Thursday, March 26, 2009

Soros on Commercial Real Estate and Inflation

From Bloomberg News:

Billionaire investor George Soros said U.S. commercial real estate will probably drop at least 30 percent in value, causing further strains on banks.

“Commercial real estate has not yet fallen in value,” Soros, 78, speaking at a forum in Washington, said. “It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know, they will drop at least 30 percent.”

Soros said the risk of further declines in property prices is reason for the administration of President Barack Obama to move quickly to recapitalize banks. Soros said Obama acted too slowly on a banking overhaul and should have moved immediately upon taking office.

“At that moment of enthusiasm, fresh out of the gate, he would have gotten that money, and then we could have recapitalized the banks the right way, which would be to draw a line over the existing past accumulated bad assets and create new banks on top of these old banks,” Soros said.

Soros also said that the U.S. may face a new round of inflation should the flow of credit recover because of the large increase in the money supply stemming from the Federal Reserve’s purchases of Treasury securities.

“In order to make up for the collapse of credit, we are effectively creating money,” Soros said. That creates “an incredibly swollen monetary base, which, if it were leveraged, you would have an explosion of inflation.”

Friday, March 20, 2009

A Collection of George Soros Interviews

Here is an interesting collection of interviews with George Soros.

George Soros Interviews A giant collection of interviews with George Soros

Monday, March 16, 2009

Jim Rogers: Depression and Crude Oil

Bloomberg News:

The U.S. risks sending the world into a depression as its bailouts of failed companies rob healthy businesses of capital, investor Jim Rogers said.

“The U.S. is taking assets from competent people and giving them to incompetent people,” said Rogers, chairman of Singapore-based Rogers Holdings and the author of books including “Investment Biker” and “Adventure Capitalist.” “That’s bad economics.”

The U.S. government should let American International Group Inc., whose fourth-quarter loss was the worst in corporate history, go bankrupt, Rogers added in a Bloomberg Television interview today. Congress approved a $700 billion bank bailout package in October, and President Barack Obama’s administration has suggested it may need an additional $750 billion.

The U.S. is repeating the mistakes made by Japan in the 1990s and risks creating “zombie banks” by rescuing failed financial services companies that should have been allowed to go under, Rogers said.

New York-based AIG has received $173 billion in government aid, and had earmarked $1 billion in retention pay for about 4,600 of the company’s 116,000 employees so they won’t leave.

The Treasury this week intends to provide more information about a $1 trillion plan to remove distressed mortgage assets from banks’ balance sheets. The Federal Reserve is also scheduled this week to start the first phase of a $1 trillion program to revive the market for securities backed by consumer and business loans.

Oil Prices

Oil prices may rise to record levels in the future because of depleting reserves and a lack of major field discoveries, Rogers said. Crude oil in New York hit a record $147.27 a barrel in July and traded at $46.98 at 12:13 p.m. Singapore time.

“Reserves of oil are going down all over the world,” Rogers said. “The price of oil has to go much, much higher. I don’t know if the oil price will go up to record level in three years or five years. I don’t know when but I know it is.”

People should be prepared for inflation as governments worldwide are printing money to prop up economies at a time when commodities supply is under pressure, Rogers said.

“We’re going to have serious, serious inflation down the road,” said Rogers, who owns gold and silver. “I wish I knew when.”

Calls to return to the gold standard, when currencies were backed by bullion owned by governments, are flawed because it is “not going to solve our problems,” he also said.

Goldman Betting On Distressed Debt

It is clear that huge fortunes will be made in distressed debt, when the smoke clears and the economy recovers. But, as the following article mentions, timing is critically important. It will be interesting to see when John Paulson begins buying debt and financials, given his impeccable performance throughout this crisis.


From The Financial Times:

Goldman Sachs is asking investors in its $15bn private equity fund for approval to shift much of its remaining uninvested money into distressed debt in a stark indication of just how dysfunctional the buy-out business has become amid the meltdown in credit markets.

In recent months, many private equity firms have quietly shifted their focus to buying debt at a discount as they are unable to pay for acquisitions with cheap flexible debt as they could during the boom years. Goldman is now seeking to do likewise.

“Given the dislocation we are facing in the credit markets, we believe the ability to achieve private equity-like returns at an even more senior position in the capital structure provides a significant opportunity for the fund,” the bank told investors.

