|
It is impossible to predict the future. No one knows what is going to happen in various markets within the next 45 minutes let alone the next 30 days, 90 days, one year or five years. All that one can do is identify what conditions and situations exist right now and whether they will continue for the forseeable future.
Some of these other scenarios could be labeled as "Stranger Than Truth" but they are all real issues and the key to good credit analysis is considering many factors and determine the relationship between various situations. For instance, it would appear that due to global warming trends that a year round, ice free corridor is developing along the North American arctic region. What does this mean for world shipping? Conversely, what does it say about what is happening to the planet Earth and is there some sort of a cost involved?
In less than a year from 2006 into 2007, approximately 1/3 of all the commercial Western Honeybee colonies in North America have
either disappeared or declined to the point of not being viable. It is a still not a well understood phenomenon in which
groups of worker bees of the hive do not return from daily pollen gathering forays, leaving the hive with younger and
younger generations of worker bees, in insufficient numbers, that are unable to support the colony. It is unclear whether the loss of the worker bees
is attributable to a single factor or a combination of situations:
On Tuesday, May 6, 2008, a media story concerning the Apiary Inspectors of America (AIA) stated that a recent report conducted by the AIA indicated that 36.1% of the commercially managed bee hives in the United States have been lost since 2007, approximately 29% of the amount was directly related to CCD (the survey included 327 operators who account for 19% of the country's approximately 2.44 million commercially managed bee hives; unfortunately, there is no information yet on the AIA website).
Credit Analysis Issue: Such a large portion of annual fruit and vegetable production is reliant upon commercial bee pollination that a further decline in the amount of available healthy hives would result in lower crop yields and more expensive produce.
USDA Carl Hayden Bee Research Center
MAAREC - Mid-Atlantic Apiculture Research and Extension Consortium
Pollinating and Funding Farm Bill Programs
By Spring of 2008, world market prices for major food commodities such as grains and vegetable oils have
risen sharply to historic highs of more than 60% above levels just 2 years ago. Some of the causes of the situation include:
Credit Analysis Issue: Have food prices really stabilized, and have they stabilized at a level that there is still sufficient supplies at an accessible price? Should a moratorium on biofuel production from food crops be instituted? If consumers have to spend more of their income on basic food items what will that mean in terms of consumer spending on other items? Will food price inflation continue to increase to an unsustainable level, resulting in political instability from internal civil strife or competition between nations?
United Nations Food & Agricultural Organization (FAO) Food Price Indices
United Nations Food & Agricultural Organization (FAO) Crop Prospects and Food Situation
International Food Policy Research Institute (IFPRI)
The World Bank: Food Price Crisis
Citizens in Europe, North America, Latin America and Asia have become well aware of the debate over international
and local environmental issues. In response, there has been a rise in new "green" (environmentally sensitive) products and the
effort be existing industries to portray themselves as "green" aware and active in order to attract consumer spending.
However, there is quite a bit of hype and marketing involved ("greenwashed").
Credit Analysis Issue: Is this a real, long-term development? What sort of new products will be successful? How can existing industries "re-invent" themselves and recast their products? What happens if a product is exposed to be of little or no advantage in controlling environmental degradation? Is it possible to capture in a single number "carbon label" provided to consumers the accurate reduction or neutralization of greehnhouse gas released in the manufacture / production, packaging, transport, consumption and disposal of a product?
Assuredly, every nation has the right to control which non-citizens legally or illegally enter their political jurisdiction. It has become an even more important issue since the rise of global terrorism networks who subscribe to physical violence as part of their tactics. However, many nations rely upon less expensive immigrant labor (lower wages and no benefit payments) to perform certain jobs within society. Similarly, better educated professionals and students also contribute to national economies when admitted under legally administered work and education programs , many actually becoming citizens of their new homeland.
Credit Analysis Issue: How will a specific national economy perform without the movement and addition of immigrants if border security becomes tightened and successful in halting illegal immigrants and discouraging legal immigrants? What will happen within the developing world where quite a number of nations rely hevily upon remittances from its citizens who are presently migrant workers in Europe and North America?
