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.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Mike Johnston who wrote (76003)	12/19/2006 12:12:40 AM
From: mishedlo	Respond to of 110194

Prices are determined by both, demand AND supply. Yes of course Where in that picture is cost? When costs of production increase, if prices do not go up to reflect that, supply will drop, then pushing prices higher. Not necessarily. You ignore that demand can fall to zero regardless of cost of production. If demand for beanie babies drops to zero you have to give the damn things away regardless of what its costs to produce them. Demand can easily fall faster than costs. If that happens there simply are no buyers for all kinds of stuff. You also ignore practicality. Take a Nail Salon for example. Suppose they need to charge $20 a visit to break even. But all of a sudden there is no demand at $20. Will the salon lower prices to $15 and hope to cut costs somewhere else, or perhaps hope to stay in business long enough to eventually start making a profit? Sure he can charge $20 and go out of business because of no business very quickly or he can charge $15 and get some traffic at a loss. What would you do? Yes eventually that Nail salon goes out of business and that is exactly what will happen all over the freaking place as people start cutting discretionary spending. My point is we have overcapacity in damn near everything, and regardless of what it costs to run those businesses they can set prices but if demand is not there forget about it. Why do you think Bennegan's and a bunch of other restuarants lowered prices? This is purely a supply demand issue and "need to make a profit" is meaningless. Cost to make the item is not relevant. It is pure supply demand. I expect lots of marginal businesses to go under as discretionary spending drops. Then what? Then we have another person out of work and in bankruptcy credit is destroyed. Then what. There there is an empty store in the strip mall. Then perhaps 2 empty stores. then the strip mall owner better lower his price regardless of what his costs are just to get tennants. And again this is playing out in housing right now. People have houses, they can not sell them. So they rent them for less than carry costs. They can do this until they go broke and at nowhere does it matter what the costs were because their costs are irrelevant to the buyer/renter or person getting their nails painted. If I am only willing to pay $15 for nails then that is all I am willing to pay and I really do not give a rat's ass that they need $20 to stay in business. It simply does not matter. Even if they go out of business and supply drops, the next guy can not raise his price to $20 because I will not pay him either. You keep assuming that people can get what they need. They cant and rising foreclosures and bankruptcies prove it. The process has barely begun. Prices on all sorts of discretionary items are going to plunge and I do not care what costs are. It is a pure supply demand issue. Mish