Thursday, December 11, 2008

A few CEOs and their thoughts on the recession

Interesting article posted at:

A few comments that really rang a bell with me.

1) Robert Nardelli, CEO of Chrysler, said he could see unemployment at 10% +. Based on his record as a CEO I don't really know how valuable his information/thoughts are. The guy had a VERY unsuccessful tenure at Home Depot after leaving GE and now ran into one of the worst economic climates in modern day history. Chrysler is toast in my opinion, whether or not they get some bailout or not.....

2) Lewis Hay, FPL Group (utility business) said " Probably 25% of our customers are past due. Normally, it's more like 15%. Another issue is access to capital. We had plans to invest more than $7 billion this year, and we've already cut back to about $5 billion. With such a shortage of access to capital, how are we going to get all these alternative energy projects going?" <--bold for emphasis as it is rather intriguing....I think pure play businesses have a chance at getting financing more than diversified companies. It depends on whether it is debt or equity financing though. Debt financing would be more likely with diversified energy companies since there would be more collateral and equity investments would be more likely with "pure play" alternative energy companies because they would provide more upside in the long-term (higher risk/reward).

3) When asked "How long or severe do you think the recession will be?" most said mid 2010 and one CEO commented that, "The key is inflation. If inflation stays under control and confidence returns, we'll come back early. If inflation starts to roar in mid-2009 and thereafter, we have a problem. It might start to look like the mid-1970s."

I think that is one smart CEO re: concern about inflation. While we are experiencing deflation right now there is increasingly a higher probability that the U.S. dollar will fall vs. other currencies and spike inflation since the U.S. government is printing ALOT of them. If this happens we see higher commodity prices again.

Dan Ross

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