Friday, June 18, 2010

“Feels Like a Normal Recovery to Us”


So, how’s Europe really doing?

That was the question—sometimes the only question—at a Midwest investor conference this week.

And since the troubles in Greece, and in Spain, and in Hungary seem to have triggered the flip from near-euphoria among investors three short months ago to almost complete despair, it’s no wonder that’s what everybody wanted to ask about.

So, how is Europe really doing?

Not bad, actually.

As the CFO of a large dental supply company said, “Spain already had a 20% unemployment rate last year, and that hurt us.” This year, he said, his business in Spain was higher.

A global manufacturer of basic electronics components said more or less the same thing: there’s no noticeable slowdown in European orders, and continued strong growth in Asia.

Robert Half, which provides temporary and permanent staffing, likewise said they’ve seen no noticeable impact in their biggest European markets, which include France, Belgium and Germany, despite repeated attempts to get them to admit that something, somewhere, was going kablooey.

The most significant observations, however, came from Manpower, another publicly traded staffing giant.

Based in Milwaukee, Manpower actually does most of its business in Europe—revenues in France alone are almost triple the US. So investors at the breakout session were, naturally, pretty nervous about what the company is seeing over there.

And what they’re seeing is no big change.

“If you talk to companies in Europe,” the Manpower guy said, “they’re feeling pretty good.” Then, echoing the dental company’s comments, he added, “These are issues that have been there…and at least they’re starting to deal with them.”


Okay, you might be wondering, but what about the United States?

Well, for all the worries about a “double-dip” here, business seems to be humming along too.

Not screaming, but humming.

The aforementioned Robert Half pointed out that the temporary help market has been on fire, with 300,000 people placed in the first six months of the recovery. “And that slope is steeper than it’s ever been….The best on record.”

That’s right: “the best on record.”

When, exactly, do those “temps” become “perms”? That’s a question the Robert Half guys could not answer, but for now, the pace of the business recovery seems no different than most recoveries.

Indeed, one large home furnishings retailer we visited at the conference on the same day Best Buy upset Wall Street’s Finest with news that their customers seem to be consuming less—and why shouldn’t they be, since half the stuff Best Buy sells can be downloaded directly to your iPad, while the iPad itself makes Best Buy’s computer department obsolete?—has seen no change at all in their customers’ buying habits.

And we heard the same from restaurant chains, a cruise line and, most interestingly of all, every transportation company in the house.

As one such CEO said, “In March and April the recovery continued, and in May and June we’ve seen the normal seasonal build from there.” Asked about the economy as a whole—and this is a guy whose trucks move product all around the United States—he summed it up this way:

“Feels like a normal recovery to us.”



Jeff Matthews
I Am Not Making This Up


© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

15 comments:

Anonymous said...

So, we should start believing what company management tell us? Do you?

Gone to the blogs said...

I suppose all is fair on an opinion blog with thinly veiled long positions, but the notion that the iPad renders PCs obsolete is borderline absurd.

Jeff Matthews said...

Anonymous asks if we should "start believing what company management tell us?"

Well, you should start talking to as many companies as possible, figure out who knows what, who tends to tell the truth as opposed to merely spinning their story, and make you own decisions.

There are plenty of companies out there we don't bother with, precisely for those reasons.

'Gone to the blogs' calls the notion that the iPad renders PCs obsolete "borderline absurd." I am not sure why the statement is only "borderline" absurd, if indeed GTTB really views it as "absurd."

And as for his view that we are somehow touting "thinly veiled long positions" (without even mentioning the actual stocks involved or discussing their merits), the idea that an individual's opinion on the merits of a product could have an impact on the price of a stock is not borderline absurd: it is absurd.

In any event, I take it 'Gone to the blogs' has not used an iPad, since there is no direct personal observation given on the topic.

Or perhaps he is defending "thinly vieled" long positions.

Either way, before offering opinions about the merits of a case, one generally ought to examine the other side of the coin first. Go get an iPad and write about it yourself.

JM

Gone to the blogs said...

