Monday, January 22, 2007

Floods, Indian Ocean & Al Gore
No Happy Feet!

Floods In Malaysia & Indonesia - A bull market will turn even negative news into a positive market run story. For the first time in decades, the sothern part of Malaysia and parts of Indonesia have experienced unusual torrential sustained rainfall for the past 8 weeks. Hundreds of thousand have had to evacuate with many losing much of their belongings. Now that has turned into higher prices for timber and crude palm oil, both countries being big exporters of both products. Prices for timber have risen by at least 25% over the last few weeks.

Is this an abberation or the start of yearly cycle risk, much like El Nino and El Nina? Having read some reports, one by Prof. Dr. Ferdolin Tangang, an oceanographer at UKM, it looks likely that the situation was brought about by warmer ocean waters in Indian Ocean and partly due to melting ice caps. Chalk one up for Al Gore, the warmer waters could cause a lot of things - the Indian Ocean was supposed to flow into the Artic waters to disperse heat, however, the melting ice caps kinds slows down or even stops that flow, this causes salinity in the waters to decrease, in turn reducing the water mass making it unable to sink, and further disturbing the flow. This basically means colder winters in Europe, and more unusual climate changes for areas surrounding the Indian Ocean. Following this argument, typhoons and even cyclones would be a much more common occurance in the future. Of course, these events do not just happen overnight, it is the gradual accumulation of various "bad things" we have let happen to our environment.

Business wise, fund managers should take note. One can go very long on things like timber, CPO and even rice. Industry conditions are good, economic activity is vibrant, growth prospects are also good for the countries concerned. Hence whenever these typhoons or cyclones strike, prices will tend to be higher. The severity of the storms may even make a substantial portion of the production fields untenable for long periods. The governments concerned should think a bit longer term as these calamities may occur more often and more readily than we would like to think. Hence the authorities must plan and act swiftly to minimise the ill-effects should another similar calamity arrive - if the calamity strikes a couple more times over the next 2 years, you can pretty much forget about the South Johor Plan.

No one likes to make money out of people's misery, but as a business blog, I have to point out the longer term effects on goods and services owing to changes in market conditions.

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