WSJ.com - Today's Markets
David Taylor is taking a long-term look at commodity prices, interest rates and trade deficits. The idea caused me to dig out old charts that cover a century and sometimes two. The most striking thing to notice is that commodity prices go up very modestly. Certainly there are periods of rapid growth. During the 20th century there were three periods of steeply rising prices. The first one matched the start of Henry Ford's assembly line. The first three years, prices rose. The second one matched the build up to War War II. The third one was the aberation caused by price controls being phased in and out in the 1970's.
The spike of the 70's was about oil but the fact that price controls limited domestic oil to a maximum price of $4.50 per barrel had its effect. In other words, the only time commodites surged was when production of goods was in very high demand or when the government played games.
Of the three inputs to products, labor, capital and raw materials, labor is the key inflation component. The typical cost of the average product is 70% labor. In this cycle, it appears that supply bottle necks have finally cleared. Everything from the price of steel to the price of oil is in retreat; this is a good thing.
I added beta to one of my portfolio's today. I can't tell you that the market will bounce soon but technical indicators are getting pushed to extreme readings. The market is over-sold. Speculators have shorted heavily. Puts are being purchased at 1.25 to 1 call. The ratio of Bulls to Bears is moving quickly. Fundamentally, stocks are cheap relative to bonds. The economy is strong. Inflation is moderate. Consumers and businesses have liquid assets available. Earnings to GNP are at record levels. The information technology revolution is rapidly lowering costs.
What is not to like? "Fear and greed move the market and the secret is to buy on fear and sell on greed" (Warren Buffet). Don't miss this buying opportunity!
The linked article is about IBM. Pretty soon, the world is going to want to buy US before the dollar goes up more!
Put yourself in the other mans shoes for a moment. If you lived in europe and wanted to buy an IBM computer why not wait if you can, the dollar keeps dropping. The price of the computer is getting cheaper every day. In the 1980's, inflation got so bad that it made no sense to pay cash for anything. People could borrow at 21% interest on a credit card and still do better than the fellow who waited a year in order to pay cash.
IBM had a bad quarter. Take advantage and buy some shares. Buying stocks is not about this quarter but about future quarters. Conditions are ripe for the sale of large capital goods from America. The low dollar has made these goods very cheap, we have flooded the world with dollars by buying low value consumer goods, the later stages of an economic recovery are capital goods markets and the risk to the buyer is that he better buy while the dollar is still cheap.
David Taylor is taking a long-term look at commodity prices, interest rates and trade deficits. The idea caused me to dig out old charts that cover a century and sometimes two. The most striking thing to notice is that commodity prices go up very modestly. Certainly there are periods of rapid growth. During the 20th century there were three periods of steeply rising prices. The first one matched the start of Henry Ford's assembly line. The first three years, prices rose. The second one matched the build up to War War II. The third one was the aberation caused by price controls being phased in and out in the 1970's.
The spike of the 70's was about oil but the fact that price controls limited domestic oil to a maximum price of $4.50 per barrel had its effect. In other words, the only time commodites surged was when production of goods was in very high demand or when the government played games.
Of the three inputs to products, labor, capital and raw materials, labor is the key inflation component. The typical cost of the average product is 70% labor. In this cycle, it appears that supply bottle necks have finally cleared. Everything from the price of steel to the price of oil is in retreat; this is a good thing.I added beta to one of my portfolio's today. I can't tell you that the market will bounce soon but technical indicators are getting pushed to extreme readings. The market is over-sold. Speculators have shorted heavily. Puts are being purchased at 1.25 to 1 call. The ratio of Bulls to Bears is moving quickly. Fundamentally, stocks are cheap relative to bonds. The economy is strong. Inflation is moderate. Consumers and businesses have liquid assets available. Earnings to GNP are at record levels. The information technology revolution is rapidly lowering costs.
What is not to like? "Fear and greed move the market and the secret is to buy on fear and sell on greed" (Warren Buffet). Don't miss this buying opportunity!
The linked article is about IBM. Pretty soon, the world is going to want to buy US before the dollar goes up more!
Put yourself in the other mans shoes for a moment. If you lived in europe and wanted to buy an IBM computer why not wait if you can, the dollar keeps dropping. The price of the computer is getting cheaper every day. In the 1980's, inflation got so bad that it made no sense to pay cash for anything. People could borrow at 21% interest on a credit card and still do better than the fellow who waited a year in order to pay cash.
IBM had a bad quarter. Take advantage and buy some shares. Buying stocks is not about this quarter but about future quarters. Conditions are ripe for the sale of large capital goods from America. The low dollar has made these goods very cheap, we have flooded the world with dollars by buying low value consumer goods, the later stages of an economic recovery are capital goods markets and the risk to the buyer is that he better buy while the dollar is still cheap.
Posts
0 comments:
Post a Comment