I'm often asked about the economic cycle and what it means for investors. Are we headed for a downturn in the economy?
Economic downturns are characterized by excess inventory in durable goods. Manufacturers respond to the excess inventory by stopping production for weeks or months at a time in order to flush the excess inventory through their sales channel. I look for signs of unhealthy inventory as a leading indicator.
Today, Ford announced that it was halting production of the F150 pickup truck (the top selling car in North America) at several plants for a period of weeks. They're citing 92 days of inventory on dealer lots. The auto industry likes to keep 4 weeks of inventory on dealer lots.
The downturn in the oil industry last year had the same characteristic. Excess inventory of crude oil. I think we're approaching those market conditions. What do you think?