“With inventory levels in an ultra-lean state, businesses should start adding inventories in the second half of the year as the economy begins to show signs of life,” - Ellen Zentner, senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd.
I would be very willing to take the other side of that trade. I bet that inventories, while ULTRA LEAN, will not be rebuilt anytime soon.
No rebuilding of inventories = high probability of a double dip recession.
I do not guarantee that I am correct, but that is how I a playing this (and I will absolutely, positively change my tune if the data changes).
For my money, the opportunity is in the Grain market, 2010 and later. For more than that, you are on your own
5 comments:
Customers of the company I work for are seeing increased demand in Q3 and Q4. There is an inventory rebuild starting in some high tech areas.
There is lots of new base money lying around. Leverage has been reduced. Another bubble could be just down the road. The big boys are hoping for it, and working toward it. DJIA 12,500 by April, then splat..
Regards,
Coal Guy
I think the "ultra-lean" state is questionable at its face. We are drowning in excess capacity. You can get anything you want, if you know where to look. Commodities have been ticking up a bit in price (I watch Roger's index). But there is still surplus everywhere, and there is lots of capacity to make even MORE surplus. :)
With so many unemployed and low credit availability, even if they do rebuild inventory, there will be far fewer buying.
I think both retail and manufacturing companies will be undermined for a long time by firesales of stock by companies going bust.
Also at the moment shipping prices are rock-bottom as the market has collapsed, but by the time any recovery comes around, the excess shipping and transport capacity will be scrapped or bust, and prices will rise fast.
Put the two together and they'll act as a brake on retail recovery.
Donal,
I agree that short term these fire sales will be a problem for surviving companies, but mid-term, once everything is flushed out,the companies still standing will be sitting pretty. Until "oil" starts talking again, not that it isn't anyway.
Peace
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