Doom News

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.