More On Global Economic Supply & Demand

Over the past two years, global industrial output increased by a conservative 17 - 18%. The rise
in sensitive materials prices over the comparable period was roughly 102%. Output growth
serviced both recovering final demand and a full measure of pipeline refilling to bring inventories
up to snuff. The dramatic rise in prices suggests that purchasing management discipline may have
given over to a significant amount of inventory speculation to increase cash flows on sales. The
Japan quake / tsunami catastrophe no doubt disrupted supplies mangement for parts and sub -
assemblies, leading to a further challenge for supply chain managers just as fast rising fuels prices
may have negatively affected final demand. Now, Japan's production did rise 1% in April, but
observers there were hoping for more. Perhaps power constraints are limiting the speed of the
rebound.

So, both markets players and central bankers may be stuck here with an uncertain period as
the supply chain and inventory management sorts itself out and as the world's consumers adjust
to the dramatic and sudden rise in fuel prices.

None of the above is news, but after having worked through the process, I am of the view that the
economic recovery hit a momentum inflection point made worse by the Japan event and inventory
speculation and that the slowdown in the pace of global growth might be a little steeper and longer
lasting than it might have been. But, I also think it is wise not to be emphatic about this conclusion.