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Friday, February 14, 2014

Megadrought


On January 17, the governor of California declared a state of emergency due to the state’s megadrought. Most regions have only received 20-30% of their usual rain or snowfall this winter. This follows two straight less extreme, but still below normal, years of precipitation. According to US Trust’s Joseph Quinlan (via Steven Perlberg), California joins China, India, Australia, and the Middle East -- all of which “are experiencing multiyear water challenges that threaten to slow or impair economic activity".

This is a big economic issue for California, which is the nation’s largest agricultural producer. Modern Famer reports the drought will probably affect prices across the US for fruits, vegetables, nuts, olives, meat and dairy (so pretty much everything except grains and sugar). While farmers saw a record $44.7 billion in revenue from agricultural products last year, the California Farm Water Coalition estimates this year’s drought will cost the industry about $5 billion. According to Bloomberg, farmers plan to leave about 12% of fields fallow due to an anticipated lack of water.

However, some farmers can’t just leave their fields fallow for a year. Produce like cantaloupe, broccoli, lettuce, and tomatoes might be more scarce in grocery stores this year, but can be planted anew next growing season. Crops that grow on permanent trees and vines — like nuts, avocados, and grapes — have to be kept alive at all costs. California grows 80% of the world’s almonds, a crop which requires an especially large amount of water, and has planted many of the trees in parts of the state that are dry even in a normal year.

To complicate matters, the state’s groundwater aquifers are running low. The water table under California has been shrinking since the 1930s, and “effective water management has eluded the region since it opened up for homesteaders in the 19th century”, writes John Kemp.  The naturally arid state has a growing residential population, huge amounts of agriculture, and a dependence on plenty of water to run through its hydroelectric power plants, says Kemp. Just to make things a little worse, Gwynn Guilford says the conflict between state and federal marijuana laws means the state can’t really regulate the water use of pot producers in the northwest of the state.

Though California is investing in technology that might help — desalination plants to make ocean water potable and moisture detectors for the soil to help farmers make more efficient use of the water they have — neither yet seems like a viable long-term solution (desalination is energy-intensive and harmful to fish, while "drought technology" just isn’t that popular with California farmers).

There also may be hope in regulation. While some cities in Northern California are running out of drinking water, Southern California doesn’t even need to ration water, according to Kate Pickert. Through a combination of regulations and rebates given for installing fixtures that use less water, Los Angeles has been cutting its per capita water usage for two decades. Madelyn Glickfeld, a water resources expert at UCLA, tells Pickert that the hard-hit Central Valley farming region doesn’t even have water meters, which is part of its problem. -- Shane Ferro

On to today’s links:

Must Read
The French way of treating cancer - Anya Schiffrin

Euphemisms
London banks are getting around pay limits by calling bonuses "allowances" - DealBook

China
“A large portion of China’s $1.8 trillion in trust products may be headed for default this year” -  Gwynn Guilford

Your Retirement Plans
Facebook has never had a 401(k) match - and other new realities of retirement savings - Bloomberg

Takedowns
Matt Taibbi, Wall Street and the silly "everything is rigged" theme - Izabella Kaminska

Old Timey
Can AM radio be saved? - Trent Wolbe
Perfumes that recreate historic stenches - Atlantic Cities

Awesome
How a "frozen zoo" of genetic material is helping to save endangered species - James Temple

EU Mess
The Eurozone's recovery may be finally taking hold -  Jason Karaian

Wonks
The permanent scars of economic pessimism - Antonio Fatas

Crisis Retro
Wells Fargo is tiptoeing back into subprime mortgages - Peter Rudegeair and Michelle Conlin

Analogies
The most overused analogies in finance - A Wealth of Common Sense

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.

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Business Today: Cold weather slams U.S. factory output, spurs growth fears

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02/14/2014
Reuters Election 2012 Daily round-up of the day's top news from the campaign trail, the White House and all the politics in between
Cold weather slams U.S. factory output, spurs growth fears
WASHINGTON (Reuters) - U.S. manufacturing output unexpectedly fell in January, recording its biggest drop in more than 4-1/2 years, as cold weather disrupted production in the latest indication the economy got off to a weak start this year.
Obama weighs in on contentious union vote at Volkswagen plant
CAMBRIDGE, Md./CHATTANOOGA, Tennessee (Reuters) - P resident Barack Obama on Friday waded into a high-stakes union vote at Volkswagen AG's plant in Tennessee, accusing Republican politicians who oppose unionization of being more concerned about German shareholders than U.S. workers.
Wall Street ends higher; indexes up for second straight week
NEW YORK (Reuters) - Stocks closed higher on Friday, with major indexes notching a second straight week of gains as investors were once again willing to overlook some soft economic data stemming from bad weather.
Bitstamp to resume withdrawals, steadying nervous bitcoin market
NEW YORK (Reuters) - One of the bitcoin exchanges that recently suspended withdrawals of the digital currency on Friday said it planned to allow redemptions to resume later in the day, restoring some confidence to the shaken market.
Investor Tom Perkins says progressive taxation 'persecutes' the rich
SAN FRANCISCO (Reuters) - Tom Perkins, the Silicon Valley venture capitalist who compared the plight of the wealthiest Americans to Jews in Nazi Germany, offered up a provocative new idea on what the rich deserve: more votes in public elections for every dollar they earn.
eBay, Facebook and General Motors attract hedge fund buyers
(Reuters) - Top U.S. hedge fund managers in the fourth quarter focused on the consumer sector, with investment plays ranging from high-end auction house Sotheby's to eBay Inc, the multinational Internet consumer-to-consumer corporation.
U.S. to let banks do business with licensed pot shops
WASHINGTON (Reuters) - The Obama administration made it easier on Friday for banks to do business with licensed marijuana companies with less fear of prosecution, further encouraging U.S. states that are experimenting with legalization of the drug.
Comcast turns to Davis Polk for Time Warner Cable merger
WASHINGTON (Reuters) - Comcast Corp will again be working with its longtime antitrust counsel at Davis Polk & Wardwell, as the communications and entertainment group seeks to navigate the U.S. approval process to merge with rival Time Warner Cable Inc .
Jos. A. Bank to buy Eddie Bauer in bid to stay independent
(Reuters) - Men's clothing retailer Jos. A. Bank Clothiers Inc , the target of an unwelcome bid from rival Men's Wearhouse Inc , said it would buy outdoor clothing retailer Eddie Bauer for $825 million in its latest effort to stay independent.
Republic Air says reaches tentative pact with pilots union
(Reuters) - Republic Airways Holdings Inc said on Friday that it reached a tentative accord for a four-year labor contract with the Teamsters union, which represents more than 2,200 pilots at its Republic, Chautauqua and Shuttle America regional airline subsidiaries.
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