Thursday, June 12, 2008

It is All Connected!!

Great write up in the Washington Post. Steven Pearlstein hits it on the head and it is what I have been arguing for months if not years. Everything is all connected. I hear the bulls, the ones pouring into stocks and calling bottoms in April and May bemoaning oil and inflation. Like it is a new issue completely unforeseen. IT IS NOT A NEW ISSUE!! It is connected to the issues before. For every action there is an equal and opposite reaction. One of the basic laws of life. It is why Buffett could go short the dollar in 2002 and though early, in the big picture, in the long run, he had to be right. If you can identify these themes, what is the next natural outcome from the preceeding events, you can make alot of money. It is why I am pouring into meats. It meets the categories needed for unbelievable returns with a high margin of safety. Sure, maybe I am wrong but if I am wrong I am not magnificantly wrong (how wrong can you be when meats are the cheapest they have been inflation adjusted in 10 to 15 years) and if I am right there is huge potential gains. It is connected to everything that is before it.

Energy and food prices are soaring. The housing market continues to collapse. Government revenue is falling, and taxes are rising. Airlines are jacking up fares and fees while reducing service. Banks are pulling credit lines. Auto companies are cutting production once again. Even investment bankers are losing their jobs.

The tendency is to see these as separate developments, each with its own causes and dynamic. Fundamentally, however, they are all part of the same story -- the story of the global economy purging itself of large and unsustainable imbalances that for a time allowed many Americans to think they were richer than they really were.

and this is what I have been jumping up and down about. Commodities are going up because money that was going to credit and equity is going to commodites. This compounded by the fact of the huge Fed rate cuts. This should have been foreseen, not to the degree and the speed it has happened (at least I didn't think a 9 months ago gasoline would be $4 a gallon, I did say in August the next bubble would be in emerging markets and commodities) but money has to go somewhere. That is why inflation is a monetary issue not an economic issue.

At the same time, some of the excess credit that financed mortgages and corporate takeovers has been shifted to commodity speculation, turbocharging the swings in prices of everything from corn futures to jet fuel.

Very well said.

No comments: