Two Signs the Economy Will Survive

Posted Jul 8th 2010 12:10PM by Derek and Damien Hoffman
Filed under: Microsoft (MSFT), Apple Inc (AAPL), Cisco Systems (CSCO), Dell (DELL), Adobe Systems (ADBE), Oracle Corp (ORCL)

economic recovery The mainstream media is overflowing with hyperventilating bears preaching about a depression. All fear-mongering aside, we see two very positive developments in the U.S. economy: retail and corporate spending.

1. Retail Spending

The International Council of Shopping Centers has announced that retail sales expanded at the highest pace since September 2006. Luxury retailers posted an eye-popping 8% rise in sales. Seems like consumption is our culture. Some people think the U.S. consumer has changed. Personally, I would never bet against the DNA of a tribe ... and ours is shopping. As my brother Derek said, "In the Great Depression we had bread lines. Now, there are Apple (AAPL) iPhone 4 lines." That is a mind-blowing distinction.

2. Corporate Spending

Last year, corporations were forced into a spending freeze. Now they are upgrading software and hardware. In 2009, global tech spending dropped 4.2%. This year corporations are expected to increase their spend 3.8% to $1.5 trillion. Companies such as Microsoft (MSFT), Dell (DELL), Oracle (ORCL), Cisco (CSCO), SAP (SAP) and Adobe (ADBE) have all issued strong earnings and positive sales guidance for the remainder of 2010. Here are some notable stats for our models:

Microsoft has sold 150 million copies of Windows 7 -- the fastest-selling operating system in Microsoft's history.
Global personal computer shipments are on pace to increase 22% year-over-year.
Dell said revenues will rise up to 19% versus a 13.4% decline in 2009.
SAP sales are expected to rise 7% versus a 8% decline in 2009.
Emerging market sales to China, India, Brazil, Russia and others have helped diversify dependency away from the U.S. and Europe.

These aren't exactly signs the world is ending.

Back Peddling Bears

There is a reason bears such as Nouriel Roubini, David Rosenberg and now Doug Kass are offering a more tame outlook. The data doesn't support an all-out economic collapse.

For the record, we are not bulls. We see a lot of major problems in the global economy. However, we see a much more mixed picture than the apocalyptic bears who seem to have blinders on when it comes to anything disproving their case.

A recovery starts slowly. First companies cut costs. Then they spend. Then they hire. Then the economy heals. Seems like the first two phases are taking root.

Derek and Damien Hoffman are co-founders of Wall St. Cheat Sheet Premium Newsletter.

Tags: AAPL, ADBE, Adobe, bread lines, brother derek, cisco, CSCO, David Rosenberg, Dell, Doug Kass, featured, great depression, hyperventilating, international council of shopping centers, inthenews, iphone, iphone 4, luxury retailers, Microsoft, ORCL, SAP

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Reader Comments (Page 1 of 1)

7-08-2010 @ 1:37PM

Iridium said...

Nope

What I really like are people pointing out 4% increases in 2010 after 60% or greater decreases over a span of four years.

It is the wonderful, well this year you have $10 and last year you had $5 argument. Compared to last year you are doing great. The problem is that you had $50 two years ago.

I really like the government saying that Cap and Trade will create a surplus in the program even though it will increase government spending by nearly a trillion dollars. Since when has the government estimate ever come close to the true spending amount?

150 million copies of Windows 7 is not a great accomplishment. It counts licenses sold to manufacturers. How many computers are there in the world??? Well there is around 1.5 billion. WOW MICROSOFT WAS ABLE TO GET WINDOWS 7 ON 1% OF THE COMPUTERS WORLDWIDE!!! Hope that puts the "accomplishment" in perspective.

How exactly does emerging economy sales help Americans??? It helps CEOs and major shareholders but emerging market sales takes away dependence on the American consumer and that is bad for American workers.

There are a lot of Americans who still have jobs and there are a lot of Americans who still buy products they can't afford. However there are a lot less of those people than there was a few years ago. That is the fastest growing minority in history.

The world is broke. Nobody can argue against that fact. I don't know what you call a $1.4 quadrillion derivatives market but I call it a problem. What else is funny is that all that debt that was supposedly paid off by corporate restructuring, wasn't paid off at all. Major corporations just created other corporations and transferred the debt there, A CLEAN BALANCE SHEET GIVE ME MORE MONEY!!!!

All of you that continue to reinforce the flawed financial system we have put in place are just continuing the same mistakes that took down every major economic power in history.

True prosperity can only be obtained through true democracy and a free market based on the fundamentals of enterprise focused on individuals. When you consolidate power by concentrating wealth at the top you will always end up with a system that resembles a monarchy at best and a brutal dictatorship at worst.