(VB) Why old-school tech giants need M&A to stay relevant

Why old-school tech giants need M&A to stay relevant

There’s no better time than the present for established enterprise players like IBM, Salesforce, and Oracle to swallow up bleeding-edge business intelligence companies.

From SAP to Microsoft, established players are fighting to be the all-encompassing solution for the enterprise. Yet, they’ve been stagnating. Hewlett-Packard is trying to architect a seemingly endless turnaround. IBM is culminating a 10-year campaign to focus on high-margin services and software, but at the expense of lost market share in its hardware business. Only now is Microsoft focusing on the cloud, a move that almost looks like too little, too late.

The only way anyone will emerge as a clear winner is through M&A (mergers and acquisitions). And executives have suggested as much — focusing on cloud and big data acquisitions in particular. For the remainder of 2014, I predict a strong increase in M&A activity, particularly in business intelligence.

Rumblings of this have already happened: TIBCO recently purchased analytics and reporting company Jaspersoft for $185 million, Dun & Bradstreet bought cloud-based BI company Indicee, and business planning- and analytics company Tidemark received $32 million in new funding. Tableau, the major public BI player (and a potential hot acquisition target, if it wants to be), announced Q1 2014 growth of 86 percent.

Business intelligence in particular is a crucial piece of the acquisitions pie, if only because current cloud-based BI systems make data more accessible and actionable than before. BI builds links between businesses’ massive coffers of big data and the everyday usage that is essential for running a data-driven business. It is just the kind of “new-world” technology that established players need in order to get back into the rink.

Now is the ideal time for these players to swallow up bleeding-edge cloud companies to build their competitive advantage and make up for market share lost during the recent cloud- and mobile disruptions. As always with M&A, the key is to fill the gaps in existing offerings. SAP, traditionally focused on ERP and data warehousing, did exactly that when it bought BI company Business Objects in 2007, a key acquisition that gave SAP the opportunity to integrate with Salesforce before the current “cloud wars” positioned the latter as more of a competitor.

Now that SAP has BI reporting in the bag, it stands to build its repertoire—and competitive advantage—by augmenting its offerings with human-resource and people management, perhaps acquiring something like Evolv. IBM could harness its existing focus on the healthcare sector with a clinician-focused product like the 3D mapping offered by Ayasdi. Salesforce could compete more directly with SAP — and solve users’ need to go between multiple screens all the time—by purchasing an integrated, visual dashboarding player with the ability to put everything on one pane (Qlikview and Tableau are examples).

As enterprise demands move away from large, licensed solutions and towards vendors that can pour data intelligence into every niche of the business, a rash of M&A will be inevitable. Global technology spend is slated to hit $2.22 trillion this year, more than the GDP of Italy. Large and small players alike want a piece of the pie.

Lesson learned? Large players that can make the best acquisitions, will win.

(BofA-ML) Vallourec - Time to move on, double upgrade to buy

* The end of an era, a turning point, double upgrade to Buy
We’ve been Underperform on Vallourec for three years, but we believe now is the
most attractive opportunity to be buying a depressed set of earnings combined with
a compelling share price entry point and we double upgrade Vallourec to Buy. We
think Vallourec has just one more cut to earnings, before profits bounce over the
next two years and we reflect this in EPS cuts we make, highlighted below. We
apply higher multiples to these depressed earnings and raise our PO to EUR40,
giving 20% upside potential, which we believe can be achieved in the near term.

* After seven warnings, we expect one more cut to earnings
Vallourec has been through a challenging period in the last three years, with seven
warnings, each time leading to double digit earnings downgrades. With the first five
relating to company specific issues, mainly centred around new mills, the recent two
downgrades related more to macro issues, with demand declining, particularly in
Brazil. Over the next one to two years, we hope for some of the recent negative
macro trends to improve, including the US gas rig count, and for demand in Brazil
and EAMEA to tick up. We see scope for one more cut to earnings, but we expect
this will end the downgrades and see a turning point in earnings.

* New EUR40 PO, on depressed earnings gives 20% upside pot’l, Buy
We revise our estimates on Vallourec, mainly on margin expectations. For 2014
there is no change to our earnings, however we cut 2015E by 19% and 2016E by
14%. For 2014-16E these changes leave our estimates 2%, 9% and 12% below
consensus. In terms of our price objective, we revise it up to EUR40 (from EUR35).
Our PO is constructed by blending a PE of 15x 15E, an EV/EBITDA multiple of 8x
15E and a DCF analysis. We increase the multiples towards the higher end of the
range we would use for an OCTG company, which we look to offset what we believe
to be depressed and bottoming earnings. Our new PO gives us 20% upside,
leading us to double upgrade Vallourec to a Buy rating.

