Have you ever visited islands in the Caribbean, Hawaii, Indonesia and many other areas of the world that have had a role in the development of the sugar case industry?  Like me, you may have taken a tour and visited the remains of a colonial era sugar cane plantation or seen a very old sugar cane plantation in operation today.   During the past few years I have visited a variety of places where I learned that the sugar cane industry was an extremely important part of its development and history.  I decided to find a book where I could learn more.  I just finished reading The Sugar Cane Industry - An historical geography from its origins to 1914 by J.H. Galloway which was first published in 1989.

I am sure that most people would ask me why I would spend any time reading a book about the history of sugar cane.  It seems like a very boring subject.  How could the history of sugar cane relate to anything relevant to today's world?  I found the book to be fascinating.   The history of sugar cane industry dates back to about AD 700.  The cultivation of sugar cane dates back to roughly 1000 BC.  Consumption of refined sugar is not required for human beings to live.  Refined sugar started out as a luxury for a small percentage of the population that evolved into a mass consumption product over centuries.

The sugar cane industry was one of the first global industries with production for export occurring in many parts of the world from the beginning.  As demand grew new lands for cultivation were developed, new production techniques were developed, new technology was developed, substantial capital was raised, the structure of the business operations evolved, competitive products were developed and the politics of trade barriers and subsidies evolved all over the world. 

 

Since the sugar cane industry required a high level of low cost labor in order to make it profitable the early sugar producers developed a plantation business model using slaves.  When slavery was outlawed the owners implemented indentured labor and other approaches to ensure that peasants were effectively forced to work in the fields for very low wages.  Many hundreds of thousands of people were relocated from their home countries to sugar cane producing areas, some voluntarily, most involuntarily. The movement of people solely for the purpose of producing sugar cane occurred in every market where the sugar cane industry was developed.

 

When we visit tropical areas where sugar cane was or is grown and we look at the land and see no trees, we should be aware that it is likely that the original tree growth was used for fuel centuries ago for sugar cane processing and never replaced.  When we see poverty all around us we should remember that many of the people currently living in former sugar cane producing areas are descendants of those that were brought to the area for the sole purpose of producing sugar cane and were effectively abandoned when freed of their bonds to the sugar cane producers.

 

If one looks back at the history of Cuba, Haiti, Fiji and many other places one will find the direct links between the economic and political issues that exist today and the history of the sugar cane industry.  Events and actions that took place centuries ago directly impact peoples lives today.  But the big questions are "Has humanity actually learned anything from the history of the sugar cane industry?" or "Have we modified our behavior so that we don't repeat the negative aspects of the history of the sugar cane industry in today's world? 

 

I believe that it many respects the world is a better place, however, it is clear that fundamental human emotions drive our collective actions far more than anything we have learned from our past.  It is unlikely that we will ever be able to repair the totality of the damage that was created by the sugar cane industry over the centuries.  One thing I know for sure is that the people that consumed the sugar never paid a price that covered the long term cost of the product.

 

TPM

On Monday I posted my blog concerning my updated article, The Case for Gold, http://www.thepurplemuse.com/id29.html.  Yesterday afternoon, the US Federal Reserve updated its interest rate policy.  During Chairman Ben Bernanke's press conference he provided more insight on the Federal Reserve's plan to reduce its buying of government and mortgage backed securities later this year and end those purchases in 2014.  As Bernanke was speaking virtually all markets began to sell off strongly.  The markets have continued their sell-off this morning.

Gold was trading just under $1400 on Monday when I published my article. At the moment gold is trading just under $1300.  The CNBC talking heads and their guests are trying to figure out exactly what is happening to cause a "global sell-off" in stocks, bonds and commodities.   I find the contrast of the market action over the past four days and particularly the last 24 hours to the centuries of history that I reviewed in The Case for Gold to be amusing at some level.  For some people long term is a few hours.  For others long term is decades or a lifetime.  Our perspective is a matter of personal choice. 

We know that central banks and governments have been distorting financial markets for decades.  Why are we surprised when markets react to new information?  For centuries markets have been global in nature and actions in one spot in the world have ramifications in others.  An apparent economic slowdown in China, money printing in Japan, a depression in southern Europe, riots in Brazil and continued conflict in the Middle East are just a few examples of the economic impacting events in the world.  I don't think the CNBC team or anyone they interview has the formula to determine the ultimate outcome of all of these events.  The global market will determine where we are headed next.

The markets are in turmoil because people and governments create turmoil through their actions.  That is one of the major lessons of history.  Each of us has to decide how we deal with the turmoil that is created around us.

