A rather jolly Niall Ferguson was just on TV promoting his new book on the history of money.
For those who don’t know Ferguson, he’s a Scottish history professor who specializes in British and capitalistic business history, which are closely connected. The great first observer of capitalism in its very early stages was sage Scot Adam Smith, of course, and Smith’s The Wealth of Nations (published in 1776) is nicely bookended by Ferguson’s recent book.
Ferguson expected this year to be a big economic bust of a year based on all the excess money the world’s goverments have created in recent years, but hadn’t expected it to be this bad. (The fact that he’s been generally right is probably why he seemed so jolly.) What’s his view now that the world’s stock markets have plunged dozens of percentage points and virtually all the world’s economies have sunk into recession: we’re only about halfway down, perhaps.
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Not very encouraging stuff.
For commodity sellers like farmers he also has the unpleasant view that the world is at a much greater threat of deflation than inflation right now, and as readers of my series of interviews with leading market theoreticians would know by now, farmers benefit in inflationary times and suffer in deflationary times.
Farmers are, in fact, part of the general problem of inflation when it happens, because it is the inflated – read “increased” – price of things like grains and oilseeds that cause inflation to happen. In a period of deflation, prices of assets go down, including real estate, metals, and ag commodities.
There is a raging worldwide debate right now in the market analyst community about whether we are now in the grips of deflation or are stoking the future fires of inflation (because of all the recent goverment mega-bailouts), but the danger of deflation shouldn’t be ignored by farmers.
Many farmers missed the big price peaks earlier this year. Future price rallies – and rallies occur even in bear markets – need to be considered by farmers as enticing selling opportunities. Sure, big ag commodity price rallies could go beyond the peaks reached in 2008 – commodity rallies often occur in disastrous times for the stock market – but if you aren’t selling a bit on the way up, you’ll feel pretty foolish if it comes crashing back down.
The analysts aren’t of one mind on this issue, but the fact that they are so divided over it means caution should replace the reckless bullishness many felt a year ago.
