Monday, January 05, 2009

2009 - An Outlook...

On a relatively light news day I thought it might make some sense to offer up some forecasts for the year ahead and a long-term trend analysis.

1) Oil - Oil has ticked up slightly over the past week on speculation of more OPEC cuts and unrest in the Middle East. Offsetting this trend is the clear weakness in the global economy and the impact this weakness has on oil demand. In my opinion, this is principally all just white noise. If you want to know where oil is going, figure out where the US dollar is going. My bet is that the $ is going down and that's going to lead to a resurgence in the price of oil despite weak demand. At some point in 2009 oil will be above $65/barrel and gas prices in the US will break $2.40/gallon again.

2) Financial Services - Unfortunately, I think 2009 is going to be another painful year for the commercial and investment banks in the US. While they've finally got their hands around the housing mess, the banks are likely to be hit by another stunning wave of defaults from the commercial property sector. Visit any booming retail center (Boston, Austin, Atlanta, NY, LA) and you will be stunned by the vast quantities of vacant retail space. This empty retail space can only stay empty for so long before borrowers will start defaulting. Couple the retail defaults with empty office space and excess hotel space and you've got the recipe for Financial Bailout Part Deux.

I've been stunned by the bold predictions coming out Wall Street this week that have been almost universally bullish (again when the crowd all agrees on something - it's usually a sign that they are all wrong). I think there are a couple of factors behind this bullishness -

* self-preservation: If Wall Street struggles again in 2009, many of these Wall Street Wizards will be selling the home in Aspen to pay for their cable bills in 2010. No one wants to see this, so they're probably more bullish than they would normally be in the hopes that they are right, because if their wrong, it'll be ugly for everyone.

* history: Every forecaster keeps pointing to the average recession length or the 2003 recovery as evidence that it's almost over. Much like the fact that the 1982 to 2007 bull market was unlike anything we had ever experienced, this recession is different and will eventually prove to be different.

Finally, I've said before that there is a segment of all markets that is open to US manufacturers if they would simply grab it. Even in tough economic times, when people are flooding Walmart to buy disposable TVs there is a need for quality. The quality of goods being sold to US consumers is falling at an alarming rate (my one year old LCD TV failed this week, while my 20 year-old TV still works like a charm). I call it Webernomics. Weber owns the quality grill category by making a high-end product that lasts (some will note that many of their grills are now manufactured in China and assembled in the US - I can't say how this has impacted the quality of their grills, but 5-10 years ago nothing could top a Weber for under a $1,000).

As times remain difficult around the world, I think consumers are going to shift their purchase dollars from impulse/disposable items at the Walmarts and Targets of the world toward lasting goods that will cost more, but will provide years of quality service. If I were a Private Equity firm, I'd go around an scoop up the trademarks for a bunch of old quality US products (TVs, bikes, small appliances, clothing, etc) and develop a manufacturing model that delivered the Weber experience in every category. This is a long-term trend that won't play out overnight, but I suspect someone smart will give this a shot.


* Note - Facebook has clearly jumped the shark as I've been using it fully in 2009. If you're a reader add me to your friends for news and witty commentary.

1 comment:

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