user 385544's  Instablog

Im speaking about " Inventories", and im not talking housing or commercial real estate here.

The old business model 20-30 years ago was to warehouse millions of dollars of inventory, and keep production going, and warehousing finished goods to avoid laying off workers. Manufacturing inventories today, for the most part, are kept at a minimum. In a normal or shallow recession that has allot benefits, as it lets production hit the ground running without having to work off inventory when demand picks up, shortening the time workers are laid off.

Unfortunately, with that business model in a longer recession or mild depression there are unintended consequences or backlash. OEM manufacturer's have basically “taken out” their suppliers and put them out of business. Many of these small businesses have been squeezed and operated on small margins, with little capitol to sustain a long recession.

Consequently, whenever demand does improve, the scramble to find adequate suppliers will be on. OEM manufacturer's are already having a hard time shipping orders or meeting customer demand, because suppliers are going bankrupt and out of business.

Laid off workers of suppliers and small to medium sized businesses have nowhere to be called back to, they are gone. The return to normal production levels, even if demand is there, will be difficult at best.

Yes, this recession will be long and deep, and recovery very slow indeed.

Disclosure: Long (DXD), no positons in (DIA), (SPY), (QQQ)

Guess that test balloon of a comment he flew over china burst huh? The word ” Tresuries”comes to mind.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aM.gruoOIIoI&refer=home