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Inventories continue to rise

Wholesale inventories in October rose much more than expected. With the help of this chart, which shows the level of inventories with a logarithmic scale, we can see that inventories are slowly getting back to their long-term trend. This is yet one more of the many indicators that the recovery is still proceeding despite all the headwinds. On the margin, things are improving, even though the degree of improvement is disappointing.

Markets, however, are priced to the expectation that things will begin deteriorating soon, and probably in a serious way. For markets to rally, all we need is to avoid a big deterioration. A continuation of meager, 3% growth should be enough to push equity prices higher, because that would be a far better outcome than what is currently expected.

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