Aggregator

Super El Nino: Famine Follows War?

Zero Rss
1 month 3 weeks ago
Super El Nino: Famine Follows War?

Rory Green, TS Lombard's chief China economist, is the latest Wall Street strategist to warn of the mounting macro and food inflation risks that a super El Niño could release on certain regions of the world.

In a note titled "Super El Niño: Famine Follows War?" Green warns that war-related disruptions to energy and fertilizer markets, compounded by adverse weather conditions, could create a perfect storm for global food prices.

Green said, "In general, El Niño raises temperatures and significantly exacerbates both drought and heavy rainfall. For global macro, it is an inflationary shock via the food price channel – a shock that will likely be compounded by existing war-related high fertilizer costs."

He said within his coverage, "India is the most exposed to both growth and inflation risks, supporting our underweight Indian assets. Brazil and Mexico, too, will receive an inflation impulse."

In recent weeks, the Japanese Meteorological Agency became the first major weather body to formally declare the onset of a super El Niño in the tropical Pacific.

If that forecast is correct, adverse climatic disruption could persist for 2 or more years, raising the risk of drought, flooding, lower crop yields, and higher food prices across key agricultural regions.

Green noted that El Niño has typically been associated with "hotter and drier conditions in India, parts of South and Southeast Asia, and Central America. But at the same time, it brings higher rainfall to parts of southern South America, the United States and Central Asia."

Chart 1: GDP impact of past El Niño

Chart 2: CPI impact of past El Niño

El Niño Impact Watch:

If it proves "strong" or "very strong", the 2026 El Niño is likely to have a historically large impact on global food prices, given already elevated underlying inflation, existing supply-chain disruption and the current high cost of farm inputs. China, Korea and Taiwan are relatively well insulated from the shock. As are most DMs, with the exception of Australia, as the maps below and the charts above show. In our coverage, it is India and LatAm that are most exposed.

India Impact:

El Niño to hit prices, employment and potentially equities

India's Met Department recently warned that El Niño conditions will strengthen during the crucial monsoon season that accounts for ~75% of the annual rainfall the country receives. The Met Department (IMD) has forecast rainfall in the June-September monsoon to be 90% of the long-period average (LPA); if that projection bears out, India will face its worst monsoon since 2015. That year, the IMD had initially predicted below normal rainfall of 93% of the LPA, but the actual rainfall recorded was 86%, leading to drought-like conditions across many parts of India. Even though it is early days yet in this year's season with the rains just about setting in over south peninsular India, indications are that the monsoon is off to a weak start. Rainfall in the first 15 days of June has already been far below normal, as Chart 1 below shows, and the progress of the monsoon across the subcontinent has stalled.

A weak monsoon will exacerbate headwinds to growth that India's heavily energy import- dependent economy has been facing due to the surge in global oil prices. Damage to the summer-sown crop output is a risk to agricultural incomes and rural demand, as well as a potential inflation trigger. Rising food and fuel costs pushed headline CPI higher to 3.9% yoy in May, up from 3.5% yoy in April; May’s food price inflation rose at a faster pace to 4.8% yoy. We expect high commodity prices to spill over into broader inflation, and for headline CPI to breach the upper threshold of the Reserve Bank of India's (RBI) 2-6% flexible target by 3Q/FY27. At its early June policy, the RBI revised up its inflation forecast for FY27 to 5.1% vs 4.6% previously, cautioning against upside risks to its projection. It cited further downside risks to its GDP growth forecast for FY27 that is cut to 6.6% (vs 6.9% previously) owing to supply shocks from both energy and weather-related factors.

The government has been taking proactive measures to combat the El Niño impact, including increasing stocks of rice and wheat in state-run warehouses. How the El Niño impacts the monsoon will be clearer by end-July, when the IMD issues its updated monsoon forecast. July is the key month for crop sowing as the rains typically cover the entire country by the start of the month. Last week, Agriculture Minister Shivraj Singh Chouhan said almost 200 districts (a quarter of India's total) are "most vulnerable" to the impact of El Niño. The monsoon season's impact on crops is determined not just by the quantity of rainfall but also its geographical distribution. The accumulation of water in reservoirs – critical for the winter-sown crop – is also important to track: as of early June, the level was a little lower vs a year ago but higher vs the LPA.

