One of my principles of decision making is that when markets move to extremes the contrarian opinion has a higher probability of prevailing.

The news says we are on the edge of an abyss. New jobless numbers are growing, more companies are closing, and consumers are reluctant to spend.

Yet a new restaurant opened in Macon on Tuesday, J. Christopher off Bass Road, I took a few people from work there to lunch on Friday and there was a twenty minute wait for lunch. Volume may be down but nearly everywhere I go I see people shopping and spending.

Inventories are extremely low. Either companies will have to order more to replenish inventories or they will have to go out of business. If there is any short term pickup there will be shortages in the supply chain and a spike up in prices. Yet higher unemployment will keep wage increases low and will keep some sort of lid on inflation. I am hearing of more companies who after a round of layoffs either freeze or cut salaries across the board.

I am starting to increase inventory to avoid being caught with our proverbial pants down. I would rather be a month early than a day late. Recent scrap prices are down. My risk assessment is that there is a 30% chance of further price cuts, but if that happens they will be modest. There is a 40% chance of short term stability and a 30% chance of price increases, also more likely to be modest.

Your best economic analyzer is your own eyes. A little contrarian thinking may also help.

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