Why The Pacific Decadal Oscillator Means Five More Years Of Very Bad Fed Luck

Tyler Durden's picture

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?