A chocolate shortage when pigs fly

We interrupt your coverage of Brexit, bitcoin and central banking to cover something far more important.

According to The Sun, experts are concerned chocolate will run out in the next 30 years. Climate change will make it too hot to grow cocoa beans.

Panic aside, this might sound odd for several reasons.

The modern understanding of climate change itself is only 30 years old. So predicting its effects 30 years ahead is rather ambitious. Who knows what climate change science will look like by then? Perhaps scientists will predict the world will be overgrown with cocoa beans as the world’s tropical and humid zones expand.

It’s also confusing that increasing temperatures would cause a problem for cocoa production. The existing concentration of the cocoa crop is because not much of the world is hot enough to grow the stuff. Half is produced in Ivory Coast and Ghana alone. You’d think climate change would increase the number of areas where cocoa crops are viable. Assuming you believe in the warming version of climate change.

Now I’m no climate scientist. But I do understand just how clueless people must be about economics to worry about a shortage of cocoa in 30 years for any reason whatsoever. It’s the same sort of cluelessness that embarrasses the people who predict Brexit doom on a regular basis. Let’s call it the ceteris paribus fallacy.

In order to tease out the effect of one particular variable, scientists will assume or try to ensure that “all else is equal” in their analysis. In other words, if you turn only one knob on the machine and leave all others untouched, then you should be able to figure out what that one knob does.

Turn the climate change knob to global warming and the effect you have is an arid growing climate in Ghana and Ivory Coast. Thus cocoa dies. Easy, right?

In much the same way, leaving the EU means we can no longer trade with Europe, nor live there, or sell investment services. Our export and finance industries will collapse.

Bloomberg has a story out about how reliant the British aerospace industry is on Europe. Ironically enough, the story begins by discussing the planes we used to build to shoot down European aerospace products. Talk about broken window fallacy…

Anyway, the Remainers’ Brexit narrative is that Europeans will stop trading and investing in Britain, leading to a shortage of capital and demand.

Whether its cocoa beans or Brexit, the specific mistake here is simple. Firstly, the world is not stagnant. It’s dynamic. It’s impossible to turn one knob without all the others being affected. You can’t isolate just one change.

Even if you can isolate the effects of one knob using econometric analysis, actually using that knob can change its effect too. If we try to influence the climate actively, the relationships between the variables will change too. We could still get warming if we cut CO2, or an increase in CO2 could trigger higher cocoa yields.

So, climate change might make it viable to grow cocoa crops in many more places than it ruins. Or higher prices thanks to falling supply might completely revolutionise the cocoa industry, improving yields so we don’t need to use as much agricultural space to satiate the world’s chocolate demand.

The point is, it’s too hard to predict.

Brexit might open up markets far larger than the EU, increasing trade and the power of our financial industry. New global agreements might force the EU into trade with Britain. The EU’s stupid financial regulations, currently featured in the media, might increase their reliance on the City of London.

The ceteris paribus fallacy gets more confusing and complex too. You might be able to identify what a variable does, but as soon as you try to actually use or change that variable, the effects are inherently not going to match what your experiment predicts.

That’s true for several reasons.

Firstly, if the effects are as predictable as scientists and experts claim, then people will already be changing their behaviour to adjust for them. Research on more hardy cocoa beans is already underway. Britons are repatriating capital back to Britain faster than Europeans are pulling out.

Reality on the ground puts both cocoa and Brexit doomsayers to shame too.

For now, the real problem isn’t a dying out cocoa crop, but an oversupply. The Financial Times confirmed it – 2017 provided a bumper supply. The price has halved since 2015. Cocoa isn’t in trouble, there’s too much of it.

And this is despite about 90% of cocoa being supplied by subsistence farmers who can’t increase cocoa yields because they can’t afford pesticides or fertiliser. Imagine if the cocoa industry was modernised alongside the rest of agriculture.

