Wednesday, April 08, 2009

Inventories down, but demand up?

There's an interesting article in the WSJ today about businesses that have cut inventories so much that at the current rate of consumption there will be a production rebound in the next few months.    The article said that 2/3 of CEO's expect demand to soften in the next 6 months while only 1/3 expect it to strengthen.  The best quote was from the Josam Corp CEO (maker of industrial drains), who said he believed the worst is behind us.  

That's my position too.  

I spend too much time reading news and comments on the Internet message boards, but I am astounded at the pervasive negativity that so many people see to have.  I posted on one forum that I think the first quarter of 2009 will be the bottom (viewed in retrospect) and I was immediately flamed by those who "know better", asking me to put my money where my mouth is.   I have done just that (via the stock market).

In Spring 2003, negativity was at levels seen today, with common perception that the economy would never recover, only to start a sustained bounce that exact month that ended the year with the largest GDP growth since 1984 (7.8% in 3Q 2003), and 20% rise in Dow for the year.

In fall 2007, as the economy was quickly decelerating, there was a high level of positiveness even though all the data pointed to a huge, and I mean HUGE credit crunch in the making (starting in July 2007), and housing price declines on the way.  

In summer 2008, people were talking $5/gallon gas for the foreseeable future.  (Note my posting in July 2008 that oil would be below $100/brl by fall, and in my thinking, I wouldn't have imagined the fall to $30, I expected somewhere around $60-65). 

My point is, using what I call my 'human-emotion' index, which is not scientific by the least, but if one goes against the common thought in society we can see data and turning points missed by the mania of the moment.   That's what I see today.

*Sorry, I don't like to WSJ articles since it requires a subscription, but the article is titled "Glut of Goods is Easing".