For now, the markets are rebounding after tensions in the Middle East eased, but the Indian economy's resilience will be tested again soon if the monsoon fails: since 1951, 12 of 17 El Niño years have witnessed deficient rains. Foreigners remain net sellers in the equity market, although tax exemptions announced for overseas bond investors are pulling flows into local debt. Equities have been supported by local investors, but returns have been capped as momentum of domestic flows has been flagging recently

Brazil Impact

El Niño could weigh on power, food prices

A 'Super El Niño' could push up inflation, but Brazil is more prepared for extreme weather than in the past. As a country that spans across the South American continent, El Niño has an uneven impact on regional weather patterns. In southern Brazil, overall precipitation, the number of heavy downpours and the severity of storms tends to increase, particularly in the spring. Northern Brazil, including parts of the Amazon basin, tend to have drier weather, as does the country's northeast. While parts of the country's populous southeastern region see a limited impact, key states – including Minas Gerais, tend to be drier than normal. Across the countries, average temperatures tend to rise, and the number of heatwaves tends to increase. These factors, coupled with the greater frequency of extreme weather already effecting the country because of climate change, mean that Brazil runs an even greater risk of severe events this year, similar to the record floods in Rio Grande do Sul state in 2024.

The El Niño adds another layer of uncertainty regarding the economic outlook. Although we do not expect the El Niño to play a decisive role in the direction of the economy in H1/26, it could exacerbate existing issues in the economy, including inflation. Electricity prices, which typically tick up during the dry season (April to October) could rise even more if dry weather has a significant impact on hydroelectric reservoir levels in south-central Brazil, which holds the lion's share of the country's generation capacity. This would force the National Systems Operator (ONS) to continue to maximize the use of high-cost thermoelectric plants to offset the reduction in hydroelectric generation. This would mean that electricity costs would increase in the coming months through the so-called tariff flag systems, which is imposed to cover the costs of thermoelectric generation. Likewise, energy consumption – and spot market prices – tends to increase during heatwaves, as more households use air conditioning. The positive news is that Brazil is entering the dry season, Brazil's hydroelectric reservoirs are in a slightly more comfortable situation than in previous El Niño years, which could limit the impact of the weather phenomenon on power prices.

The El Niño could have an impact on food prices, but not in the short term. When temperatures exceed 40°C for prolonged periods, it generally takes three to four months for the hot, dry conditions to affect fruit and vegetable harvests. The effect on grain and oilseed crops takes even longer. Brazil has already harvested its summer soybean crop and the winter corn crop is in the ground and scheduled for harvest in August and September. At that point, farmers begin planting their summer crops. Even without the El Niño, there are already doubts regarding whether Brazil will manage to expand its soybean and corn crops in the upcoming 2026/27 season. This is because of unfavourable global prices, as well as higher input costs, which could force Brazilian farmers to reduce fertilizer use. While a modest decline in fertilizer application is unlikely to significantly affect yields in a single season, production costs for soybeans and corn will be higher for the 2026/27 season. This increase could influence the cost of meat and biofuels in the following year. In short, pressures from weather and fertilizer prices are present, but their impact on food prices is unlikely to be felt until early next year.

