Friday, September 9, 2011

Meanwhile, Back in the Real Economy

I had the chance to hear from a number of consumer products companies earlier this week.

At a conference sponsored by Barclays Capital here in Boston, I heard from senior executives from Colgate; International Flavors & Fragrances; Pepsi; Unilever; Dr. Pepper Snapple; Nestle; and J.M. Smucker.

I won't go through all of their presentations, but there was one common theme: Things are not as bad as you might think.

For example, in response to a question at a breakout session, Colgate CEO Ian Cook said:

"Look, I know what you want me to say: that things are slowing, and that we're worried about the future. But that's not the case at all. Sales trends - particularly in the emerging markets - have been very good, and we have no reason to believe this will not continue."

"So, sorry, if you're looking for a 'gloom and doom' comment, you're at the wrong place."

These comments - which echo those I hear from managements at other multinational companies - underscore the conundrum that faces investors today.

The markets act like we're on the verge of the Great Depression. The price of safety - gold, T-Bills, etc. - has soared, and there are few "safe havens" that also offer at least the prospect of reasonable investment returns.

And yet the companies themselves - and remember that stocks are merely pieces of actual ongoing entities - are largely saying that business is actually not too bad.

Investment legend Benjamin Graham famously said that markets are "voting machines in the short run, but weighing machines in the long run".

Right now, market "votes" are that the world is rapidly turning into a very unfriendly place, but it is very possible that we will look back a year or so from now and find that schizophrenic investors have systematically undervalued profitable companies.

Fed Chairman Bernanke yesterday also noted that unusually high level of gloom among consumers despite the fact that conventional economic data is much improved from the depths of 2009, as the New York Times reported this morning:

Then {Bernanke} said something new: Consumers are depressed beyond reason or expectation.

Oh, sure, there are reasons to be depressed, and the Fed chairman rattled them off: “The persistently high level of unemployment, slow gains in wages for those who remain employed, falling house prices, and debt burdens that remain high.”

However, Mr. Bernanke continued, “Even taking into account the many financial pressures that they face, households seem exceptionally cautious.”

Consumers, in other words, are behaving as if the economy is even worse than it actually is.