Well, I apologize for putting two and two together, but a hyperbolic statement about the iPad combined with AAPL being perhaps the biggest consensus long in technology investing history...I guess the bread crumbs just led me to a place that made sense.

There is an iPad sitting a few feet from me, and indeed it is a nice device, but suggesting that it has somehow rendered useless the entirety of the current computing paradigm and form factors, well there I think you might be "making this up."

Anonymous said...

I have always met management with the assumption that they will all lie through their teeth. Some will lie more than others (typically US management who are very street savvy, and those with heavy stock ownership and options to vest). Only way to uncover the truth is through the channel.

And yes, the ipad and other tablets will massively cannibalize the PC business and disrupt the PC chain.

Jeff Matthews said...

Gone to the blogs has "put two and two together" and come up with three, suggesting we're attempting to push a stock on the basis of nonsensical and hyperbolic statements in what has always been a rather non-hyperbolic blog.

But let's do this: we'll make a friendly wager that in the year 2015 more than half of the notebook computing market utilizes an iPad-style form factor.

That would make it (not iPads alone, but all tablet devices), a round-numbers 100mm unit annual business.

And if we're wrong, we'll give $100to the charity of 'Gone to the blogs' choice.

JM

stevehamlin.org said...

@Jeff Matthews:

A Slate.com article that includes forecasted PC sales by form factor, 2008-2015, by Forrester Research:

2015 forecast:
23% tablet
17% netbook/mini
42% notebook/laptop
18% desktop

Jeff Matthews said...

Thanks for this Forrester forecast.

Since an iPad is essentially a netbook only much much better, we'd say netbooks/minis will be zero in 2015; notebooks and desktops will share half the market; and the rest will be some form of tablet.

JM

Edgecliff said...

The normal recovery is hard to dispute based on observation of traffic in my urban hellhole. However, there is still the matter of employment that bothers me greatly. This seems more a continuation of the naughty jobless recovery than a progress towards a booming economy.

I'll hold off on the ipad review until i see how long it takes for me to break it.

Stocks, Forex and Investments Blog said...

It really leaves me a bit worried with everything going on the world. USA has been in the pits for years now and if Europe starts to flutter things are just going to get worse.

Craig said...

Great piece. I have been picking up a similar scent.

outlaw josey wales said...

Jeff,

Care to comment on the official unemployment rate, which in reality is probably 2x the stated number? Do you suppose those people think it's all a "normal recovery" ?

I guess I fail to see the basis for a recovery when wages have been substantially stagnant for at least the past 5 years and people don't have many savings to speak of. Is all of this alleged recovery B2B stuff?

Craig said...

Outlaw - a recovery starts from a bad place, not a good one, and it shows up in sales before employment.

MV said...

@ Jeff

From Gartner not so long ago: "Worldwide mobile PC shipments totaled 49.4 million units in the first quarter of 2010"

So you are either hinting that the market will crash again to the point that in 5 years notebook PC market will be the same as today or your math is off by a substantial margin, as 100m will not make >50% market.

So I think I will take the first part of your wager "in the year 2015 more than half of the notebook." And what do you say the winner gets?

LifeAfterMBB said...

Jeff,

I sense that you are bullish, perhaps a bit cautiously. I am too. Can you put up a post on contrarian indicators. Here are mine:

- more bearish newsletter sentiment than bulls
- my brother, who doesn't know anything about fundamental analysis, starts sending me cnbc and yahoo finance links on "Dow hitting 5000, get out now". And when I read these links, they are invariably some technical analysis guy pushing some obscure chart pattern
- "double-dip" is a cool term to toss around (like last year's "greenshoot") by everybody and their dogs. But when pressed to define what it means in econometric terms, they have no clue.
- Bears are interpreting data in their favor no matter what it is. Take China for example, growth too high? "oh my god, china is going to crash", Growth moderates? (oh my god, the world is going into a recession, double dip guaranteed". Take oil prices for example, Price goes up "oh my god, the high price will kill the economic recovery", price goes down "oh my god, demand is down, world is going to end." You can't win an argument against these guys


SOrry for my rambling