TPM

I have made a major update to my article, The Case for Gold, http://www.thepurplemuse.com/id29.html, after reading Peter L. Bernstein's book, The Power of Gold - The History of an Obsession.  Mr. Bernstein does an excellent job of describing the development of gold's importance in world history from both an ornamental as well as monetary perspective.  Mr. Bernstein originally published the book in the 2000.  It is very interesting to read his observations and predictions for the future based on information available to him at that time.  Needless to say he didn't anticipate the events that have occurred over the past 13 years.

Mr. Bernstein is clearly a Keynesian economist.  However, I believe he does a very good job of telling the story accurately.  His opinions are easy to separate from his factual narrative.  He was intellectually honest enough to present alternative perspectives to his own for the future beyond 2000.  He didn't anticipate the massive fiat money printing we have encountered during this period and what impact it may have on the world from this date going forward.

After reading the history and thinking about what has happened one has to ask oneself "What should I do as an individual concerning holding physical gold?" My answer to that question is simple.  Make an evaluation of your own circumstances and your view of the current and future political and economic environment and decide if you want to convert some of your fiat money into real money, gold, or other precious metals.
 
The bottom line is that gold doesn't earn interest or dividends.  There is no return for holding it.  There is only one thing you know about holding physical gold.  It will be convertible into purchasing power anywhere in the world at any time in the future.  How much future purchasing power is unknown.  However, there is no currency that exists today or that has ever existed that has retained its purchasing power better than gold over the very long term.  Everyone's personal situation and perspective on the future are unique. There is no blanket approach that works for everyone.

The Power of Gold is a book well worth reading if you have the time and interest.

TPM

It has been a very interesting day.  A couple of hours ago I was watching CNBC.  They were showing a fire burning in Istanbul during a riot.  The picture of the fire was surrounded by a continuous stream of global market data being updated in real time.  At the same time I was sending an email to a friend in Australia.  Earlier today my wife and I booked a cruise for next year which begins in Bangkok and ends in Rome and will give us the opportunity to visit Singapore, Burma (Myanmar), India, Jordan, Egypt, and Israel.  During recent days I have been reading a book, The Power of Gold, which describes the history of the uses and importance of gold in cultures around the world.  The book connects the actions of kingdoms, countries, peoples and cultures from around the world throughout history.

Our world continues to get smaller and smaller from an information and visitation perspective.  However, the differences between peoples and cultures seems to get wider everyday.  As we learn more about each other we realize how far apart we are in attitudes towards many aspects of life.  We live in a very small large world.

TPM

I just finished reading "Against The Gods - The Remarkable Story of Risk" by Peter L. Bernstein, a book first published in 1996.  The "book tells the story of a group of thinkers whose remarkable vision revealed how to put the future at the service of the present. By showing the world how to understand risk, measure it, and weigh its consequences, they converted risk-taking into one of the prime catalysts that drives modern Western society."

The history of risk begins with the analysis of various forms of gambling, evolves through the development of mathematics related to probability and becomes part of the world of chaos theory.  Some of the greatest names in the history of the advancement of mathematics contributed to advances in risk management including members of the Bernoulli family, de Moivre, Fermat, Fibonacci, Laplace, Leibniz, Pascal, Poincare, and von Neumann. Their contributions and those of many others are described in the book.

As the story progresses the book shifts to the application of risk management to economics and markets and describes the theories of John Maynard Keynes and contemporary economists.  It evolves into discussion of financial derivatives and the development of sophisticated financial instruments that are designed to reduce risk.

Bernstein's book was first published in 1996, before the stock market internet/telcom bubble and crash a few years later; the housing debt market bubble and crash of 2007/2008, and the government debt and entitlement bubble that exists today.  Bernstein states that "there is a fine line between guaranteeing absolute safety and stifling the development of financial innovations that, properly handled, could reduce the volatility of corporate cash flows." He also noted that "Financial institutions themselves are vulnerable to volatility in interest rates and exchange rates; to the extent that they can hedge that volatility, they can extend more credit to a wider universe of deserving borrowers." "Society stands to benefit from such an environment." These statements make sense when they are applied with logic and reason, not when they are abused by government, banking and business leaders.

I wonder how Mr. Bernstein's book would end if it was rewritten today.  It is clear that the proper application of risk management principles have been ignored or abused by the US Government, Federal Reserve, multinational banks, investment bankers and economists since the time frame when Mr. Bernstein's book was written.  People don't want to deal with fact that the basis of risk management is logic and mathematics, not social policy objectives. One of the implications of reading Mr. Bernstein's book now is that it is clear that risk management principles have been ignored for the most part for the past 15 years or so by those making decisions influencing global macroeconomics.
 
Mr. Bernstein's discussion of investment diversification is very constructive.  Market participants need to be fully aware of the implications of regression to the mean, which is discussed in-depth. 

