Profit margins affected by high oil?
Mar 09, 2010
In my February 5 blog, anonymous at 1:25 p.m. made a case that disruption in Iraq’s oil supply years ago cost everyone a lot of money. To anonymous: I wholeheartedly agree with your macroeconomic analysis. High oil prices and high inflation break the back of the economy and hurt farmers in a big way. We’ve seen it happen before and, I think, oil and inflation will continue to be a major factor in disrupting economic growth in the future. It’s just a matter of time until we see $200 crude. In fact, I don’t think we’ll break our dependency on Middle Eastern oil until it really costs us and we’ve all got solar panels and electric cars.
While I agree with your overall macro analysis, I would advise against the approach of avoiding forward selling on the hope of upside opportunity, due to the expectation of a long-term bullish trend. I recommend using your bullishness as a filter. Rather than a blanket no-forward-sell strategy, you might try being selective . . . decide you’re going to forward sell at really good value after a substantial surge or when prices look good and the trend turns down . . . and at the same time have a buy-back strategy in place.
If you take the attitude that you’re not going to forward sell because we’re in a long-term bull market you might be wrong for two or three years at a time, which could cost you substantial opportunity until you’re finally proven right. Instead, when the market gives you opportunity, price it and have a buy-back strategy in place. Again, I agree with your analysis, just not your approach.
Great marketing is strategic. Great marketing has layers of strategy and uses multiple marketing tools to position you for inevitable opportunities and risks. It’s three dimensional and looks like a matrix of decisions that are all interrelated—as opposed to deciding not to forward contract without having any other contingencies ready.
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