Saturday, September 18, 2010

Forests and potash

I haven't been good about blogging. Bad, in fact.
I'm working on this new thing -- I think it's going to be a newsletter, although it might become a website. Still working out the details on that, but it's kept me away from the blog and focused on the new product.
I think it's going to be directed at women in the 45 to 65 age group (pre-retirement, but in sort of middle age.) I have these theories, and I've been collecting stories in my head about women as they begin to gently age, and it's turning into a thing. I hope. Jan (Mrs. IV!) has been helping.

The financial crisis in the United States -- and therefore much of the world -- had its roots in a much earlier time than folk think.
My theory is that following commodity markets gives you a pretty sharp look into the economy's future. Maybe this isn't rocket science, I don't know; but if we had looked more closely at the Canadian lumber industry's crash, I wonder if we would have figured out that something was seriously amiss in the American real estate market well before everyone had to take a bath on their mortgages.
Lumber demand had been drooping substantially well before big companies like Weyerhaeuser starting closing mills, including those in Saskatchewan way back in 2006. Part of the problem was certainly the softwood lumber agreement, but even that likely emerged partly due to sagging demand for board feet. The US government was protecting what was left of its own lumber industry.
So, no one (ok, I exaggerate) in the US was building new houses, at least as far back as 2005. Why? Glut on the market? Or could Americans not afford such things? Either way, something was changing, even in the days when the American consumer was still, big time, king of the world from an economy-driving standpoint.
Then, sub-prime mortgages began to emerge. At the loss-leader lower interest rates that lured homebuyers into ownership and therefore through the door of the bank, they could (if marginally) afford homes. The big American dream was saved. For the time being.
Another thing that some open-minded economists are arguing is that Americans were not specifically going broke because of that home in the suburbs. It was because they still had to drive to work, and were spending stupid amounts of money on energy. No one can afford to live downtown or even near downtown, so they're out in the sticks and filling up the truck every week. Brilliant theory, actually. If they could have walked to work, they may have survived the financial collapse.
Everyone more or less knows the rest. All hell broke loose. Foreclosures continue to climb, to the point where banks aren't even putting all their newly-repo'd houses on the market, for fear such a glut would drive prices down even further. (The Globe and Mail reported on this this week.)
(Interestingly, things seem to be the worst in traditional tourist states like Nevada, Arizona, Florida and California (along with a few others). Maybe the values were just the most inflated in these regions; or maybe other recession weary-nations weren't sending their citizens off to warm American climes.)
Anyway, I've been musing that the Canadian forestry industry might have been the canary in the coal mine in this case. I've also been thinking that economists and forecasters may not put quite enough emphasis on the end-user when they make predictions.
Take the potash price crash of last year. Prices were at historic highs -- and they were very, very high. When the recession came along, farmers couldn't afford potash. Period. They tried other fertilizers that were less expensive; they grew crops that required less potash; they did other things like create business groups to buy fertilizer in greater volume, to cut prices.
How was it amazing that the price fell, along with demand? The recession hit in 2008. In 2009, millions of farmers around the world voted with their feet, walked away from potash, and gave everyone a very clear view of how grassroots market forces react.
Just like homebuyers walked away from new homes in the mid-2000s.
As an addendum, there's something seriously amiss in a society where people can't afford to live near where they work, and can't afford to get to work to pay for where they live. Parts of Canada are like that, too.
I don't know what exactly the nub of the problem is, but it's serious and it's going to take a long time to work out.