The Famous/Infamous JF (Jim) Straw July E Letter - Here for your reading pleasure...

[Dien Rice]

Originally Posted by MichaelRoss

Greetings,

Jim has Granted Permission to reprint his Recent July 2008 E-Letter Editorial. Here it is in all its Glory. Enjoy...

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Agree? Disagree? or Just a comment? Leave it here.

Thanks Michael for sharing that!

First, Jim Straw is without a doubt an amazing guy with incredible insight. When he says something, I listen! He has the years of success and wisdom to back it up...

I had never heard that take on the recession/depression before...

I think there are multiple reasons for the current economic situation...

First, here's a quote from a post I made back in 2001...

"This boom should last until around 2008.... After 2008, it's bad news according to the demographic data. We'll probably see a very long recession, perhaps even a depression....

So.... I'm preparing for the boom ahead. BUT, I'm going to be extremely cautious by 2008."

You can read the whole post at http://www.sowpub.com/forum/showthread.php?p=4189

I don't take credit for the prediction - it comes from Harry S. Dent, and is based on demographic data. But it's amazing how accurate it is.

This suggests the downturn is due to the aging population. As boomers reach retirement age, most have less money to spend, so fewer products are sold. That means companies make less money, and therefore stock market valuations go down...

BUT... Something I didn't see, is that this is not the only trend hurting us. There are multiple trends.

The high price of fuel/gasoline/petrol I think is something completely separate. The reasons are...

• Fewer sources of oil, as many oil fields are producing less than they used to, and fewer new sources are being found. Reduced supply drives up price (economics 101).
• Greater demand for oil, from fast-growing countries like China and India, whose economies need energy to power the growth. Greater demand drives up price (economics 101).
• Threat of wars in the near future in the Middle East, causing speculators to believe prices will go up dramatically, since war in the Middle East threatens to greatly diminish supply even more. They're speculating that prices will go even HIGHER than now. So, they're buying up futures, expecting to sell later at a profit. This increased demand for oil futures drives the price of futures up, which affects the current price.

A rising price of oil has a tendency to raise prices for everything else, because the cost of transport goes up. So any product which is transported - which is almost everything - has higher transport costs which need to be paid.

There's a THIRD trend too... Higher prices of food (mostly corn in the USA, though other crops elsewhere). This is partly due to higher oil prices, but partly due to the push for biofuels.

Some countries legislate a certain percentage of fuels sold must be biofuels. Biofuels, at present, are fuels produced from foods - such as corn, sugar cane, etc. That means increased demand for corn (for example), since it's now needed to make fuel. However, increased demand drives the price up - so the price of corn goes up. This holds for many other foods too.

And... there's a FOURTH reason too (for Americans in particular). That's the weakening US dollar in comparison to other world currencies. That makes all imported products more expensive for Americans.

(The exception may be imports from China, because China ties its currency, the yuan, to the US dollar. So the cost of Chinese imports should stay the same for Americans.)

By the way, there's a "silver lining" to this fourth trend, which is that American products are cheaper to everone else, which should help drive up American exports. So, in the USA, now is probably a good time to get into exporting!

So, as far as I see it, we're getting hit with a "QUADRUPLE-WHAMMY". Long-time Sowpub visitors knew about the first one (at least those who were reading in the early days, when we discussed it).

I think the second was also predictable from any war in the Middle East that threatens the oil supply - though commentators say the biggest latest increases are due to speculators, who are banking on the price getting even higher, since they expect another war.

The third trend was a surprise to me!

The fourth trend - a weakening US dollar - many people had predicted for a while. However, it has a "silver lining" for Americans who get into exporting, since American exports will probably go up as a result.

It's best to know what to expect, then prepare for it!

Dien