Is there a more powerful investment force on Earth than a supply shock?
Assuming demand stays constant (or increases), as supply wanes, prices will always move higher.
It’s a universal law of the market that can never be violated, which explains why shortages and supply shocks are so appetizing for investors.
Well, it just so happens that the market is presently plagued by tons of shortages.
There’s presently an aluminum shortage, a helium shortage, an apple shortage, a fertilizer shortage, a water shortage, an incubator shortage, a coffee bean shortage, a propane shortage, and yes… even a condom shortage in Cuba.
That being said, the lime shortage is all the rage right now.
Although the shortage is the offshoot of a drought in Mexico, it was made worse by a Mexican drug cartel known as The Knights Templar.
To further line its pockets, the cartel has been resorting to extortion of local business owners, which has profoundly impacted the lime trade.
A case of limes now goes for close to $100, up substantially from $15 this time last year.
But while Americans wonder if their margaritas are safe, another citrus crop is quietly in trouble.
Ravaged by disease, the U.S. Department of Agriculture recently announced that Florida’s orange crop will experience its worst harvest since 1985.
The culprit is an infestation of gnat-sized insects (Asian citrus psyllids), causing oranges to wither and drop early.
Orange juice futures are already being dramatically impacted, and the trend is only just beginning.
On such merits, I asked former NYMEX commodities trader, Lee Lowell, to discuss the evolving situation. With hurricane season approaching, Lee warns that now is the perfect time for investors to strike.
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More Storylines Impacting Markets
Chinese Version of a Greenspan Bubble
A rapidly rising tide of loan defaults portends distress for property developers who borrowed in dollars to help fuel China’s housing boom for the past several years. China’s $7.5-trillion shadow-banking system provided easy credit to subprime lenders, which was the catalyst for financially untenable projects. The Chinese property bubble is similar to the Greenspan Bubble in that projects are dependent on Ponzi-style financing to pay off existing debt. However, as the Chinese leadership abstains from further artificial stimulus, the prospects for 7.5% GDP growth in China become more unlikely, which will have a far-reaching impact on global asset prices.
It’s Not the Weather, Stupid
A Census Bureau report shows that sales of new single-family homes for March 2014 were at a seasonally adjusted annual rate of 384,000 units – well short of economists’ expectation of 450,000 new homes. The rate was 14.5% below the revised February 2014 rate of 449,000 units, and more than 13% off the pace set in March 2013. Some economists still blame the weather for the shortfall, even though the Northeast, which experienced the worst of the heavy weather, saw a 12.5% month-over-month (M/M) increase in new home sales. What’s more, the Northeast saw an increase in new housing units, while the South and West saw M/M declines of 14.4% and 17.7%, respectively. The Midwest saw the biggest declines in new construction, with a 21.5% M/M decline. If this trend continues, expect the low housing numbers to have a negative impact on consensus GDP of 0.5% to 0.8% for 2014.
Greenlight Capital Shorts Tech Stocks
Greenlight Capital, the hedge fund that predicted the decline of Lehman Brothers in 2008, announced that it’s shorting an unidentified group of tech stocks – as evidence mounts that tech stocks are in bubble territory. The $10.3-billion hedge fund established a short position and expects the stocks to decline by at least 90% once the market reapplies traditional valuations. The firm’s manager, David Einhorn, claims the market is near the end of the second tech bubble in 15 years as tech firms – that have accomplished little more than an ability to use buzzwords to attract venture capital – continue coming to the market through IPOs.