The year was 1962 and the DJIA was up 28% from its most recent reaction low. Speculation was rampant, driven by those 1% interest rates. It was a heady time with the country involved in a space program (like the one recently announced by President Bush) punctuated by the Mercury Friendship program, which saw John Glenn orbit the Earth. And then it happened. Roger Blough, then president of U.S. Steel Corporation (X/$33.66), announced an increase in steel prices. The response from the recently elected President, namely John Fitzgerald Kennedy, was immediate. To wit:
“Increasing steel prices by some $6 a ton constitutes a wholly unjustifiable and irresponsible defiance of the public interest. In a serious hour in the Nation’s history, when we are confronted with grave crises in Berlin and Southeast Asia, when we are devoting our energies to economic recovery and stability, the American people will find it hard, as do I, to accept a situation in which a handful of steel executives whose pursuit of private power and profit exceeds their sense public responsibility.”
Given the current surging price increases in many of the base metals, and the aforementioned deja vu 1% world, we could not help but reflect on 1962 when we encountered the owner of a steel mill in one of our meetings last week. Coincidently, he inferred that there are substantial steel price increases coming in the form of surcharges reminiscent of the 1970s. More importantly, however, he informed us that he was running out of one of the key ingredients needed in the steel-making process since China, India, and Pakistan were “sucking up” all the excess coke (super-heated and processed coal) in the world. Consequently, if he cannot attain a secure supply of coke in the next 30 days, he is going to have to shutter his steel mill. He continued, “Jeff, the fall-out from a closure of my mill, even if temporary, would cause the idling of a number of automotive plants.” “Holy cow,” we thought, “that can’t be so good for GDP.” Interestingly, this week’s Barron’s expands on this theme.
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