One wishes that a new giant in the mathematics/economics field would emerge to lead the replacement of current thinking with a new direction. Collectively, we have not learned enough yet, we keep making huge mistakes in correctly applying risk management principles to our economy.  We keep creating bubbles and crashes that have greater and greater impact on our citizens.  This has got to stop.

TPM

We left Paso Robles and headed to Las Vegas on Route 46.  We continued to see large vineyards as we left the Paso Robles area.  We drove over the coastal mountains into the San Joaquin Valley, the southern part of California's Central Valley, one of the most productive agricultural areas in the US.  We saw mile after mile of agricultural land along the highway, highlighted by various nut trees, almond, pistachio and walnut.  There were very few signs of the local population among the vast farm acreage.  

We stopped for lunch in Lost Hills, a very small town at the intersection of  46 and Interstate 5. The most interesting aspect of Lost Hills was a one of the signs we saw posted from a farm organization protesting the lack of water allocated to area farmers even though they paid for the water. One thing was clear, if there is no water the local farmers can't grow their crops and make any money.

We continued on 46 until we hit Route 99 and turned south to Bakersfield, the southern most significant city of the Central Valley.  It was clear the business of Bakersfield is agriculture.  We headed east on Route 58 from Bakersfield and headed for the Mojave Desert.  We turned to the northeast on Interstate 15 at Barstow.  The most interesting aspect of our trip through the desert was our drive past the Ivanpah Solar Electric Generating System.  You can check out the project at http://ivanpahsolar.com/update-from-ivanpah-may-2013. 

The Ivanpah Solar Electric Generating System, is a solar thermal power project currently under construction (over 90% complete when we drove by) between Barstow and Las Vegas on 3,500 acres of public desert land. It is designed to focus solar energy on boilers located on centralized solar power towers.  The project cost estimate is $2.2B.  The project has received a $1.37 billion loan guarantee from the US Department of Energy.  The company presents all the good things the project does for the local and national economy on the web site.  If this project is economically viable why did it need a US government loan guarantee?

We finished our California adventure when we crossed over the state line into Nevada and cruised into Las Vegas.  During our time in California we experienced the Central Coast, the Central Valley, the coastal mountains and the Mojave Desert.  All of these places are dramatically different from each other and the major population centers of the state.

California is a very interesting place to visit but I don't think I would ever want to live there. 

TPM

After leaving Monterey we headed south on the Pacific Coast Highway, Route 1.  During the next few hours we stopped numerous times along the highway to look at the beauty of the rocky coastline of the Pacific Ocean.  On a beautiful sunny day we put on our lined jackets to keep warm as a chilly wind blew in from the ocean.

Occasionally, we saw a herd of cattle, but for the most part there were very few people living on the coast.  In the region approximately mid-way between the Los Angeles metro area and the San Francisco Bay area there is nobody.

As we approached one of the vistas for looking at the ocean we noticed there were a very large number of cars in the parking area and many people looking at the beach/ocean.  When we got out we found that we had stopped at one the beaches that is a breeding ground for elephant seals.  We saw thousands of females and juveniles on the beach molting.  We were advised that the large adult males had already left the area and headed for Alaskan waters to feed.  It was one of the most fantastic nature scenes we had ever seen.  At one time the elephant seal was thought to be extinct but a few survived the whaling era and have been repopulated on the California coast. 

As we drove by San Simeon we saw many cars pulled over on the north bound side of the road.  Then my wife spotted the attraction, a herd of zebras feeding alongside cattle from Hearst Ranch.  We pulled over and my wife took some pictures.  We continued our trip as far south as Morro Bay before turning inland to head to our hotel in Paso Robles.

We spent the next day at Hearst Castle, an amazing place with an amazing history.  The creation of William Randolph Hearst and his architect Julia Morgan.  Morgan's story is one that more people should learn about, particularly young women.  She was the first female architect licensed to practice in California and had a remarkable career, highlighted by her 28 year business relationship with Hearst in building the castle.  The California State Park tour guides and the other employees working at Hearst Castle were outstanding.  I can't speak highly enough about how friendly and helpful they were to us during our formal tours and walk around the castle grounds.

I had never been in Paso Robles before this trip and didn't know much about the town, which is roughly 25 miles inland from the ocean.  Paso Robles is a large wine producing area, with dozens of vineyards and wineries surrounding the town on the hills and valleys of the region.  Paso Robles is a beautiful agricultural area.

We left Paso Robles and headed for Las Vegas.  More to come about our visit to California.

TPM

I have updated and edited the poker section of my site, Purplemuse Poker, http://www.thepurplemuse.com/id38.html.  If you are interested in reading my 2013 World Series of Poker update, check out Purplemuse Poker.

TPM