Mexico Impact

The most immediate impact is likely to come through agricultural prices. Adverse weather conditions have historically reduce agricultural output and, with a lag, feed into livestock prices as poorer pasture conditions and water scarcity raise production costs. Agricultural inflation hit 14.33% y/y during the 2023-24 El Niño, nearly three times the headline rate, with fruits and vegetables peaking at 25.69%. The 2026 starting point is no less uncomfortable. Fruits and vegetables spiked to 21.77% in March and, despite easing to 14.38% in May, remain well above headline, leaving the most weather-sensitive part of the CPI basket exposed to a renewed supply shocks. It's worth highlighting that El Niño affects Mexico in distinct ways, with northern states tend to see higher precipitation in winter, which tends to benefit export crops. But the weather phenomenon also boosts the risk of unseasonal frosts and floods that damage, with potential implications for the tomato, wheat, and maize harvests. In the centre-south, El Niño reduces rainfall and coffee, sugarcane, maize, beans, and avocados are the most exposed crops.

Bad timing for Banxico. The central bank cut rates to 6.5% in May and signalled that the easing cycle had likely come to an end, citing weak activity and a resilient peso. We continue to view growth risks as outweighing inflation concerns and believe additional easing in Q3/26 remains possible. However, a moderate-to-strong El Niño would complicate that assessment by pushing up agricultural inflation through supply-side shocks that monetary policy cannot easily offset. This would make any further easing harder to deliver, even as growth concerns continue to mount.

El Niño also exposes structural vulnerabilities to more extreme weather. Along the Pacific coast, warmer sea surface temperatures fuel a more active hurricane season, raising the risk of storm damage to coastal infrastructure and export agriculture. At the same time, the phenomenon puts urban water supply under pressure. Cutzamala, which provides roughly a quarter of Mexico City's water, fell to just 27% capacity during the El Niño. An exceptionally wet 2025 reversed much of that damage, bringing the system back to 67.7% by early June 202 – the highest level in the seasonal cycle in seven years. That buffer offers some protection, but a strong El Niño would still test it.

Green's note builds on a UBS report published earlier this month, which warned that El Niño risks could send food inflation higher across Asia.

The U.S. is not out of the woods just yet. Bank of America analysts warn that the energy shock of the last several months could ultimately feed into food inflation later this year, with a lag (read the report).

Now there has been what Daryna Kovalska, a commodity strategist at BofA, described as an "aggressive positioning washout" in the agriculture trade. However, she believes that the selloff in soft commodities such as corn is well overdone.

Professional subscribers can read the full note here at our new Marketdesk.ai portal. 

Tyler Durden Mon, 06/22/2026 - 23:00
Tyler Durden

Zero Sum: Cities Have Little To Show For Big Spending

Zero Rss
1 month 3 weeks ago
Zero Sum: Cities Have Little To Show For Big Spending

Authored by Jeremy Portnoy via RealClearInvestigations,

America’s largest cities are increasing their spending at almost unprecedented rates.

A RealClearInvestigations (RCI) analysis of cities with at least 500,000 residents found they cumulatively raised their per-person spending by 18 percent over the last 10 budget cycles, accounting for inflation. The only equivalents on record are the spending surges ignited by the Great Society programs of the 1960s and Franklin D. Roosevelt’s New Deal during the 1930s.

But unlike those past eras, today’s cities do not have the revenue to support their heavy spending. State and federal funding have dropped off from their record highs during the COVID-19 pandemic, and local tax hikes have not kept pace with spending. Large tax increases or reductions in city services will eventually be required to address burgeoning structural deficits, placing a burden on future generations.

The tradeoff would be easier to explain if cities were making strides to improve life for their residents. Census data, however, shows that key quality of life metrics in major cities have mostly been stagnant during the spending spree.

Each of the 38 cities in RCI’s analysis of data from the Census Bureau, FBI, Department of Housing and Urban Development, and enacted local budgets increased their spending faster than inflation over the last decade. Yet the cities that boosted their spending the most were, on average, no more or less likely to see measurable progress in reducing homelessness, lowering violent crime rates, tackling income inequality, improving rent affordability, and more. That was the case for the 33 cities led by Democrats and the five cities led by Republicans.

San Jose, California, saw its violent crime rate increase by 50 percent from 2017 to 2024, even after it doubled its police budget. The city is now proposing cuts to police spending and creating new taxes to fund its rapid budget growth in other areas. Seattle is considering shutting down its homelessness agency after huge investments failed to stop homeless rates from reaching the worst level in city history.

