Mass produced shoes are commodities, and commodities are inevitably priced at a cost plus basis. It is precisely because of cutthroat competition that any cost advantages are passed along in order to compete on price. This is a direct quote from Buffett in his BRK 1979 letter to shareholders. Further, one of Buffett's bad acquisitions were Dexter shoes, which wilted under the pressure of cheaper imports. This happened in the90s and again, can be found in BRK letters.
Would that be enough to shut you up?
ps Baltic Dry Index is not an index for oil prices.
Well, I would agree with everything you said - if we're talking about a static market in a spherical vacuum. However, this isn't macroeconomics 101, and the reality is, believe it or not, somewhat more complicated than what Buffett would have you believe.
The most obvious point I would question is in using examples from the 80s and 90s to justify why Aquila can continue to drop labour costs in the present day Australian market. Basically, in the 90s you had the biggest source of manpower in Asia and China opening up to trade, giving you an enormous source of cheap labour. Where's your billion workers willing to accept a low enough wage to make shifting capital profitable today? No matter how smart or right Buffett might be, with the wrong interpretation and application his words mean nothing.
P.S. I thought the Baltic Dry index was some transportation cost thing, which I just equate to oil prices because it's the cost with most variance?
Edit: Oh yeah, and game theory. But I think neither you nor I want to listen to me harp on about how people are wankers all night long.