IHS Chemical Week

CHEM IDEAS

Recovery (Of Sorts)

2:43 PM MDT | April 23, 2009 | By VINCENT VALK

There’s a sentiment in some quarters that the industry, and the broader economy, is poised for a recovery. Does this viewpoint have much merit?

Sort of. With the stock market up, and some moderately less-bad news coming out of certain sectors, it seems reasonable to forecast that the pace of decline is slowing. But for companies who reported earnings recently, the news was almost uniformly bad. And just think about that phrase for a moment – “the pace of decline is slowing.” Does that really make you want to run out and, say, buy Lenny Dkystra’s repossessed Gulfstream III?

No? That’s what I thought.

In fact, there’s still plenty of downside left in this economy. There are some proverbial shoes that have yet to drop. Y&P president Peter Young told me, while discussing the chemical industry’s liquidity concerns, that commercial real estate looks posed for a nosedive. Last night, I attended a seminar sponsored by the Center of Communication, at which Liz Claman of Fox Business News replied to my question on this topic by mentioning, yes, commercial real estate. There’s also private equity debt, which was mentioned separately by both Claman and Young, and “Level-3” assets, otherwise known as the billions in worthless paper that remain on the balance sheets of banks (or zombie banks, if you prefer).

Maybe the worst is over – but, as the Economist astutely points out, that may just be because of trillions in fiscal and financial stimulus. Those dollars are necessary, but reliance on them is not a sign of economic strength – nor, for that matter, is taking comfort in relatively slower declines. So, proceed with caution. That light you’re seeing at the end of the tunnel may be a crack in the ceiling.














 
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