Christopher Thornberg, founder of the policy consulting firm Beacon Economics, isn’t surprised that big spending hasn’t produced big results. He said that cities typically don’t have the financing, policy sophistication, and regulatory oversight to meaningfully improve the economic status of their residents.

But that hasn’t stopped some cities from thinking “you can be successful just fire-hosing money across the economy,” said Thornberg, former director of the University of California, Riverside Center for Economic Forecasting and Development. “It seems sufficient to brag about the money they spent without referring to whether that spending accomplished anything.”

The Tax Gap

In 2016, large cities collected $6,727 of revenue per resident from local, state, and federal sources, adjusted for inflation. They spent 14 percent more than that: $7,685 per person.

RCI

By 2025, revenues had increased to $7,063 per person, but outlays had skyrocketed to $8,827. The difference of 25 percent is the largest gap on record since at least 1940.

The gap was not caused by low revenues. Cities earned record amounts of sales and property taxes last year. Instead, the deficits were driven by expanded bureaucracy, rising payrolls, overtime costs, and pension liabilities.

From 2017 to 2026, the public workforces of large cities grew faster than their populations. There were at least 12 cities that added new municipal jobs even though their populations dropped (a handful of cities do not disclose their staff headcounts). In an extreme example, Memphis added more than 1,000 public jobs even though the city lost more than 40,000 residents.

Many of those new hires work desk jobs. Census data shows large cities increased their administrative expenses—mayor’s offices, human resources departments, accountants, zoning departments, and more—by 55 percent from 2016 to 2023, accounting for inflation.

But staff headcounts at core city agencies like police and corrections departments are generally decreasing, forcing cities to spend large amounts on overtime hours to keep their communities safe with the limited staff they have available.

Crucially, RCI found only a weak statistical link between increases in a city’s property tax collection and increases in its overall spending. Cities like Phoenix and Boston that boosted their per-resident spending by 88 percent and 75 percent, respectively, were not necessarily the ones with increased property tax revenue to support their outlays.

That suggests many cities have a “build it and we will fund it” mentality, enacting policies before figuring out how to pay for them.

Previous studies have shown that outside pressures from advocates for rent affordability and labor unions influence budgets, independently of what cities can actually afford to spend. Historically, that did not cause issues because city revenues were typically higher than expenses. That went out the window after the COVID-19 pandemic, when temporary federal grants expired, and cities did not make cuts to compensate for the lost funding.

“The problem is that when governments start to spend money, they find it hard to stop spending money,” said Thornberg. “And after a year and a half of partying, you can’t get back in those old pants. You have these bloated budgets in many cities, and now they’re struggling to get their budgets back in line with a reasonable amount of revenue that can be expected.”

More Spending, More Homelessness

To illustrate these budget dynamics in action, RCI took a look at how some representative cities have responded to major issues.

Homelessness in America’s largest cities jumped by 34 percent on average from 2017 to 2024, driven partly by increased housing costs and job losses during the pandemic. RCI’s analysis found no statistically significant association between increased public welfare spending and reduced homelessness.

While Los Angeles is the poster child for getting little bang for the bucks it’s spent to combat homelessness, it is not alone. Seattle and surrounding King County were among the biggest spenders, with money pouring into the Regional Homelessness Authority. It was created by former Mayor Jenny Durkan in 2019 to “significantly decrease the incidence of unsheltered homelessness.” Washington State has also lifted its spending on housing construction by six times since then. But homelessness in Seattle increased at a faster rate than in any other large city but one, and rent price increases were also among the nation’s highest.

It’s easy to see where things went wrong. A state audit released in April found that the Homelessness Authority overspent its $200 million annual budget by $45 million, with portions of the money completely unaccounted for or spent on administrative expenses the city never approved. The authority is also paying individual contractors close to $500,000 annually, an amount unlikely to be seen as reasonable for a salaried public servant.

