Friday, February 25, 2011

Ha! UBS: The Pacific Decadal Oscillation Means Five More Years Of Very Bad Fed Luck

Ha I say. Ha!
We've been babbling about the PDO since we started this blog. Links below but most of the posts have been along the lines of this one from January 2009:
...Watch that Pacific Decadal Oscillation. A New York Times archive search for the term "crop failure" returns 1950 hits, with a preponderance of stories written during the cool phase of the PDO. With the interconnectedness of the world's grain markets, a failure anywhere would raise prices everywhere.
(more on this follows the headline story)
Please note, I've never heard the PDO referred to as 'oscillator'. The folks at the University of Washington who discovered it called it 'oscillation'.
From ZeroHedge:
These days the Fed is blamed for everything: from liberating the world from oppressive regimes, to the resultant genocide that accompanies such a process, not to mention to reflating record bubbles that guarantee to wipe out another generaton's wealth as soon as this latest and greatest episode of central planning fails. Yet one thing the Fed can not be blamed for (yet) is the weather. And unfortunately for the Chairsatan, storm clouds are (literally) building up for the next five years. While some have blamed the recent surge in food prices on inclement weather, including floods here, droughts there, and massive conflagrations in Russia, the case is, as UBS points out, that weather over the next five years will likely be very unpredictable, and result in increasingly supply shocks and commodity price imbalances (at least for those commodities that are harvested; that the Fed's liquidity is at base reason for the surge in everything not nailed down, just look at the price action in items that do not need watering, or direct sunlight). Enter the Pacific Decadal Oscillator, and if UBS is right, things will continue to be ugly at least until 2016.
From UBS Julien Garran

The pacific decadal oscillator (PDO) has turned cold. We highlighted in Cost Push, December 2010, that the UN  Intergovernmental Climate Change Committee now forecast that the PDO would remain cold until 2016. The importance of this is that a cold PDO makes it four times more likely that there is a La Nina in any given year. There were three La Ninas in the ‘70s, we are currently experiencing our second in three years, and we will likely see another couple over the next five years.

La Ninas, combined with other climate change patterns, are immensely disruptive to food and fuel production. In the past 12 months we have seen major food production losses in Russia, China, Australia and Brazil. And, as we have highlighted before, La Nina generates major rain disruption to 70 percent of the worlds thermal and coking coal production for export.

The importance of cold PDOs, and frequent La Ninas is that each La Nina leaves behind lower food and coal inventory levels, tighter markets, and greater potential for disruptions and price spikes.
In the mining team, we believe that it is more than just a coincidence that all the major warm periods in the PDO over the past century coincided with bond bull markets (the 20s to the early 50s, the 80s and 90s) while all the cold periods coincided with extended bond bear markets (mid 50s to the late 70s, now?).
In other words, even the weather is now conspiring to end the Fed's (and the global banker cabal's) ridiculous monetary policy which as was highlighted earlier can be summarized in three words: "everyone is printing" and the smallest flashpoint of climatic instability leads to riots, revolutions, deaths, and mass starvation. If even god is sending a message to the Chairsatan, just what other signs does he need?
The PDO will remain in the cold phase past 2016. It displays a 30 year quasi-cycle.
July 2010
This could be very bad. As I commented in April '08's "Climate Change and the Pacific Decadal Oscillation":
You might want to look up the word famine. And store a couple tons of wheat in a vermin proof room. The risk of a major crop failure somewhere in the world over the next ten years just went up. My best guess (wild-ass variant) would be northeastern Russia/Ukraine. Which could get interesting...[note: should have been Northwestern i.e. bordering Ukraine -ed]
April 2008
Um, folks, um, maybe we should start thinking about rebuilding our grain reserves.
May 2008 
A Black Swan in Food
And many, many more, use the 'search blog' box keyword PDO.

Here's a bit of historical flavor from our April '08 post "Food Riot Watch: Haiti. Just Wait for the Moche Climate*" that should be an object lesson to our leaders:

*From Wikipedia:

...There are several theories as to what caused the demise of the Moche political structure. Some scholars have emphasised the role of environmental change. Studies of ice cores drilled from glaciers in the Andes reveal climatic events between 536 to 594 AD, possibly a super El Niño, that resulted in 30 years of intense rain and flooding followed by 30 years of drought, part of the aftermath of the climate changes of 535–536.[3] These weather events could have disrupted the Moche way of life and shattered their faith in their religion, which had promised stable weather through sacrifices.

The BBC had a show on the Moche a while back. Here's what they say happened:

...If the weather on the coast was the opposite, then it suggested a 30-year El Nino - what climatologists call a mega El Nino – starting at around 560 AD, which was followed by a mega drought lasting another 30 years. Such a huge series of climatic extremes would have been enough to kill off an civilization – even a modern one. Here, at last, was a plausible theory for the disappearance of the Moche. But could it be proved?...
It turns out that the Moche adapted to the 30 years of floods and the 30 years of drought which followed.
They ended up killing themselves after surviving all that:

...Dillehay now put together a new theory. The Moche had struggled through the climatic disasters but had been fatally weakened. The leadership - which at least in part claimed authority on the basis of being able to determine the weather – had lost its authority and control over its people. Moche villages and and/or clan groups turned on each other in a battle for scare resources like food and land. The Moche replaced ritual battles and human sacrifices with civil war. Gradually they fought themselves into the grave....