Editor's note: The date listed for the eruption of Mount St.
Helens has been corrected in this article; it occurred on May 18,
Mexico's PopocatÃ©petl could be the unseen force capable of
toppling world markets.
One of the world's largest volcanoes, reaching over three miles
high at 17,887 feet, "Popo" is only overshadowed by its dormant
(but not extinct) neighbor volcano Pico de Orizaba, which is the
third highest peak in North America at 18,491 feet. The majesty of
these two geological wonders cradle Mexico City and its neighboring
boroughs, namely Puebla, a major agricultural center. A 2012 census
determined that the area was home to more than 19 million people,
but estimates as high as 22 million have also been cited. The
official number makes this area the 10th most heavily populated
region in the world; the higher estimate would qualify it as the
fifth most populated region, behind Tokyo, Jakarta, Seoul, and
Earlier this week, Mexico's National Disaster Prevention Center
raised the alert level for PopocatÃ©petl to "Yellow Phase III,"
which is the fifth greatest of seven levels; the highest alert is,
logically, "Red Phase II." Joking aside,
rising seismic activity
, plumes of smoke and steam, and the reported melting of the
glacial peak due to rising ground temperatures suggest Popo is
ready to go loco.
Mexican authorities are no strangers to obeying the whims of their
sleeping giants even though the last major eruption occurred an
estimated 1,100 years ago. E
vacuations are well rehearsed, and emergency preparation teams
stand ready to assist residents away from imminent danger.
Relatively little is known regarding what to expect from Popo in
the event of an eruption. Those who remember
of Mount St. Hele
may also note the eerie timing of these Popo alarms: Saturday, May
18, is the 33rd anniversary of its eruption. However magnificent
this event was, it stands to be a proverbial flea on an elephant's
back compared to Popo's fury should its status worsen.
Of course, preventing loss of life is the first and foremost
concern, but in the aftermath of such an event (which in theory
could last concurrently for many years) Mexico's vitally important
contribution to all of North America's commodity markets could
endure serious, permanent damage. Agricultural trade between the US
and Mexico constitutes over $20 billion annually, accounting for
18% of Mexico's GDP and providing employment to around 5% of the
labor force. Even a minor prolonged event causing preemptive
evacuations could force laborers far from fields that are now
sowing. May and June are critical months for farmers in southern
Mexico in terms of corn, barley, and rice, among other commodities
grown in the areas adjacent to Popo, which is sometimes called
Mexico's breadbasket. To its east, the world's second largest shale
oil deposit was recently discovered. Meanwhile, the mountainous
terrain in the area is just beginning to gain recognition as a
potential literal goldmine.
What would all this mean for the
(INDEXSP:.INX)? The only certainty is a rise in the gauge known as
the fear indicator, the
(INDEXCBOE:VIX). Stocks with agricultural exposure such as
) are first in line of this firefight with the entire sector
(NYSEARCA:DBA) possibly honing the asterisk -- a.k.a. halts -- from
selling pressure. Gold (NYSEARCA:GLD) and especially silver
(NYSEARCA:SLV) are likely to see strong demand as Mexico -- along
with the US Treasuries and the dollar -- is one of the world's
largest producers and safe havens during stressful times. It's
fairly easy to pick places to short in this doomsday scenario.
Systemic risk is still undeniably an undercurrent of world markets
and as the adage goes, "If you can't sell what you want, sell what
Last week, I shared "Nowhere to Go But Up" with
Buzz & Banter
subscribers, noting that nature has a way of tempering our
collective mania in times of irrational exuberance. There's no
question that a black swan of this magnitude would be horrific.
Markets have thus far ignored the significance of a giant smoking
mountain shooting fire from its peak. That, my friends, is what we
call a "top" -- or it is, at least, a piece of the puzzle.