To find leaders with the “lived experience” of homelessness and marginalization, the authority invited a convicted repeat sex offender to join its board in 2023. When another board member objected, alleging she had been molested by the man in the past, co-chair Shanéé Colston shouted her down. “I don’t care if they’re a sex offender!” Colston said, according to the Seattle Times. “This is an inclusive space, and we are equitable to all.”

Colston was later replaced. Seattle Mayor Katie Wilson has publicly said she’s not opposed to shutting down the authority for its failure to reduce homelessness.

Nor has Portland, another big spender on homelessness, been able to reduce its soaring rate. It created a Supportive Housing Services tax in 2020 that funded Sunstone Way, a nonprofit set up by the city that collapsed in March.

Sunstone Way’s former finance director recently alleged in a whistleblower complaint that she was barred from board meetings for trying to tell county officials about the nonprofit’s “severe cash flow pressures.” She claims that when she flagged a $210,000 overpayment to a food vendor, Sunstone Way’s CEO told her to ignore it because he had “made a deal” with the vendor, who was allegedly a personal friend.

Local auditor Jennifer McGuirk warned Portland’s Homeless Services Department in 2022 that it needed to monitor Sunstone Way’s spending more carefully after it billed the government for the payroll expenses of duplicate employees. McGuirk claims she was ignored.

Homelessness decreased in 13 of the 38 cities RCI examined, but the success stories related more to policy than spending. Detroit embraced advanced data modeling systems to share information between various nonprofits, avoiding duplicated efforts and creating a real-time list of homeless individuals rather than a single annual count like most cities conduct. Homelessness dropped by 17 percent from 2017 to 2024. Milwaukee provided free lawyers to low-income tenants facing eviction and now claims to have zero people living on the street.

“Cities that have had success in battling homelessness, it turns out, it’s not just that they’re spending money, but how they’re spending money,” Thornberg said.

Although many big cities explicitly state that their budgets are designed to reduce inequality, large cities’ Gini index—a measurement of how evenly wealth is distributed—was virtually unchanged from 2017 to 2024. So was the percentage of the population with health insurance. Poverty rates improved by 1 percent on average. Cities that increased their overall budgets at a faster rate were no more or less likely to see improvement in any of those three categories.

The 10 cities with the smallest topline budget increases since 2017 all saw their poverty rates drop or remain unchanged. Those 10 cities, including Minneapolis and Long Beach, now have an average poverty rate of 13.8 percent, lower than most of their peers.

Police Spending Up, Crime Down a Bit

Violent crime rates in large cities improved slightly from 2017 to 2024, with an average decrease of 50 violent crimes per 100,000 people. The average police budget increased slightly faster than inflation.

But again, there was no statistically significant association between spending levels and violent crime rates. Cities that increased their police budgets were just as likely to see crime rates rise as cities that decreased theirs.

The negligible improvement in crime rates is especially worrisome given that other city services are being sacrificed to fund police departments. In 2022, 40 percent of America’s largest cities said public safety needs were so high that it was difficult to balance their budgets. The burden grew even higher in the following years, as police funding increased as a percentage of total city spending in both 2024 and 2025, according to the National League of Cities.

Higher spending does not always mean more police officers. Even though budgets are up, police staffing levels dropped by roughly 7 percent from 2013 to 2023, according to the Council on Criminal Justice.

That’s unsurprising given how much difficulty police departments are having recruiting new officers. Thaddeus Johnson, a senior fellow at the Council on Criminal Justice who has been teaching at Georgia State University since 2014, said college students do not view public service as “glamorous” as they did just a few years ago. “I used to ask in every class, ‘Who wants to be a cop?’ and a quarter to half of the room would raise their hands. Since the pandemic, nobody has raised their hand in class, and I’m not exaggerating. There’s no interest among criminal justice majors in policing.”

In Phoenix, where spending and violent crime rates are both up, the police department has 650 vacancies. When the department does attract workers, they don’t always stay. Thirty percent of new recruits from 2023 to 2025 have already left.

