Saturday, February 5, 2011

John R. Taylor, Jr. on the world

...the tables seem to be turning on the West.

As education has become almost universal, knowledge, intellectual expertise, and competent labor
have become less expensive and less valuable as a result.

...Today the western world is losing its advantage in knowledge, labor, and capital.

With communication now global and historically inexpensive, more and more trade, and growth,
does not have to pass through developed world ports or phone systems.

Because the playing field has become level for the first time in history, we would argue that,
at this time in history, the battle has shifted to raw materials.

If we assume that today's critical resources are gas, oil, agricultural output, and rare earths,
Europe is totally out in the cold and the US is supported only by its strength in food production.

...the scramble for scarce resources should impact economic cycles and growth in the decades ahead.

...Food, not oil, has been the primary focus of this recent inflation scare,
and the trend of climbing prices actually seems to be accelerating.

The tight supply status in many critical commodities, plus the recent weather foibles around the world,
should keep this move intact until the global economy turns down, dropping demand.

The increase in headline inflation should also turn the global economy down.

Not only does the cost of food and fuel drop the demand for manufactured goods, clothing, and leisure activities,
but it could convince the ECB and other central banks to raise interest rates.

John R. Taylor, Jr.
Chief Investment Officer, FX Concepts, February 3, 2011

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