TPG, for example, plans to dedicate $2.5bn of its $18.8bn buy-out fund to distressed debt, and has hired Alan Waxman from Goldman Sachs to run it.

GSO, Blackstone’s debt specialist, has also been buying debt at a discount and plans to step up such purchases of the debt in its own deals.

For example, it has told investors in its funds that it and Bain Capital now control $500m of the debt of portfolio company Michaels Stores, bought from a hedge fund at cents on the dollar.

But such a shift in strategy can be perilous. On its earnings call in early March, Steve Schwarzman, Blackstone’s founder, noted that the firm lost money by wading into the corporate debt market too early. Blackstone also marked a multibillion dollar portfolio of debt purchased from Deutsche Bank to zero at its year-end.

For Goldman, there are also other issues. In some cases, Goldman will potentially be pitting itself and its investors against some of its best clients, the private equity firms controlling these highly indebted companies. Often, the goal of buyers of distressed debt is to ultimately control the issuing company when it cannot meet all its obligations.

However, one person familiar with the thinking at Goldman said: “Goldman will never go hostile against our clients. We will come to agreement and not push companies to file for Chapter 11 bankruptcy protection.”

Of the $9bn remaining in the fund, Goldman plans to allocate $4.5bn to stressed and distressed investments and increase open market purchases of both debt and equity securities from 10 to 25 per cent of total commitments.

Another $1.5bn will go to firms Goldman already owns in part to help them buy their own debt. Only $3bn will go to buy-outs, originally the only mission of the fund. Goldman has invested $2bn in the fund, including an additional $500m injected recently.

Saturday, March 14, 2009

Alan Blinder: Origins of the Financial Mess

Alan Blinder of Princeton University gives an excellent lecture on the financial crisis:

Monday, March 9, 2009

Where Are We?

Some interesting charts...

Buffett on Banking

From today's CNBC interview:

Banking has never been better in one sense. I mean, the banks are getting their money very cheaply, deposits are coming in, spreads have never been wider, all the new business they're doing is terrific. They will earn their way out of it, in most cases, overwhelming number of cases. And they should not be spooked by the idea they're going to have to issue tons of stock at some very low price under the circumstances where the very actions of—that that may be coming keep pushing down the price. So that's spooking, you know, people in the banking business. But the banks can earn their way out of this. I mean, the average cost of funds for Wells Fargo, for example, the fourth quarter last year, was 1.44 percent. I can earn money with money at 1.44 percent. I mean, it's cheap. It's abundant and the spreads are terrific.

Sunday, March 8, 2009

Jim Rogers on China and Macro

Bloomberg News:

China’s stimulus spending will help its economy overcome the global recession sooner than the U.S. and other countries, investor Jim Rogers said.

China’s reserves allow the government to spend on projects that will make the nation more efficient and competitive as the global economy recovers, said Rogers, the author of “A Bull in China: Investing Profitably in the World’s Greatest Market.” Signs China is taking steps to liberalize its currency will also benefit the country, he added.

“I certainly expect China to come out of it sooner than the U.S.,” Rogers, chairman of Singapore-based Rogers Holdings, said in a Bloomberg TV interview in the city-state. “They seem to be spending the money on the right things. China is doing a far better job than the others.”

Premier Wen Jiabao reiterated last week the government’s pledge to “significantly increase” investment in 2009 to help counter the slowest growth in seven years. He didn’t specify new stimulus spending in addition to a 4 trillion yuan ($585 billion) plan announced in November.

The People’s Bank of China cut interest rates five times in the final four months of last year, including the biggest single reduction since the 1997-98 Asian financial crisis. The government is targeting growth of 8 percent in 2009, after the economy slowed to a 6.8 percent gain in the fourth quarter.

Yuan, Yen, Dollar

China will allow trade settlement in yuan with Hong Kong soon, central bank Governor Zhou Xiaochuan said at a briefing in Beijing on March 6. President Li Lihui of Bank of China Ltd., the nation’s largest foreign-exchange lender, said yesterday in Beijing the bank is already conducting trial international yuan settlements in Shanghai and Hong Kong.

“I’m glad to see they’re taking yet another step towards convertibility,” said Rogers, who in April 2006 accurately predicted oil would reach $100 a barrel and gold $1,000 an ounce. He said he owns Japanese yen as he expects more of the money to “come home.”

