Wall Street Lays Egg

Romance without finance is no chance. The Dow Jones industrial average is what economists call a leading indicator. It reflects investor confidence in future economic activity.

The reigning emotions are greed on the upside and fear on the downside.

Words are important. I used the courteous term "lays egg" to title this article. The creator of the graph calls what happened to the market this year a slump. In baseball terms, the market's batting average dropped from .280 [14] to .160 [8]. This is not a slump, but a one way ticket to the minor leagues.

The savvy investor at the end of 2007 could have purchased a put option, which would have allowed him to sell his stock at the high 2007 price to a loser in 2008. The investor was betting the price of the stock would fall in 2008, so he could buy it at the low 2008 price and sell it at the much higher 2008 price. In the Wall Street parlance, he was taking a short position.

After the 1999 deregulation, investment bankers pushed subprime mortgages to home owners who did not qualify for normal lending. The bankers anticipated a time when housing prices would fall, the owners unable to resist foreclosure. In effect, the lenders were shorting the housing market the borrowers losing their home equity and the roof over their heads.

After the government loaned the banking industry $trillion to ease the credit situation, the banks have effectively stopped making loans to individuals and to small businesses. Foreclosures and unemployment have increased. Consumer spending has decreased accordingly. These ailments have spread to the world economy.

The 'slump' is the worst decline since the Great Depression and there is little likelihood it will abate. After three generations of trickle down economics and supply side thinking, we have little ability to define the situation and even less acumen to solve it.

Where Has All the Rice Gone?

The Internet is buzzing over the decision by Sam's Club and a few Costco outlets to limit bulk rice purchases to customers. Rice rationing in the United States! How long before food riots in San Francisco?

How the World Works has been accused by some readers of peddling a relentless supply of doom of late, but when the price of the staple food of half the planet's population triples in less than five months, governments get nervous. It's a big story, and unlike in the case of corn (biofuels) or wheat (bad weather) there is no easy villain to blame. World rice production is up, but demand is up more. Production gains are not keeping up with population growth and increased consumption.

With that in mind, here's a rice-related item that's gotten a little less coverage than possible rice hoarding in the world's richest country. According to a report in Monrovia, Liberia's The News, the chief executive officer of China's China-Africa Development Fund pledged 5 billion dollars of investment in African agriculture over the next 50 years -- including, specifically, rice production. (Thanks to China Digital Times for the link.)

Mr. Chi Jianxin, at a head of a Chinese delegation, is in the country to explore investment opportunities in the agricultural sector.

Chi said his company has the financial capacity and expertise to develop and stabilize the food situation in Liberia "particularly in rice production and other cash crops."

During an acquaintance visit with Liberia's Agriculture Minister Chris Toe, the Chinese delegation summed up its exploratory visit in averring that an increased investment in the agricultural sector would provide more food as well as jobs for thousands of Liberians

The announcement isn't going to move the price of rice this year, or next, but it's a pretty clear indicator of which way the world has to go if global food production is to be boosted to match world demand while keeping prices affordable. The developed world, (and in this case, we'll include China in that category, with its $1.68 trillion dollars worth of currency reserves) must find ways to invest in Africa, where there is labor, and land, and a desperate need for inputs, both financial and physical. How about it -- Africa: breadbasket of the world, instead of basket case?

-- Andrew Leonard, Salon.com