The Real Reason for Unrest in Ukraine...and Bosnia, Thailand, etc., etc.

One of the great untold stories behind the unrest in the Ukraine that boiled over this week is the enormous economic strain that is being placed on these countries by global financial markets.

In particular, the global markets for food commodities.

Yves Smith linked this morning to this post that addresses this topic.  The upshot is that rising food prices are triggering unrest all over the globe:

Just over a year ago, complex systems theorists at the New England Complex Systems Institute warned us that if food prices continued to climb, so too would the likelihood that there would be riots across the globe. Sure enough, we're seeing them now. The paper's author, Yaneer Bar-Yam, charted the rise in the FAO food price index—a measure the UN uses to map the cost of food over time—and found that whenever it rose above 210, riots broke out worldwide. It happened in 2008 after the economic collapse, and again in 2011, when a Tunisian street vendor who could no longer feed his family set himself on fire in protest.

Bar-Yam built a model with the data, which then predicted that something like the Arab Spring would ensue just weeks before it did. Four days before Mohammed Bouazizi's self-immolation helped ignite the revolution that would spread across the region, NECSI submitted a government report that highlighted the risk that rising food prices posed to global stability. Now, the model has once again proven prescient—2013 saw the third-highest food prices on record, and that's when the seeds for the conflicts across the world were sewn.

A Reminder About...Math

I was reading this post by wolf Richter about the recent market gyrations when I came across this passage:

Could the party be over? No way, José. This party will neverbe over, the thinking goes. This is just a temporary blip, a healthy pullback, a minor squiggle. The market is building a base for the next leg up..... The Wall Street Journal reports about those intrepid investors:

They view the current pullback as a natural occurrence, the kind of passing storm that can hit every year or so. Since the Dow hasn’t fallen 10% since the middle of 2011, a drop of that size is overdue, they say. Some are even talking about a 15% or 20% decline without sounding too upset, because they think it will be over in a few months and stocks will finish the year with gains. And, they point out, stocks gained more than that last year alone, when the Dow was up 26.5%.

And I thought to myself, what bullshit!  But I see this sort of thing all the time.  Sure we had a 20% drop this year, but last year we gained 25% so overall we're not doing that bad, right?

Um, no.  It's basic math.  If on Day 1, Year 1 I invest $1,000 and gain 25%, I have $1,250 at the end of Year 1.  And if in Year 2, I lose 20%, at the end of Year 2 I have....$1,000.  Yes, 20% of $1,250 is $250.  I've lost in Year 2 everything I've gained in Year 1.

This isn't investors talking.  This is traders, and they think investors are stupid.

They Could Have Come Up With a Better Headline

Today's Wall Street Journal: "The Downside of a Lower Unemployment Rate"

When I first saw this headline I thought the point of the story was why it's good to have high unemployment.

Instead, the story is that a lower unemployment rate doesn't mean that things are getting better: the rate is going down because people are giving up looking for work and dropping out of the labor force.

Like I said, could have been worded better.