HUMMONEY - Simply Price (Perspective)

- by Greg Lewin

If I was given 1 measure to judge the quality and strength of a business it would be pricing power; can you raise prices without damaging demand? This is the ultimate measure of both the worth of your product to the consumer and your competitive strength in the market place. And of course, price is pure profit. There is nothing that will help or hurt a company’s bottom line more than price increases and decreases. Those businesses that are forced to compete on price must navigate the complex currents of supply chain management, marketing and cost cutting to maintain profitability.

So now let’s turn to the global market place. In our new world economic order demand can be found anyplace on the globe for a company’s or for that matter country’s product.  With so many of the more mature countries suffering from low savings rates and high debt levels demand is often found in the worlds emerging markets where the middle class is beginning to grow and spend. In the past the great companies in the traditional economic powers relied on innovation, quality and intellectual property to drive sales but now the evidence is clear that such advantages are disappearing as companies with the help of government are turning to currency devaluation to stimulate demand. As currencies decline in value it makes your goods cheaper to buy and therefore stimulates demand. In other words, the world’s powers are now turning to price wars to drive business. And this process has become so obvious and so aggressive that typically reserved foreign ministers are now publicly calling each other out and threatening increasingly aggressive responses.

The point for me is clear. If you want to see which countries produce products which the world wants and needs, and therefore have economies which are likely to be sustainably strong, watch the movements in currencies. Because price is simply the best arbiter of financial and economic strength. 

 ---The views expressed here are of the author, HUMMoney contributor Greg Lewin; currently a General Partner at TLF Capital, an investment management firm. During the past 26 years he has been a senior money manager or partner in Wall Street firms including Neuberger Berman, Charter Oak Partners and Sailfish Capital.