The Cure For Low Prices

Everyone knows the old adage ” The cure for low prices is low prices”, but I would amend this time tested salvo to read ”  Low prices, in a credit environment where risk premia is completely divorced from reality, may possibly, eventually, result in prices slightly above the cost of production”. If the new era of Modern Central Banking has taught us anything, it is that credit and liquidity are the great equalizers, and more specifically they effectively bridge the gap between unprofitability and the natural selection process of bankruptcy and capital asset liquidation. Traditional economic theory involving the darwinian process of capital formation-innovation-imitation-destruction has been supplanted by something much more damaging in the long term in our opinion.

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