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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (4229)	7/11/2001 1:14:42 PM
From: John Pitera	Respond to of 33421

Hi Jon, I agree that commodity prices in the long run move to production costs. BUT the key question is what is your reference point. By way of example in 1985 the AUD was trading above parity with the USD. It was over 1.10 to the USD. Gold was @ 375 in early 1985, so the price received for 1 ounce of gold mined in Australia, was about 337.50 when it was converted into the AUD, the local currency (Australian dollars). by the summer of 1986 the AUD had fallen substantially and was now trading near .60 compared to the USD. Gold was about $ 400 dollars an ounce, so an ounce of gold mined in Australia was now being priced at $667 dollars in AUD (the local currency) . An Australian gold mine that is not profitable to operate at $US 400 dollar gold prices when the currencies are equal to one another, can become very profitable, when the currency is cut nearly in half. The global macro environment is a multi variable system, and the numbers we input are always moving targets. They are always changing in value. And a Key component is Mass Investor Psychology and the future Expectations of Investors in the aggregate. When looking at the relative valuations of assets and competitive currencies we need to overlay the templete of monetary policy, especially inflationary and deflationary trends in monetary aggregate growth, the velocity in of the money supply (how quickly money changes hands) and the rates of change of monetary aggregate growth,. As well as government tax and fiscal policies. And the innovation of the 3 sectors of the economy. (Govt, corporate, private) It makes for a complicated multidimensional system. I don't think that even the best macro thinkers understand how it works all of the time. I sure don't -ng- Moving back to your point that I used to be a "foaming-at-the-mouth" inflation / "everything will deteriorate to speculation" - kind of guy (in my youth) ... there are global deflationary themes out there: Message 15507819 I made this observation back in May One of the trickier aspects of the next year is that most assets may go down in price, thus prompting even greater monetary stimulus, Message 15875901 and it might be longer than a year. John