Rogers added he plans to sell his remaining U.S. dollar holdings later this year because the world’s largest economy isn’t a “safe haven” for investors.

“I plan later this year to get out of the rest of my U.S. dollars,” he said. “It’s had an artificial rally too but it’s a terribly flawed currency. The U.S. is printing money as fast as it can and that’s always throughout history led to currency problems down the road.”

Rogers on June 30 advised investors to avoid the dollar “at all costs” as the U.S. economy slows, and favored commodities. The dollar has risen against nine of the Group of 10 currencies since then, according to data tracked by Bloomberg.

Rogers added he remains bullish on agriculture and that commodities are “the only area of the world economy I know which is benefiting.” He said he owns “some” gold and silver, and regards silver as “cheaper.”

Water, power and other infrastructure companies’ shares are favored because their earnings are less vulnerable during the global slowdown, Rogers said.

Thursday, March 5, 2009

Bad News Bears

Here is an interesting chart of the current bear market superimposed over other historic financial nightmares. In our current crisis, the speed at which the market collapsed is close to unprecedented. We can only hope that September of 2008 wasn't October of 1929.

Jim Rogers on Gold

Here is Jim Rogers' assessment of gold. It's pretty bad when the biggest commodity bulls have this view...


From TradingMarkets:

Gold is a commodity but gold is one of my least favorite commodities. There are other commodities that are going to do a whole lot better. Supply and demand are completely out of whack for nearly all commodities, and the inventories – they've run down the inventories of nearly every commodity in the world. The exception, of course, is gold.

Gold exploration has continued to expand for the past 20 years, gold mining production has continued to expand – it certainly hasn't declined in the past 25 years even though gold is down, and gold inventories are at the highest in the history of the world. I mean all the gold that's ever been mined is still out there. The Central Banks own it. The Central Banks want to sell it. I'm not saying they're right or wrong, mind you, don't get me wrong. I'm not making a value judgment here. I'm just dealing with facts. So I own gold. It's in my index. I own a couple of gold-mining shares but I am less optimistic on gold than I am on most other commodities. But I do own it. For centuries, people have tried to figure out how to turn lead into gold – do you know that alchemist's quest: "If we could figure out how to turn lead into gold, we'd all be rich." I would submit to you that you should figure out a way to turn gold into lead and you'd make a lot more in the next few years because lead would go up more, percentage wise.

Wednesday, March 4, 2009

Resorts Take the Big Vacation into Chapter 11

Resorts and luxury entertainment are now feeling the same pain as retailers and mortgage lenders, with MGM Mirage saying in
 today's news that it might default on its debt. But, as with the retail and financial industries, it may be risky to attempt to catch a falling knife. Japan's "Lost Decade" offers a valuable lesson for investors; Goldman Sachs made a fortune investing in Japanese golf clubs during the 2000s, which you can read about here and here. But Goldman began buying a full decade after the real estate market crashed in Japan. Caveat emptor

From The Deal:

One thing you can be sure of in an economic downturn is that industries that thrive on extreme material excess will go through their own market correction. The resort and destination club sector is a case in point.

We're not talking about the summer resorts in the mountains or down at the beach, but the high-end stuff. Places you have to fly to, places where you are part of a big-bucks set. What's so incredible is how many of these resorts and destination clubs exist, which really speaks to just how decadent the spending on vacations and pleasure had become.

And now those resorts and destination clubs are failing as fast as the economy is tanking. The trend may have started innocently enough on July 18 with the bankruptcy filing of Rothbury, Mich.-based Double JJ Ranch Inc., a resort operator founded in 1937 that attracted blue-collar families with its indoor water park and horseback riding activities. But since then, tonier resorts have started visiting the bankruptcy court.

For example, there was the Nov. 11 filing of Yellowstone Mountain Club, which reportedly counts billionaire Bill Gates among its clientele. Established by Edra and Tim Blixseth in 2000, Big Sky, Mont.-based Yellowstone owns a high-class private ski and golf community on 13,600 acres of land located about 20 miles from Yellowstone National Park (the couple is now divorced, with Edra owning Yellowstone). The property includes ski trails, a golf course, lodges, residences, restaurants and other resort facilities.

