Too Much Rain Will Kill You

A long time ago I was talking to an upstate dent corn farmer. He said of
the weather:

“A drought will scare you to death,
but too much rain will kill you.”

That bit of poetry fits a lot of things. Excesses are always bad. Some
scare you to death others could even kill you. Possibly when it comes to
monetary policy Mr. Bernanke should listen to the farmers. He is
raining ZIRP on us and he won’t let up. Too much rain is a bad thing.

March set a record for rainfall in the North East. I can attest to it.
There was as day last week where the earth started to become something
closer to Jell-O. It was all water.

Like the markets, the weather is random. There are many factors that
come into play. For me the big enchilada in weather is the El Nino La
Nina cycle. That process brings us the extremes. We just passed through
a significant El Nino. No doubt the flooded basements can be blamed on
that.

The following two slides look at the water temperature difference
between La and El. In an El Nino the warm water pushes onto Ecuador,
when the cycle reverses the warm water appears in other parts of the
Western Pacific. If you look at the maps more globally you see that the
warm water changes throughout the world, it influences water
temperatures from New England to Korea. Cloud cover drives this
self-perpetuating energy source. Cool water produces fewer clouds, so
the water gets direct sunlight and warms. When it reaches certain levels
it produces clouds (storms). The absence of sunlight and the storms
cools the water and the cycle is repeated.

There are folks who live and breath this stuff. They have all the live
data from buoys. They can tell you exactly where we are, but they have
not been able to predict the future. They try hard, but they are about
as successful as your average sell-side analyst. The problem, in my
opinion, is that there is too much Vol. and the turns at the tops and
bottoms are vicious. Consider trying to price the Vol. and trading the
peaks and valleys of this chart.

The tops and bottoms are always spikes with big reversals. This is the
blow off of storms. We get bad weather, the ocean cools. Like overheated
markets El/La cycles often end violently.

Notice that in just the last few weeks we have been screaming off the
recent peak in El Nino. This non-weatherman reads this break as a sign
we are in for a few months of good weather. I wish I could feel as
optimistic on the markets. I would, if Ben eased up on the rainmaking.

Comments

[Lionhead]

"Like the markets, the weather is random. There are many factors that come into play. For me the big enchilada in weather is the El Nino La Nina cycle." These are astute remarks. Now the weather is random to an extent on any given day it can do what it wants to do randomly from the factors that influence it daily. Over the long run, it moves in cycles & those cycles are easily recognizable & measurable. By your definitions, random & factors are small fractals inside the larger cycle.

http://i39.tinypic.com/2dvszs6.jpg

Policy makers, economists & market participants think in linear terms of fixed length cycles & things moving along in a sine wave fashion. They will always be wrong in whatever decisions they make. It's a natural fact.

[hedgeless_horseman]

I liked this article, Bruce.  Well done.

There is a common fallacy:

Someone pays those weather forecasters/economists/analysts, so they must know what they are doing, right?

[b_thunder]

"Mr. Bernanke should listen to the farmers. He is raining ZIRP on us and he won’t let up. Too much rain is a bad thing"  - don't you worry, Bruce, the Banksters have plenty of of private boats to sail through this "puddle." 

But how many on Main St. had the time to get their life preservers ready?

[Rainman]

          gurgle gurgle

[Lionhead]

BK, the bond market is moving today on the jobs report. As always, the market is ahead of the FED. His rainmaking is in place for other factors other than improving the general economy. Propping up banks thru a steep yield curve, excess liquidity to insure asset price inflation to make us all feel good. Eventually, the T-bill rate will move up to where it needs to be & he'll come around. Til then, the Titanic is beginning to turn her rudder northward. Dress accordingly for more chilly climes.

Your Nino line chart reminds me of the equity put/call ratio. Sharp sudden moves off extremes with somewhat of an inner trading band. Yes, you've got the pattern right & someday everyone will come to understand all things, natural & human, move in a universal way. Thanks for another great post.

PS  Would you please give me the link to the report that chart came from. I'd like to add that to my research on fractals. Thanks.

[Bruce Krasting]

There are dozens of sources, google el nino.Check "Images".

I read a blog:

http://bobtisdale.blogspot.com/

He writes over my head, but he presents a ton of data. I find it interesting.The graphs were lifted from him, where he got them I am not sure.

[Lionhead]

Thanks BK. I can see just looking at his home page, I'm gonna find lots of interesting natural charts there. It's so refreshing to see things that aren't manipulated these days. ;)

PS. A drunkard's dream.  Wow!

http://i43.tinypic.com/2qvbkh5.jpg

[sangell]

Its said California has climate while the east coast suffers from weather and my guess is Bernanke, like a lot of Easterners, envies the seemingly stable and predictable climate of California over the more volatile eastern weather. What Bernanke doesn't see is that the seemingly stable California average climate is composed of many micro-climates. In his desire to smooth out the vaguaries of weather and produce a more stable economic climate he fails to see how all the little micro climates interact and that to make modern California work at all requires constant manmade intervention.

[Mercury]

You could be onto something here.  Maybe Bernanke prepares himself for Fed testimony by putting on a blond wig, sticking out his chest and looking into the mirror saying:

"...and tomorrow it will be...SUNNY!"

[Cookie]

We are living through a financial cyclone/typhoon, and currently in the calm eye of the storm, which is returning soon. Prepare for heavy weather in the markets!

[MarketTruth]

And 'too much' sunshine on the Federal Reserve's books will kill them. Too much snow (job) by the USA government kills USA companies. Too much hail(ing) by small children may kill the large corporation of Christian churches. As for too much rain water, it is actually needed in many parts of the world and a lesser 'evil' than the previous mentioned 'too much' items.