Swanson

Dr. Michael Swanson Chief Agriculture Economist - Wells Fargo

Economic Volatility has Consequences Michael Swanson Ph.D. Wells Fargo Ag Industries

Right on the trend Wiped out by the volatility 3 Wells Fargo Ag Industries - 3

How quick can you UNLEARN?   US is the “best” market   Per capita income and wealth   Strong markets and institutions   No one is perfect   However, US is not the market maker Wells Fargo Ag Industries - 4

Forecasts? What are they worth? Wells Fargo Ag Industries - 5

We will gift wrap it for them Wells Fargo Ag Industries - 6

The two that really drive the markets 7 Wells Fargo Ag Industries - 7

Why do “we” have $80/barrel oil? Wells Fargo Ag Industries - 8

An invisible sun   Cost of capital   US: allocated (mostly) by market returns   China: allocated (mostly) by connections   You don’t need to ship something to distort the market   Import substitution   Technology transfers   Currency exchange trends have big cycles Wells Fargo Ag Industries - 9

Economic volatility will be rising. What does that mean to your strategy? 10 Wells Fargo Ag Industries - 10

Define “economic volatility” The difference between the actual and the average. 11 Wells Fargo Ag Industries - 11

Daily distribution of price change Wells Fargo Ag Industries - 12

It’s not your imagination Wells Fargo Ag Industries - 13

How it entered your world Wells Fargo Ag Industries - 14

It’s now easier to be wrong than ever Wells Fargo Ag Industries - 15

What’s driving volatility   Globalization and integration   Speculators   Electronic trading   Portfolio models   Biofuels policy   Love it or hate it – that’s your business   Major input and now a major output   Sheer randomness Wells Fargo Ag Industries - 16

You don’t solve a system 17 Wells Fargo Ag Industries - 17

Planning can’t be about predicting   Drunken monkeys throwing darts   Risk management   Own   Rent   Compensated risk   Theirs   Ours   So what does it mean to ME? Wells Fargo Ag Industries - 18

“Blinded by the lately” Wells Fargo Ag Industries - 19

How does the US economy grow?   Long-term GDP growth is 2.4%   Output grows with inputs and productivity   Largerlabor pool 0.4%   More capital invested 0.7%   Productivity gains 1.3% Wells Fargo Ag Industries - 20

If you don’t have productivity … Wells Fargo Ag Industries - 21

So what have we been distor6ng lately? 22 Wells Fargo Ag Industries - 22

We’re all Keynesian now … Wells Fargo Ag Industries - 23

We’re on sale – really marked down to move Wells Fargo Ag Industries - 24

Free money forever – Is that good guess? Wells Fargo Ag Industries - 25

A quick show of hands. Who thinks they know what they’re doing? 26 Wells Fargo Ag Industries - 26

(Un?)intended Consequence Input Agriculture cost 30% Expected Output Profit value 100% Energy Cost of food Land Values Global economic growth Wells Fargo Ag Industries - 27

Can the tail wag the dog? Wells Fargo Ag Industries - 28

Corn: Market maker Wells Fargo Ag Industries - 29

After 2 years – Marginal Growth Wells Fargo Ag Industries - 30

Where does the growth come from now? Wells Fargo Ag Industries - 31

Iron cows at work Wells Fargo Ag Industries - 32

So where does it leave me? 33 Wells Fargo Ag Industries - 33

Increasing volatility has consequences   Margin management v. “guessing”   Risk management is never free   Deleveraging has a financial cost   You need to  “own” your program   not “rent” Wells Fargo Ag Industries - 34

The “perfect” kills the “good”   Hittinga “hole in one” is always luck   Scratch golf = skill + practice Wells Fargo Ag Industries - 35

When the environment changes, it’s the adaptable that thrive not the well adapted. 36 Wells Fargo Ag Industries - 36

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Swanson

by Minnesota Agri-Growth Council on Nov 05, 2010

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Swanson — Presentation Transcript