Apocalyptic bears take note: current conditions are hardly as hellish as when markets crashed in 2008.
Despite a long secular bear market with a powerful recovery rally for the financial markets, we now look at some contrarian data points which may keep markets from falling in a second leg down.
- The BP Failure Does Not Begin to Compare to Credit Crisis Failure: Once sporting a $180 Billion dollar market cap, British Petroleum (NYSE:BP) is now valued under $90 billion just 2 months later. Even if bankruptcy is imminent due to the magnifying environmental catastrophe, BP’s failure is still no comparison to the Credit Crisis Collective of AIG (NYSE:AIG), Ambak, Bear Stearns, Citigroup (NYSE:C), Fannie Mae (FNM) Freddie Mac (FRE), Lehman Brothers (OTC:LEHMQ), MBIA Inc (MBIA), Merrill Lynch (NYSE:BAC), Wachovia (NYSE:WFC), WaMu (NYSE:JPM). These financial cancers caused well over $1 trillion in market cap losses. In the case of BP, there are Dow components and blue-chip companies like Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM), Shell (NYSE:RDS.A), Proctor & Gamble (NYSE:PG) and Marathon (NYSE:MRO) gaining market share as beneficiaries of the BP Bust.
- Global Liquidity: The $1 trillion EU Stimulus package delayed by European bickering will likely play out like the famed $787 US stimulus package. In February 2009, the US stimulus bill became law and consequently the markets bottomed a month later. In May, the EU initiated the same, yet larger, stimulus-saving injection into the European economy. Once that money hits the system, a similar playbook could take effect.
(Click to enlarge)
- Upcoming Congressional Elections in November: Extension of the first-time home buyer tax credit is a vital necessity to give the housing market sustainable signs of support. The wake up call for politicians was the latest May new homes sales figure dropping 33%. Right now, politicians are seeking out the best policies for reelection, and the tax credit extension for first time home buyers is a simple vote-grabber for any politician who wants to strengthen chances for victory this fall. Thus, future housing relief policy announcements should come to the forefront as a price floor to the overall housing markets.
- CEO Hiring Confidence Reaches 3-Year High: This week, the Business Roundtable — a group of CEOs from large US companies — shared their survey showing that 39% of CEOs expect to hire new employees in the second half of 2010. In conjunction with positive double digit sales growth from a high number of companies so far this year, private employment numbers could see a significant and surprising rise. Also, 79% of CEOs surveyed said they expect sales to rise in the second half of 2010. If you rewind the picture to the March crash period of 2009, both the sales numbers and sentiment has improved dramatically since then.
- Technology Is Driving Innovation Out of the Recession: Mobile is quickly becoming the future. Sprint (NYSE:S) is feeling the pent up demand for their new Evo 4G mobile phone. I was recently at a retail Sprint store location in Chicago and asked a sales rep if any Evo 4G mobile phones were available. She said they were sold out and on back order. This is a great sign. Moreover, Microsoft’s (NASDAQ:MSFT) breakthrough joystick-free 3-D Gaming Technology is slated to be a December holiday hit. Intel (NASDAQ:INTC) is entering into the world of Google TV. Google (NASDAQ:GOOG) has positioned itself as the small business savior success story in the Great Recession. There are now over 234 million living websites on the internet while online ad spending increases and entrepreneurs utilize Google’s more efficiently expanding toolkit for making money.
- The Consumer Is Not Dead: Retail is showing signs of life. Adobe (NASDAQ:ADBE) reported strong revenue growth of 34% year-over-year. Additionally, Oracle (NYSE:ORCL) delivered a 39% rise in revenues from $6.86 billion to $9.51 billion. Apple (NASDAQ:AAPL) has sold over 3 million iPads in less than 3 months, with swarms of demanding consumers lined up for the iPhone 4 release. Amazon (NASDAQ:AMZN) is still glowing from their expanding online shopping dominance, 46% worldwide revenue growth in their Q1 2010 report. Even though private employment numbers were weak, strong government hiring is still putting money in people’s pockets. Consequently, consumers remain in line for breakthrough gadgets like the iPhone 4.
Conclusion: Japan’s Lost Decade Was Not a Crash
I expect choppy waters as we undergo a turbulent period of uncertainty and volatile swing action. Even with a hurting housing market, a failing BP catastrophe, and the EU sovereign debt crisis, the US economy in June 2010 is beyond the lows of March 2010. US companies were the first to implement cost-cuts and ultimately they will be the first to lead the future hiring rebound. - Derek Hoffman
Disclosure: No positions