Among the pieces of wisdom I first received as a young analyst was a commodity trader who told me, “Price cures price.” That is, when the price of a commodity had fallen, producers would probably reduce the production of that commodity, since it was no longer in their economic interest to produce more of it and the reduction in production would lead to a decrease in production. supply and a rise in price. Conversely, when the supply of a commodity was limited and prices increased, it is likely that producers increased production to take advantage of the favorable economy until eventually an oversupply brought down the price of the commodity. In addition, consumers who refuse to buy high-cost products or find suitable substitutes can cause prices to fall: low prices cure low prices, and high prices cure high prices.
Although the trader’s comments were directed at commodities, it could be argued in a free market where capital goes where the dynamics of price cures are best treated that the price should broadly maintain anywhere in the world. ‘an economy that is commodified. We mention this as we are experiencing a significant rise in the price of any quantity of goods and services, and there are questions about whether this time the rise in prices may be different, that high prices will not generate enough incremental supply to bring down prices, as either for lack of workers or for the unraveling of global supply chains, or for some other reason. It will probably be months before we know whether there has been enough supply of goods and services to meet growing demand and temper recent price inflation, although we find it interesting that timber prices have corrected 65% relative to their recent all-time high as demand cooled. the face of high prices (although prices remain 30% above their pre-pandemic level). For now, we still believe that price ultimately cures price.
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The views expressed are those of Brinker Capital and are not intended to be investment advice or recommendations. For informational purposes only. Brinker Capital Investments, LLC, registered investment advisor. 2037-bci-2021
Tagged: Tim Holland, weekly cable, market outlook, price, commodities
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