Others have tumbled every month since. On Dec. 9, Minnetonka, Minn.-based VREP LLP, which operates an international destination club under the name Lusso Collection, entered bankruptcy, claiming its wealthy clientele evaporated "almost overnight." Denver-based High Country Club, a luxury destination resort company, filed for Chapter 7 liquidation on Jan. 27.

On Monday, March 2, came the latest victim: Sedona, Ariz.-based ILX Resorts Inc., an operator of timeshare resorts. ILX owns and operates eight resorts in Arizona, Indiana and Colorado, as well as in Mexico. It also owns additional undeveloped land in Arizona and Mexico that it had acquired to build additional resorts. The company blamed its need to file bankruptcy on unstable credit markets.

The credit markets have become the convenient excuse for bankruptcy filings these days. But for resorts and destination clubs, the inference is that it's the folks who once worked in those credit markets moving the money around that have disappeared. They aren't throwing the bucks around to sip cocktails on the veranda. Or maybe corporations finally got embarrassed by the American International Group Inc. (NYSE:AIG) executives who, fresh off receiving an $85 billion government bailout, were found to be attending a conference at a posh resort.

How many of these resorts are there? We'll likely find out soon when they trudge into Chapter 11 or Chapter 7. So many sprung up when everyone this decade really believed that they could live the life of the rich and the famous. Problem is, even the rich and the famous have maxed out their credit cards, so you can only imagine what kind of shape the pretenders are in.

Monday, March 2, 2009

Something's Funny With Gold And Money

Something that gold investors often fail to realize is that the aboveground supply of gold can increase just as fast as – or much faster than – the supply of money. This is an important part of why the view of gold as a “solid currency” is a fallacy.

Gold inventories are currently the highest they've been in the history of the world. And throughout the twenty-year bear market in base metals, gold exploration skyrocketed. Even in 2003, 75% of mining exploration was allocated to gold, up from 50% only three years earlier.

I do not have the current CRB Commodity Yearbook figures, but it is without a doubt that gold exploration has dramatically increased since then, with new mines coming on stream, in response to high market prices.

In other words, the supply of gold is huge and expanding, especially relative to that of every other commodity. And since gold is an element, it cannot be destroyed. Compare this with a commodity such as crude oil, which gets used up and can't be renewed.

Here is a graph of gold production:

As you can see, production skyrocketed after 1980, even when prices went into a multi-decade bear market. The current numbers are probably substantially higher than what is reported there, possibly going right through the top of the chart, in response to such high market prices.

As for the demand side, the demand for gold used in jewelry – the commodity's staple use – is so small that the CRB Commodity Yearbook doesn't even bother to report the figures anymore. All demand for gold has been falling – except for use by financial speculators.

I have no idea where the gold price will go, but with the market at a thirty-year high, today's buyers have no margin of safety. And in terms of supply and demand, I can hardly see why gold investors would be concerned about the money supply: unlike the supply of gold, the money supply has not increased by several hundred percent.

If we look at M2, the monetary aggregate used to forecast inflation, it has only expanded by about 10% from where it was a year ago:

Individual money market accounts are included in M2, but wider measures of the money market – like commercial paper and repurchase agreements – are included in M3.

The Fed discontinued its reporting for most of the components of this latter aggregate, but my guess is that the extreme stress in the credit markets probably would have shown M3 sharply contracting, hence the need for a massive liquidity injection.

While the Federal Reserve can print money, so can the giant mining companies ramp up gold exploration and production. And the facts show that the latter have been much more successful in supplying the market.

While this may be a vote of confidence for the free enterprise system, it presents an ugly picture for today's buyers of gold.

Saturday, February 28, 2009

Warren Buffett's 2008 Letter to Shareholders

“By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.”

Berkshire 2008

Wednesday, February 25, 2009

John Paulson: Distressed Opportunities

Bloomberg News:

Distressed assets offer the best investment opportunities this year as the global recession deepens, billionaire hedge-fund manager John Paulson said.

“The decline in the market has created a very good buying opportunity,” Paulson, 53, whose New York-based Paulson & Co. oversees about $30 billion, said in a speech at a hedge-fund seminar hosted by Societe Generale and Lyxor Asset Management in Tokyo today. “Distressed opportunity in the U.S. is shaping up to be the best opportunity in a lifetime.”

Paulson said he’s focused on assets such as mortgages and debt from bankrupt companies, while in the equities markets he cited the utilities, consumer staples and pharmaceutical industries. Financial stocks remain risky, Paulson said.