There appears to be sufficient agreement among scientists, governments, organizations and the media that the temperature of the Earth's surface and oceans is rising. The controversy is over whether the warming phenomenon is a natural cycle of the Earth or whether it is man-made as a result of carbon emmissions by industries, utilities and transportation. Ignoring the controversy regarding the source of the temperature increase, there are already observable conditions of drought, habitat loss and environmental degradation. Added to this is the very real man-made respnsibility for continued urbanization, deforestation, fish stock depletion, waste generation and natural resource extraction. Already in the United States we are seeing positions taken between municipalities, states and rural and urban regions over water acess rights. The Food and Agriculture Organization of the United Nations (FAO) estimates that "by 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity, and two-thirds of the world’s population could be living under water stressed conditions."
Credit Analysis Issue: Is it possible, in the long-term, to really be able to measure what continued global warming may mean? Will specific geographical locations become inhospitable to human inhabitation or not be able to support agricultural activities? Will there be political strife related to the allocation of dwindling resources?
National Integrated Drought Information System (NIDIS)
Intergovernmental Panel on Climate Change (IPCC)
The last serious pandemic was the influenza virus outbreak in 1918, which killed millions of persons around the world. The HIV virus
has resulted in a serious health and economic problem for a number of developing countries. There have been increased occurrences
of E. coli and other foodborne outbreaks (Salmonella, Cyclospora) related to prepared foods in the United States and imported raw foodstuffs.
Credit Analysis Issue: Is it possible that there could be a pandemic again from some unforseen infectious, drug-restant virus that could effect enough people (illness, decreased life spans or deaths) to curtail a nation's economic output, effect a nation's ability of maintaining the rule of law as well as protecting the health and safety of citizens and/or curtail international travel?
Diseases & Conditions, Centers for Disease Control and Prevention (CDC)
International, decentralized terrorist movements challenge every region and government in the world on political, social, economic and theological issues. In many cases this challenge is in the form violence. Given the decentralized design and international dispersal of movements among local populations it is very difficult to control.
Credit Analysis Issue: How much does internal and external security cost in terms of high taxes, diverted investment, international relations, people's lives and public opinion?
For many years, consumers, financial institutions and businesses in the United States and several other nations benefitted from, and had easy access to (lightly regulated or poorly regulated depending on who you ask), low cost credit. Even borrowers of questionable credit could obtain financing in the United States to purchase a residential property, often with no money down. Similarly, the U.S. government coninuously runs an annual deficit to cover the cost of domestic projects and overseas security operations in the belief that foreign governments will continue to purchase U.S. debt. In response to the problems in the United States in 2008, the U.S. Federal Reserve Bank increased its balance sheet substantially (from $950 billion to $2.2 trillion) in order to create the capacity to disburse billions of dollars to various financial institutions.
Credit Analysis Issue: Is the real solution to the problem having the government offering liquidity at record low rates to most financial institutions? Or to put it another way: the U.S. government is promoting borrowing and spending in order to alleviate the problems that were caused by excessive borrowing and spending? U.S. debt issued by the Treasury now totals trillions of dollars, which is held primarily by the central banks of 3 nations: China, Japan and Saudi Arabia. If these nations ever doubt the ability of the United States to service the debt what would happen if they reduced or halted their purchase of U.S. debt? Is the only way for the United States to repair itself is to halt its culture of accumulation? What would that mean to the standard of living of its citizens and what would it mean to nations around the world who really on exports to the United States? However, finally, if the U.S. does not continue with an easy credit policy during this period of trouble could it result in a period of deflation similar to what was experienced in Japan in the 1990s?
The United States is caught up in a condition that is entirely different from a Federal Reserve engineered economic recession through a tightening of monetary policy and, similarly, an expansion caused by monetary easing. Rather, the Fed Funds rate is at its lowest historical point, bank stocks are trading a very low values and have received capital infusions from the government, the balance sheet of the Federal Reserve has been substantially increased, several metropolitan areas have experienced real estate value declines in excess of 30% and the automotive industry has also received federal support. The nation is essentially in a period of restructuring after a period of easy credit and little oversight.
