Is the end of the financial crisis finally at hand? The Magic 8-Ball says "Outlook good." Even if you don't trust the fuzzy answers the kitschy toy offers, there are some telltale signs that a return to normalcy may be around the corner.
For starters, M&A -- especially large deals -- is on an uptick. Some notable deal announcements just from the first half of April include:
- Express Scripts Inc. (NASDAQ:ESRX) agreed to buy the pharmacy benefit division of WellPoint Inc. (NYSE:WLP) for $4.68 billion
- Pulte Homes Inc. (NYSE:PHM) agreed to buy rival home builder Centex Corp. (NYSE:CTX) for $3.1 billion
- CVC Capital Partners Group agreed to buy iShares Ltd. from Barclays plc for $4.4 billion
- K+S AG agreed to buy Morton Salt from Dow Chemical Co. (NYSE:DOW) for $1.68 billion
More M&A alone does not a recovery make. Early earnings announcements from consumer businesses were decidedly upbeat last week. Some notable examples include:
- Bed Bath & Beyond Inc. (NASDAQ:BBBY) topped fourth-quarter earnings estimates even as same-store sales fell.
- Brinker International Inc. (NYSE:EAT) forecast third-quarter earnings that are well above analysts' estimates.
- Family Dollar Stores Inc. (NYSE:FDO) reported strong second-quarter results and raised its outlook for the third quarter.
Another indicator is an early-earnings preview from Wells Fargo & Co. (NYSE:WFC), which said Thursday it expects to post a record first-quarter profit of $3 billion, up about 50% from a year earlier, due to better-than-expected performance from Wachovia (acquired in December) and a strong performance in mortgage lending. The news sent the markets into a tizzy of upward trading even though the actual quarterly report is not due out until April 22.
However, the most telling example that the bottom has come and gone: debuting the Credit Suisse Fear Barometer, a new tool from Credit Suisse Group (NYSE:CS) that gauges fear in the financial markets. It is akin to the Chicago Board Options Exchange Volatility Index, or VIX, which measures the implied volatility of S&P 500 index options. There are some nuanced differences, most notably the time frame used in their equations. The VIX is based on a 30-day measure, whereas the Fear Barometer uses 90 days. (For more, see related story: Credit Suisse gets scary with Fear Barometer.) The creation of the CS Fear Barometer is likely a trailing indicator. In fact the creation of the VIX in 1993 occurred in the aftermath of the 1991 recession.
While other media outlets may continue to chat up the recession, we don't want to forget our history lessons: Since the Great Depression, only two recessions have lasted longer than 16 months, 1973-1975 and 1981-1982, according to the National Bureau of Economic Research. The current recession started in December 2007, which means April as the 16th month may not be the cruellest after all.
Will this recession continue into May and break a record? Another shake of the Magic 8-Ball returns, "Reply hazy, try again." - Matthew Wurtzel
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