So we finally swallowed the bitter GM bankruptcy pill. The fact that the US government now owns greater than 70% of the means of production for this company presents a new set of challenges which will have political and financial implications for years to come. Hopefully workers and resources will move to more productive areas of the economy. Despite this long awaited news, the markets continue to show signs of recovery. As of this first day of June, we are flirting with new S&P highs for 2009.

One of the bright signs indicating a turn towards economic recovery is that inventory is now at an all time low. Industry has gone from a “just in case” inventory system, having enough excess inventory available just in case demand spikes, to a “just in time” inventory system, where inventories are kept as low as possible. The chart below indicates that industries may be preparing to ramp up production (minus the auto industry), which will ultimately create more jobs. In order to add capacity, companies will need to hire more people. Many THOR clients have reported to us that they are seeing record low inventories in their own various industries, which confirms the information in the chart from Charles Schwab Investment Research below.

Another bright sign for the road ahead is that lending standards are beginning to improve. And as you can see in the chart from Charles Schwab Investment Research below, equipment and software spending has historically followed. When capital expenditures increase, jobs and wealth are created.

In summary, record low inventories and improving lending standards are faint glimmers of economic recovery. This is not to say that we are not paying attention to the bumps along the way. Bankruptcies, inflation fears and decreased consumer spending are stifling factors to be considered. Knowledge and expertise can make the difference between sitting on the sidelines and watching the recovery pass you by or jumping in the race and profiting from the upswing.

THOR Team