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Buyer Analytics Purchasing Blogs - News About Procurement
Emerging and Frontier markets are still the lowest cost labor markets. According to research from JP Morgan Asset Management:
Wages, which are the largest part of most manufacturers costs, are still vastly different around the world, regardless of the rise in manufacturing costs in some emerging market countries seen over the last decade.
Here is a great graph from JP Morgan depicting this data:
Today, manufacturing labor from China is 10 times lower that the U.S. However the gap is closing since in 2001 the gap was significantly higher at 39 times.
After Sandy hit the northeast there was a significant shortage of all types of fuel supplies.
According to Reuters:
The storm's destructive powers were bad enough - knocking out equipment and power at oil terminals and other energy infrastructure, while disrupting shipping for days because of debris in the harbor. But a series of decisions over recent years had also made the region much more vulnerable. The shuttering of regional oil refineries, decisions by companies to keep fuel low stocks because holding extra supply has become expensive or unprofitable, a recent government downsizing of emergency reserves, and the heavy reliance of fuel terminals on a vulnerable electric grid all played into the supply squeeze.
Jeffrey Gunlach started his own asset management firm, DoubleLine, in Los Angeles two years ago. Since then, he's raised an amazing $16 billion in assets. At a recent luncheon at the New York Athletic Club, the author of the Reformed Broker, Joshua Brown, summarized the speech by Gundlach.
Below are the most interesting comments by Gunlach for procurement professionals.
On the US Dollar: While everyone is whining and crying about the falling dollar, the simple fact is that the dollar actually bottomed three years ago and is now strengthening. "The problems in Europe are wildly bullish for the dollar". "All of our assets are dollar denominated."
On Natural Gas: The all-asset class portfolio is currently legging into a long natural gas position - slowly. Jeffrey says it probably goes nowhere in the short-term but in a decade or two could be a five-bagger just like his gold trade was. Natural gas is very cheap and has a lot of potential in the long-term.
On Copper and Commodities: Copper is still trading at 40% above the marginal cost of production so there is still risk to these prices. Commodities (other than gold) have been terrible over the last three years. Since September 19th 2008 through this week, the DJ UBS Excess Return Commodity Index is down 18.4%, it was up 12.72% during QE1 and 6.73% during QE2.
On Corporate Bonds: Investment grade corporates have done extremely well but the below investment grade (junk) market "has absolutely fallen apart". Junk bonds will really hit the wall and face serious wave of defaults beginning in 2012 as all the refinancing of 2009 and 2010 vintage come due. Many of these companies have improved cash flow by lowering their interest expense with refis but they haven't reduced their indebtedness overall. That said, pension funds are still underfunded and will be forced to use investment grade corporates to make their assumptions, this will keep a "technical bid" beneath that market.