In the 15 years since starting its first funds, Paulson & Co.’s one down year was 1998. All his funds were profitable in 2008, with the flagship fund returning about 38 percent, compared with a loss of 19 percent for hedge funds worldwide on average. The 2008 returns came after his funds made more than $3 billion for the firm in 2007 by anticipating the collapse of the U.S. housing market and subprime mortgages.

Investors are chasing distressed assets after more than $1.1 trillion in losses at financial firms globally and frozen credit markets helped drag the U.S., Europe and Japan into their first simultaneous recessions since World War II.

Deep Recession

“In 2009, we expect this recession is going to be deeper and longer than consensus estimates,” Paulson said. “We don’t think we’re through the banking crisis yet. We think that in many cases, losses the banks will experience will exceed their common equities.”

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices, and participate substantially in profits from money invested. Managers typically charge fees equal to 2 percent of client assets and 20 percent of investment profits.

“We’re bearish on the economy, but very bullish on opportunities in front of us,” Paulson said.

Tuesday, February 24, 2009

Merger Trainwrecks

It turns out that the Zell-Blackstone deal, as well as the Blackstone IPO, marked the exact top of their respective markets:

As a general rule, mega M&A deals always tend to mark the top of a market. We saw this in the 1980s with Merger Mania, culminating in the historic $30 billion RJR Nabisco LBO – right in front of the early 1990s recession.

We saw it in early 2000, with the $164 billion AOL-Time Warner deal, one of the greatest value-destroying transactions of all time. The merger agreement was filed in February of 2000, the market's apex. By 2002, the value of AOL was written down by $100 billion.

And, of course, the financials: MBNA and Bank of America in 2006; Bank of New York and Mellon in summer of 2007; and Bank of America buying Countrywide Financial in early 2008, to name a few.

However, the worst may be RBS and Fortis' colossal $100 billion acquisition of ABN AMRO in October of 2007 – again the exact top of the market. Fortis is now defunct and RBS is being propped up by the British government.

By contrast, heavy bankruptcies are a positive sign. And sharply-reduced capacity and inventories, especially when they have been depressed for long periods of time and demand appears to be improving, are signs of a market bottom.

This is probably where agriculture markets are right now. It continues to appear that agriculture may well enter a bull market over the next few years.

Saturday, February 21, 2009

Agriculture Crisis

It looks as if agriculture futures might be in for a ride sooner than I had expected:

Talk about an absolutely killer case of stagflation.

MENDOTA, Calif. — The country’s biggest agricultural engine, California’s sprawling Central Valley, is being battered by the recession like farmland most everywhere. But in an unlucky strike of nature, the downturn is being deepened by a severe drought that threatens to drive up joblessness, increase food prices and cripple farms and towns.

Across the valley, towns are already seeing some of the worst unemployment in the country, with rates three and four times the national average, as well as reported increases in all manner of social ills: drug use, excessive drinking and rises in hunger and domestic violence.

With fewer checks to cash, even check-cashing businesses have failed, as have thrift stores, ice cream parlors and hardware shops. The state has put the 2008 drought losses at more than $300 million, and economists predict that this year’s losses could swell past $2 billion, with as many as 80,000 jobs lost.

“People are saying, ‘Are you a third world country?’ ” said Robert Silva, the mayor of Mendota, which has a 35 percent unemployment rate, up from the more typical seasonal average of about 20 percent. “My community is dying on the vine.”

Even as rains have washed across some of the state this month, greening some arid rangeland, agriculture officials say the lack of rain and the prospect of minimal state and federal water supplies have already led many farmers to fallow fields and retreat into survival mode with low-maintenance and low-labor crops.

Last year, during the second year of the drought, more than 100,000 acres of the 4.7 million in the valley were left unplanted, and experts predict that number could soar to nearly 850,000 acres this year.

All of which could mean shorter supplies and higher prices in produce aisles — California is the nation’s biggest producer of tomatoes, almonds, avocados, grapes, artichokes, onions, lettuce, olives and dozens of other crops — and increased desperation for people like Agustin Martinez, a 20-year veteran of the fields who generally makes $8 an hour picking fruit and pruning.

“If I don’t have work, I don’t live,” said Mr. Martinez, a 39-year-old father of three who was waiting in a food line in Selma, southeast of Fresno. “And all the work is gone.”

