Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Mohan Marette who wrote (137390)	7/22/1999 4:18:00 PM
From: D.J.Smyth	Read Replies (1) \| Respond to of 176387

ot, SUNW outperforms estimates by $.02

To: Mohan Marette who wrote (137390)	7/23/1999 4:46:00 PM
From: Jim Patterson	Read Replies (1) \| Respond to of 176387

RE:As you know oil price is just one component of the equation You are correct here. But I have some very long-term charts of Oil prices and inflation. Oil used to be a very large part of the US economy. Today it is a relatively small part. But what I think many fail to realize is that 90% of all goods and services have oil and or energy related cost components at multiple levels of production. If oil prices rise, most energy prices will follow to varying degrees. The transportation industry, and electrical companies are the most directly impacted first, and then it will go on to everything else over time. Notice I say if "Prices Rise" If oil is stable @ $10 or it is stable @ $30 is not the issue. The most inflationary point is when the price Moves From $10 TO $20. Think of the dynamics of price movement and the fear and greed associated from the impact of these price increases. If Oil stabilizes in a $4 range, say 18 to 22, and bounces around for 2 years, there will be little inflationary pressure. But a drop from $20 to $10 causes an opportunity for benefit in some one's bottom line as parts of their costs fall for a period of time. They get greedy, and like the extra padding at the bottom line. Now, when oil prices return to their previous range, move up that is, that simulative benefit is reversed, and the padding gets a little thin. This is where the fear comes in. Faced with an increasing cost component, they in turn raise prices in an effort to regain the padding that they never should have had in the first place, or they fear they will lose that extra padding. Once the price stabilizes, all of the parts will rebalance themselves. Yes Oil is only one component, but as I sit in my office, I cannot see anything that did not use oil in its journey to its current resting place. Of the other components, steel, paper, wood, silver, labor, technology, none is as all-inclusive as OIL. It takes steel to produce oil, but once a drilling rig is built, it will consume more $$ in oil related energy over its life than the cost of the steel used to build it. Despite the increase in Rig count, the agreements between OPEC related countries will have the most dramatic impact on the future direction of the price of OIL. If Greenspan sees another jump in an inflation related number, even if it is caused by a momentary move on OIL prices, he will put one more bullet back into his price stabilizing gun, i.e. a rate hike. Jim