which is not surprising given the bank’s exposure to bad credit at the height of the 2008 global credit crunch. Also, one Greek bank failed, while 5 of Spain’s banks under evaluation had failed to pass muster on their survivability of an economic downturn scenario that was deemed “too soft” by leading economists. But does the recent EU banks’ stress tests really tell the true economic picture of the whole Eurozone?

Or could it be that the problem is not economic or even fiscal in nature, but of the way the ailing Eurozone countries make concessions with their left-leaning trade and labor unions during the past 40 years? Unfortunately, from outsiders’ perspective, the Costa-Gavras’ Z has been taken, by most people, as a factual historical “documentary” of post World War II Greek society. That is incumbent governments’ buying the loyalty of their local left-leaning labor and trade unions’ loyalties using concession that endanger their countries long-term sovereign economic viability.

Most of Spain’s Caja banks that have just barely passed the recent EU banks stress test are also on the verge of bankruptcy because of Spain’s “past sins”. Various Spanish administrations since the Franco dictatorship had been making overly generous concessions with Spain's left-leaning trade and labor unions with scant regard to existing economic conditions. It is now very expensive to lay-off a worker in Spain then paying the required benefits.

Bank stress tests and quanititative easings had neither addressed the problems of Eurozone’s socialist model of employment benefits nor reformed them over the years to make them congruent with prevailing economic conditions. In the end, the annual EU banks stress tests may not only be seen by the world’s leading economists as too soft and not designed to cope with another 2008-era credit crunch, but also just another redundancy in accountability. Independent auditors have other and better things to do by the way.