In Mendota, the self-described cantaloupe center of the world, a walk through town reveals young men in cowboy hats loitering, awaiting the vans that take workers to the fields. None arrive.

The city’s main drag has a few quiet businesses — a boxing gym, a liquor store — and tellingly, two busy pool halls. The owner of one hall, Joseph R. Riofrio, said that his family had also long owned a grocery and check-cashing business in town, but that he had just converted to renting movies, figuring that people would rather stay at home in hard times.

“We’re not going to give up,” Mr. Riofrio said. “But people are doing bad.”

Just down the highway in Firebaugh, José A. Ramírez, the city manager, said a half-dozen businesses in its commercial core had closed, decimating the tax base and leaving him to “tell the Little League they’d have to paint their own lines” on the local diamond.

The situation is particularly acute in towns along the valley’s western side, where farmers learned on Friday that federal officials anticipate a “zero allocation” of water from the Central Valley Project, the huge New Deal system of canals and reservoirs that irrigates three million acres of farmland. If the estimate holds and springtime remains dry, it would be first time ever that farmers faced a season-long cutoff from federal waters.

“Farmers are very resilient, we make things happen, but we’ve never had a zero allocation,” said Stephen Patricio, president of Westside Produce, a melon handler and harvester. “And I might not be very good at math, but zero means zero.”

While California has suffered severe dry spells before, including a three-year stint ending in 1977 and a five-year drought in the late ’80s and early ’90s, the ill effects now are compounded by the recession and other factors.

Federal, state and local officials paint a grim picture of a system taxed as it has never been before by a growing population, environmental concerns and a labyrinth of water supply contracts and agreements, some dating to the early 20th century. In addition to the federal water supplies, farmers can irrigate with water provided by the state authorities, drawn from wells and bought or transferred from other farmers. Such water may not always be the best quality, said Mark Borba, a fourth-generation farmer in Huron, Calif.

“But it’s wet,” he said.

Richard Howitt, the chairman of the agricultural and resource economics department at the University of California, Davis, estimates that 60,000 to 80,000 jobs could be lost — including in ancillary businesses — and that as much as $2.2 billion in crop and other losses could be caused by restrictions on water and the drought, which he called “hydrologically as bad as 1977 and economically as bad as 1991.”

“You’re talking about field workers, processing handlers, people packing melons, trucking hay, sprayers, people selling tractors, people selling lunches to people selling tractors,” Mr. Howitt said. “And in some of these small west-side towns, it’s going to hit the people who are least able to adapt to it.”

One of the hardest hit areas is the farmland served by the Westlands Water District, which receives water exclusively from the Central Valley Project and distributes it to 600,000 acres in Fresno and Kings Counties. Sarah Woolf, a spokeswoman for the district, said that her 700 members expected to leave 300,000 to 400,000 acres fallow and that some might not come back to farm at all.

“Everyone’s trying to go down fighting,” Ms. Woolf said. “But there will be significant companies that will go out of business, as well as families that have been farming for generations, if it doesn’t get better.”

The outlook for things getting better quickly is dim, despite forecasts of rain this week. Last month, California officials estimated the snowpack in the Sierra, a primary source of water for the state when it melts in the spring, at 61 percent of normal. On Friday, the State Department of Water Resources said it would deliver just 15 percent of its promised contracts, a level it was able to maintain only because of the recent spate of rain. “It’s pathetic,” said Lester A. Snow, the department’s director.

Lynette Wirth, a spokeswoman for the United States Bureau of Reclamation, said water levels in all federally managed reservoirs in California were well below normal, with “abysmal” carryover from the previous year.

“There’s been no meaningful precipitation since last March,” Ms. Wirth said.

Farmers, of course, are also dealing with issues unrelated to rain, including tight credit from banks and recent court decisions meant to protect fish that have limited the transfer of water through the Sacramento-San Joaquin Delta, which feeds snowmelt to farmbound canals. Many farmers refer to a “man-made drought” caused by restrictions.

At the same time, environmental groups say they also fear a range of potential problems, including depletion of the valley aquifer from well pumping, possible dust-bowl conditions in areas of large patches of fallow ground and concern about salmon and other species. “It’s a tough year for the environment, and people,” said Doug Obegi, a lawyer with the Natural Resources Defense Council.

Creative Commons License
This work by Nicholas E. Radice is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.