Insiders have been particularly skittish with regards to the recent rally in stocks and the potential recovery. While many have expressed their optimism few have backed up their talk with their own money. On the back of yesterday’s rail report I received an excellent note from a CEO at a large industrial firm who was kind enough to share his thoughts on the economic recovery:
One of our board members is chairman of a large coal and coke company. He tells me the electric utility industry has so much coal stockpiled they literally have no room to add to their inventory and are talking about contractual push-outs. utilisation at the industrial level is picking up, but… As coal loadings are so significant as a percentage of the aggregate carloadings, this probably has a real impact. This segment of the economic recovery may be skewed by this 9-12 month coal inventory build, which was inconsistent with the path of the recession.
As to the recovery in general, I really think there are elements which will prove essentially unique to this recession. One, there was a confluence of financial system crisis generated by the outrageous CDO scam and near total regulatory and rating agency abdication of responsibility. Two, we had final recognition the US auto makers and the UAW were essentially finished as a manufacturing force in our economy—and GM and Chrysler are still thrashing about with government funding (which will ultimately be written off by the Treasury; poor taxpayer) trying to ignore the conclusion. Three, we’ve had a highly unusual degree of inventory draw-down at both wholesale and retail levels; absolutely extraordinary, really. Four, our savings rate had dipped to zero and must rise to the 6-7% level, but this will mute consumer spending and (fortunately) consumer credit utilisation. Five, we’ve had a clear demonstration years of substandard secondary educational performance has resulted in a large segment of the labour force which is not re-trainable, in a practical sense—making it even more likely labour market improvement will be slow to evidence itself.
My thoughts, at any rate. Perhaps I’ve demonstrated “I dunno”!
“I dunno” is right. I think most investors and CEO’s would agree with this comment (except for Ken Langone who resoundingly believes things are getting worse). I think this has to be one of the most interesting and confusing investing environments we will ever experience. Then again, as Mark Twain said:
“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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