Is There Light In This Long Recession Tunnel?

As bad as the economy seems, the worst may be over, said a panel of experts convened to look for signs of light at the end of the tunnel. “We’re better off than we were six months ago,” said Art Hogan, director of global equity products at Jefferies & Co., who famously called the market’s bottom on CNBC on Oct. 10, a day when the Dow’s low was 7,773.71.  We’re at a point in the market where we seem to continue to be able to withstand a high degree of bad news,” he said Thursday night at a meeting of the Massachusetts Network Communications Council in Waltham, Mass. And while economic data will get worse before it gets better, Hogan said, there’s bit of risk-taking and “for the first time in about six months we’re actually seeing selectivity” in stock buying, as opposed to indiscriminate selling......Click HERE for more.

Paul Deninger, a Jefferies & Co. vice chairman, said he’s worried about restoring confidence when public company chief executives have no reason to offer positive guidance. “Everyone’s guiding down because they’re worried about the economy but they’re also guiding down because even if they grow, they’re not getting credit for it,” he said. “So why not guide the entire market down and then anything you do, you’re going to be a hero later. There are no rewards in the equity market right now for courage and heroism.”.



New sources of growth like innovation and green growth, as well as structural measures to improve labor productivity and utilization, will therefore be crucial to put the economy back on a strong, sustainable and jobs-rich growth path.  Five other factors will dominate the economy over the next 12 months:



1. Uncertainty about the future improves as the anti-business tone in Washington diminishes. Fewer political initiatives as the Congress of the United States swings from the left leaning democrats to one with more conservative and right wing elements. With the prospect of a stalemate in congress, investors can expect less change from the government reducing the uncertainity that has plagued companies and investors.
The financial sector will be the greatest benefactor, though they still face declining or flat loan demand as companies and consumers reduce their debt load.
2. Emerging markets drive global growth. Any sector or company that derives the bulk of their business from exporting capital goods, commodities and certain higher end consumer goods should see their revenues and earnings appreciate nicely.
Capital goods companies that export like Boeing, Caterpillar (CAT) and Deere (DE) will continue to experience robust revenue and earnings expansion. Their upstream suppliers will also participate including the likes of Nucor, Titanium Metals (TIE), Precision Cast Parts (PCP) and Trimble Navigation (TRMB).
Higher end consumer goods companies with a growing presence in China, India, and Brazil will see demand for their products drive up revenues. Coach (COH), Williams Sonoma (WSM), and Apple (APPL) fit here nicely.
Productivity continues to enhance companies’ bottom lines. Most providers of the software and hardware necessary to change the way a company does business in position to grow revenues and profits. Cisco (CSCO), EMC (EMC), Oracle (ORCL) and Hewlett Packard (HPQ) come to mind.
3. Employment will diverge. Those with the skills in demand (software engineering, engineering in general, proven sales experience, and healthcare are examples) will see many job opportunities. On the other hand, anyone with lower level skills or who only has worked in the home construction industry will continue to suffer slow to negative job growth.
To maintain employment equilibrium the economy must add 100,000 to 125,000 new jobs a month. So far, we have not even reached that level. When we do, there still are the more than 9 million unemployed and 17 million underemployed people looking for work. Many of these people lack the necessary skills and reduction to find well-paying jobs. The muddle through economy does not hold very good prospects for them.
4. Leading labor’s problems is a weak housing market. The overbuilding and large numbers of foreclosures are major contributors to housings woes. Supply remains excess and prices keep falling as the market tries to find the right balance of available homes and at what price.
Fire sale prices encourage new homeowners and investors to wait for the best deal rather than buy one of the lower priced homes. As long as this attitude persists, the single-family housing market will remain in the doldrums. I do not expect this picture to improve any time soon.
5. The Federal Reserve will remain supportive. The Fed will keep short term rates near zero for another year. They might add to the available money supply by buying additional treasuries goring their enormous balance sheet even further.


The light you see at the end of the tunnel is a very slow moving train. (PhysOrg.com) -- Sure, the U.S. economy is struggling, but the end to the "growth recession" may be in sight, say University of Michigan economists.