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Strategies & Market Trends : 123 Trends and Reversals -- Ignore unavailable to you. Want to Upgrade?

To: Michael Watkins who wrote (95)	2/8/2001 12:07:31 PM
From: Ally	Read Replies (1) \| Respond to of 147

Michael, >Hey, you're more fundamentally oriented than I - so a question: with basic industries regaining pricing power; raw materials and energy going up in price; but a slowing economy, what do we end up with? - recession + inflation?< Not all basic industries are regaining pricing power. In fact, most have lost pricing power due to slow down in demand. Increased productivity (read technology) has also caused lost in pricing power. If you're referring to AGU, it is a specific situation and a peculiar set of circumstances. Also, have to differentiate between cyclical industry and economy related industry. AGU is in cyclical industry. It's main product, nitrogen fertilizer, is supply bound and not demand bound. At this stage of cycle, nitrogen prices going up due to supply/demand dynamics correcting itself over past 3 years. High gas prices and poor pricing of past years have shut down smaller producers. Demand has remained steady but very dependent on weather conditions. A greater threat to recession or inflation is deflation. Deflation is BAD. Very difficult to cure by upping or lowering interest rates. Deflation is caused by over productivity. We have seen how quickly the economy tanked. Mr. Greenie hopes that by flooding the system with liquidity demand will be sufficiently boost and thus avoid a recession. But what if companies can easily over produce to meet all demand and more? They'll have to closely control their production to market demand, and re-invent themselves when their products become a commodity. Inflation is pretty well dead... again thanks to increased productivity via technology. Most of the criticisms of Mr. Greenie were that he was lingering longer than he should in the dinasaurial age thinking that the old enemy, inflation, was still a threat. Big question is whether the lower rates will maintain consumer confidence and keep demand high. If businesses and individual spending slow down drastically, then we'd have a recession. But, imo, not for long. Companies are pretty good these days managing their production to market demand, and North Americans, being who we are, just love to spend. Snow in Vancouver... heehee!