This is the market that just won’t quit. Or is it?
Haverty: It is like a mystery play. In Act I of the play, it is very clear the U.S. consumer is in what I would call a 21st-century recession, and that’s a recession without the negative economic statistics that you would normally get in a ’60s or ’70s style recession.
How then do you know there is a recession?
Haverty: We have weak end demand virtually everywhere — in restaurants, autos, durables and at the low end of the consumer area, with pricing pressure on everything from oil to milk. We are not getting a classic recession, probably due to the fact that inventory management has been so much better than it was 30 years ago, largely due to computers. There aren’t the massive cancellations of orders that existed in the classic recessions in the ’60s and ’70s. I can’t tell you the last time I have seen a retailer with seriously excessive inventory. The message from this part of the play is that while the consumer is weak, it has basically put the Fed on hold for the last year and for the foreseeable future, because if the Fed raises interest rates it is going to make the sectors that are weak much weaker, and that is not going to accomplish anything.
The question on my mind is how will just-in-time inventory be impacted by the ongoing housing slowdown? Sure, there’s no inventory build and less layoffs necessary — but that only helps the corporate side more efficiently manage a slowdown — not avoid one alltogether.
Regardless, I find Haverty’s comment’s insightful, and like the best observations, obvious in hindsight — one those "Why didi’nt I think of that?".
Interview With Larry Haverty, Portfolio manager,
Gabelli Global Multimedia Trust
Barron’s, JULY 23, 2007