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Scott Barlow

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.

Two hundred years ago every national economy was dominated by agriculture and this is probably the reason that, over time, agricultural policy has become such a messy cesspool of bad ideas, corruption and legislative capture.

California's water shortage is only the latest example, as Bloomberg reports,

"All over the West, farmers served by federal projects have benefited from 50-year zero-interest loans, with generous repayment rates, plus low-cost power. And about 45 per cent of the farmers who receive irrigation subsidies are growing commodity crops (such as rice and cotton) that qualify for price supports from the U.S. Department of Agriculture – a classic example of double dipping."

"Save California Farmers From Themselves" – Bloomberg

See also: the story that first got me interested in (and angry about) agricultural policy, The Sweet Hereafter, which details the U.S. sugar industry and lobby groups. The detailed expose first appeared in Harpers magazine in 1999.

The first law of commodity markets recently is that for every bullish outlook there is an equal and opposite bearish view. Today is no different.

Austrian energy consulting firm JBC Energy GmbH and UK-based consultancy Wood Mackenzie predicted that the sharp slowdown in energy investment will result in a repeat of $100 (U.S.) per barrel oil price by 2019:

"The longer and the lower the current oil price slump goes on, the faster and higher the bounceback in the oil price will be further down the line," Luke Parker, director of corporate research at Wood Mackenzie, said by phone April 24. "There have been volumes taken out of future production growth."

But, at the same time, an academic study by Andrew Powell from the Inter-American Development Bank used long-term historical data to argue that commodity prices will remain low for a long period:

"Perhaps most worrisome for commodity exporters is the prospect that prices may fall below the previously established equilibrium in real prices. Suppose long-term prices with normal levels of stockholding are determined by an underlying long-run cost curve. Then, if high prices driven by sharper-than-expected changes in demand stimulate significant innovation, temporary booms will lower that curve. When the reasons for the boom subside, prices may fall below the previously established equilibrium. The two largest previous commodity booms in the past 115 years (in 1920 and in the early 1970s) both ended with crashes that lowered real prices relative to the previously established equilibrium… we may have to wait many years for the next boom to come along."

"Traders Seen Mispricing Oil as Spending Slump Signals Crunch" – Bloomberg

"Commodity prices: Over a hundred years of booms and busts" – Powell, Voxeu

"For Sale: Used Oilfield Machinery" – Wall Street Journal

The ROB's Luke Kawa highlights CIBC analysis implying that the economic shock from lower oil prices will affect the Canadian economy for far longer than the Bank of Canada believes:

"CIBC World Markets is in the camp that believes the oil-induced Canadian economic slump will be a more drawn-out affair. The bank is projecting growth of 0.8 per cent in the first three months of the year, 0.6 per cent in the second quarter, and 0.7 per cent in the third quarter before a strong rebound in the final three months of 2015."

"Oil's harsh bite on the economy not yet felt: CIBC economist" – Kawa, Report on Business

Hedge fund manager Guillermo Roditi Dominguez from New River Investments wrote a highly informative (if a bit wonky) guide to U.S. employment and wage statistics. An acceleration in the U.S. economy will need higher wages that, among other things, will lead to housing demand and construction activity. Understanding how to read the data is extremely important.

"A short guide to measures of employment, wages and income" – Dominguez, Morally Bankrupt

Tweet of the Day is from billionaire private equity investor Mark Andreessen, "@pmarca Economist (noun): An expert who can simultaneously lament sluggish productivity growth and the rise of job-killing robots, sans irony."

Diversion: As a white male from a Canadian suburb, my views on the ongoing riots in Baltimore are next to useless. David Simon, on the other hand, grew up and worked there and knows the city well enough to produce The Wire, one of TV's greatest artistic achievements, set in the city.

Ta-Nehisi Coates also grew up in Baltimore's inner city and it helps that, even when I disagree with him, he's clearly one of the best writers alive (in my opinion, of course).

"Baltimore" – Simon, The Audacity of Despair

"Nonviolence as Compliance" – Coates, The Atlantic.

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