The city can’t offer higher salaries to boost its retention rate because one-third of its police budget is spent funding future pensions for officers already on the force (payments to current retirees are funded by past years’ appropriations). Arizona’s pension investments lost most of their value during the dot-com bubble of the early 2000s, and the effects still linger.

It’s a similar situation in San Jose, where 40 percent of police recruits leave the force before they become sworn officers, compared to only 6 percent in 2017. The staffing shortages force officers to work long overtime hours, driving up payroll costs.

A San Jose city audit released this April found that one quarter of all the hours police officers worked in 2025 were overtime—twice as much as in 2015. Many overtime hours were spent on report writing by officers who never obtained the required approval from their superiors to work extra hours.

Johnson said low staff headcounts are not an excuse for rising violent crime. “If there’s a million officers on the street, crime will still happen,” he said. “It’s really about how you use those officers. What is your supervisor to officer ratio? The type of training the officers are receiving? The type of technology that’s available?”

San Jose increased its per-resident police spending by 66 percent above inflation from 2016 to 2023—far more than any other city with at least 500,000 residents. But it also saw its violent crime rate per 100,000 people increase by 50 percent from 2017 to 2024, again much more than any other large city.

The crime rate did improve significantly in 2025, but remained well above pre-pandemic levels. And while San Jose’s crime rate is not necessarily higher than other comparable cities, its rapid increase despite a spending boost highlights the challenges cities face when trying to improve quality of life through budgetary means.

There are several success stories like Dallas and San Francisco, which have seen violent crime rates improve after police budgets were increased. Others, like Boston, saw crime rates improve even though police budgets did not keep pace with inflation.

Johnson cited San Antonio as an example of efficient spending. He said the city smartly deployed its officers by assigning patrols to specific places and times when crime was more likely to occur, improving public safety without breaking the bank. San Antonio’s per-resident spending on police is lower than almost any other large city, yet its violent crime rate sank by 16 percent from 2017 to 2024.

Kicking the Budget Can Down the Road

Cities will eventually have to balance their budgets, but they may face difficulty raising taxes to do so. Katherine Loughead, a vice president at the nonprofit Tax Foundation, claimed the recent upward trend in taxation is already causing “widespread unrest” among voters.

Almost every major city has a law stating that its outlays and revenues must be equal, but that does not apply to capital spending on infrastructure and city-owned property like buildings and cars. Many cities also overestimate their revenues and underestimate their spending on paper, allowing deficits to develop.

They close the gap by issuing bonds, digging into reserve funds, selling municipal property, and ignoring obligations to fund public employees’ future pension and healthcare plans.

It’s why New York City Mayor Zohran Mamdani’s highly-touted “balanced” budget proposal for 2027 is not really balanced at all. Unable to avoid reductions to city services by taxing the rich and increasing property taxes, Mamdani escaped spending cuts by shoving pension liabilities into the future for another mayor to deal with. Fifty-four of America’s 75 largest cities did the same in 2025 with either pensions or retiree healthcare costs, according to Truth in Accounting.

Chicago is already feeling the effects of that approach. After underfunding its pensions for years, Chicago now has a pension debt larger than most state governments. More than 15 percent of its budget in 2025 was spent trying to fix it, rather than being used to support taxpayers.

This summer’s budget hearings in cities across the country will likely represent a new high-water mark in structural imbalances. If past practices prevail, rather than slash services or raise taxes, most city leaders will find clever ways to once again kick the can down the road.

Tyler Durden Mon, 06/22/2026 - 22:35
Tyler Durden

DOJ sues New York over law barring federal agents from wearing masks

NY Post
1 month 3 weeks ago
WASHINGTON — The Department of Justice is suing New York over a law set to take effect this week that would bar federal agents from wearing masks, opening them up to “harassment, tracking, intimidation, and assaults.” Associate Attorney General Stanley Woodward, Assistant Attorney General Brett Shumate and other DOJ attorneys in the Civil Division filed...
Josh Christenson

zero rss