vincecate wrote:John wrote:World's Largest Trader: "We're On The Verge Of A Great, Great Depression"--"Near Panic"
Peter Yastrow - World's largest libor trader
He says we are on the verge
of a great depression but that people should not short the S&P. He thinks the earnings on stocks is better than bonds or other options. Does he also think earnings will not go down in a great depression? If interest rates are at record lows, doesn't he think they will be going up? Seems like he is has not thought this through all the way.
I noted the time that interview was posted on his blog as the morning
of June 1. The S&P fell 80 points in a straight line in only 9 days from the time he spoke.
Bill Gross has said the same type
of thing - that investments should be made in dividend paying staples like Procter and Gamble.
I used to work for a consumer products company in the manufacturing plants (food processing). Generally, this information should be freely available but I can tell you the advertising and other non manufacturing related costs are a larger percentage
of the price tag on the shelf than the manufacturing cost itself. The company sold finished product for about $3 per pound,
of which overhead was about half, manufacturing cost about 30 percent and profit about 20 percent. The manufacturing cost included all processing and packaging to the point
of transport.
Seems to me that in the next great depression entrepreneurs will find ways to bulk manufacture and deliver things like laundry detergents for a fraction
of what the large consumer products manufacturers are able to.
I think the problem a lot
of these guys like Yastrow and Gross and Bernanke have is they have never manufactured anything and have no concept
of how overheads can be shaved to the bone by private entrepreneurs in such a way that publicly traded companies will see none
of the profit whatsoever. Given that it wouldn't take much
of a reduction in sales (less than 40 percent, I would think) to render a behemoth like Procter and Gamble nonprofitable, I think any investment in even a supposedly safe company like that is extremely risky.
For Procter and Gamble,
Period Ending Jun 30, 2010 (All numbers in thousands)
Total Revenue 78,938,000
Cost
of Revenue 37,919,000 (48%)
Selling General and Administrative 24,998,000 (32%)
Operating Income 16,021,000 (20%)
Cost
of Revenue (or Cost
of Goods Sold) is generally considered to be manufacturing cost.
P&G doesn't have as much overhead and income as the company I worked for (52% vs 70%) but private competitors still have a healthy chunk to go after and consumers have a healthy chunk
of potential savings to realize. This company is a sitting duck in my opinion.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.