What cocoa enjoyers should really be worried about is the other scientists who are meddling with the cocoa supply in a way that actually does endanger it. Restricting crop planting to protect wildlife, restricting fertiliser and pesticide use and much more government intervention is the only way you’ll get a cocoa shortage. They managed to pull off a petrol shortage in Venezuela after all…

Back to Brexit, you need to realise that Brexit itself is one change in many. Who knows what effect it will have on the many other things going on in the world of trade and finance?

The inability to understand this is how Remainers get it so wrong. With recessions, financial crises and much more forecast back during the referendum, even pessimistic Remainers are now optimistic.

The Financial Times profiled 100 economists to discover the outlook for Britain in 2018. None are as pessimistic as after the referendum. But they still try hard to find a way to criticise leaving the EU. The resulting contradictions are amusing. Such as over business investment figures:

The UK’s economy will slow further in 2018 as business investment remains on hold…


“While globally conditions for investment have started to improve, business investment in the UK seems to be grinding to a halt.”

Meanwhile, in the FT on 8 October:

Business investment in the UK has grown in the year since the Brexit referendum, according to revised figures that contradict preliminary estimates which found that it had stagnated.

The economists also predicted several interest rate increases and pay increases in the face of economic malaise… hmmm.

Even if growth does slow in Britain, much of the effect might just be down to reversion to the mean:

The UK was one of the fastest growing advanced economies in 2016 but dropped below all other G7 economies in 2017 and is expected to remain towards the back of the pack this year, with Japan and Italy.

There you go. Leaving the EU is just as bad as being in it and not being in it!

Bitcoin is first among unequals

The price of bitcoin continues to ratchet down, losing more than $5,000 or about a quarter of its peak since December.

So what’s going on in the cryptocurrency space?

Over at Southbank Investment Daily, Dan Denning looked into recent events in more detail:

And then there is the rise of Ripple, a cryptocurrency run by ex-Federal Reserve officials and offering none of the decentralised benefits of bitcoin. Both Ripple and Ethereum have surged in the last two weeks while bitcoin fell as low as $12,629 in the shadows of 2017.

Here’s my explanation: bitcoin is first among unequals. Not all cryptocurrencies are the same. Which ones will survive and prosper remains an open question. A question that 2018 might begin to answer as people discover just what they’ve invested in.

Yesterday we took a look at my prediction for the future of cryptocurrencies. I think the coming government crackdown will be fairly successful. At least it’ll do enough damage to crush the price of many cryptocurrencies.

However, many are in compliance with government requirements. In fact, most new ones are, reports Sam Volkering, our in-house cryptocurrency expert. I pitched him my idea of investing in the cryptocurrencies most favoured by government. Here’s what he replied:

Yes, you’re right. But most ICOs [initial coin offerings] I’m talking with and looking into are all making sure they already abide by the rules and regs issued by regulatory bodies to “future proof” themselves from hard scrutiny. Every Aussie ICO project I know of has pushed their sale dates back in the lead-up to launch to ensure legally and regulatory wise they’re undertaking best practice. Some have even consulted directly with the regulator ASIC [Australian Securities and Investments Commission]. Hence why all of them are making sure they do thorough Know Your Customer requirements now as well. The ones that don’t do this are already seen as being shady.

There you go, the governments of the world have corrupted the crypto boom. It now proceeds at their leave. Bitcoin’s secretive and illicit nature is dooming it to irrelevance and a falling price while its compliant cousins boom.

And so, in the future, the frightening gains for cryptocurrency traders won’t be in the likes of bitcoin. Instead, you’ll have to choose the best crypto from an extraordinarily long and rapidly growing list. Each coin is different. Their characteristics will make or break them.

It’s not enough to just be a cryptocurrency any more. We’re in a new phase of the boom.

Sam thinks he’s found a way to uncover bitcoin like gains by identifying the up and coming cryptocurrencies before they’re even launched!He’s calling it Crypto Profits Extreme. If you’re interested in joining this limited service, you need to get your name on the waiting list now.

There’s a bundle of material available just for showing an interest. But tomorrow’s cut-off is approaching fast.

Until next time,

Nick Hubble
Capital & Conflict

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Category: Brexit

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