>>> What to look at today - 7/7/2014

US Market was closed on friday after a strong close on thu., Trading on the Asian bourses was slower than usual following a US market holiday. Japan retailers were one of the more heavily traded sectors after the main retailers posted quarterly results last week. Aeon declined 4.5% by the mid-day break due to weak Q1 results. Familymart was the top performer rising 4% after it was announced Itochu increased its stake in the company, At the quarterly Branch Managers meeting BOJ Gov Kuroda reiterated the view that the domestic economy is recovering moderately as a trend and will maintain easing as long as necessary to achieve its 2 percent inflation target. He also added that the y/y rise in the core inflation is likely to be around 1.25% for some time., China property developers traded higher for the second consecutive days. China Vanke rallied over 7% over two trading days, after releasing Jun sales results last week.
Nikkei -0.24% Hang Seng -0.19% Shanghai -0.25%

Eur$ 1.3582 S&P -0.06% EuroStoxx Unch FTSE -0.01% Dax -0.02% SMI -0.11%

Macro :
- HSBC Upgrades Emerging Markets Stocks, Downgrades Developed Mkts
- Goldman Shifts Fed Rate Hike Forecast to Q3 2015 from Q1 2016
- Premier Li Says China 2Q Economic Performance Improved From 1Q
- Barclays Cuts Japan Q2 GDP Forecast to Annualized -7.3% Q/Q
- Lagarde Signals IMF to Cut Growth Forecast Even as U.S. Economy Rebounds
- China’s Central Bank Wades Into Fiscal Waters as Li Seeks to Spur Growth
- Alibaba-Backed Kuaidi Challenges Uber in China With Audi, BMW Luxury Cars

Keep an eye on :
- AF FP : Air France-KLM to put cargo division, including Martinair, up for sale
- AIR1 GY : Air Berlin, Etihad Deal to Get European Approval: Focus
- AIR FP : Airbus Said to Sell 100 Helicopters to Chinese Cos.: Reuters
- AIR FP : Airbus Sees ‘Good Commercial Dynamic’ at Farnborough: Lahoud
- AIR FP : Strategy chief: not decided yet if Airbus will formally launch A330neo at the Farnborough Air Show this month, but confident about the number of orders we will get at the show - press - The A330neo is an update version of the A330, which is now a 20 year old design - Farnborough to take place from 14th to 20th.
- BES PL : ESFG Proposes Vitor Bento to Be Banco Espirito Santo CEO
- BLNX LN : Blinkx the subject of bid speculation
- EN FP : Orange could study again Bouygues telco if invited - Le Figaro
- CU FP : Caisse des Depots Hasn’t Been Asked to Join Club Med Bid: CEO
- EDF FP : France, EDF Discuss Pace of Electricity-Price Increase: Parisien
- EDF FP : EDF in Talks With China Over U.K. Nuclear Site Sale: S. Times
- ENG SM : Enagas Estimates EU120M Annual Revenue Impact From Gas Reform
- ENL IM : Enel Hires BNP and Deutsche Bank for Slovakia Asset Sale: Sole
- Formula One : Ecclestone Preps Bid for Formula 1 as CVC Looks to Sell: Express
- GBL BB : Groupe Bruxelles Lambert Adj. NAV EU102.52/Shr on July 4
- GOW SM : Gowex to File for Insolvency as CEO Resigns on Fake Accounts
- HEN3 GY : Henkel would not rule out large buys, no share buyback on the agenda - Euro am Sonntag
- III LN : 3i Said to Plan $1.4 Billion Sale of Finnish Company Eltel
- MS IM : Telefonica to Buy 11.1% of Mediaset Italian Pay-TV Unit
- ORA FP : France’s Phone Company Orange to Test German Market Entry: WiWo, interested i n Spanish Acquisitions
- ORA FP : Richard Says Orange Ready to Participate in French Consolidation
- LG FP : Lafarge, Holcim Announce List of Proposed Asset Disposals
- LHA GY : Lufthansa Plans Venture With Air China to Expand in Asia: FAZ
- MC FP : Apple hires exec from luxury watch maker Tag Heuer ahead of expect launch of iWatch later this year - tech blogs - Has hired Patrick Pruniaux, VP for sales at Tag Heuer, a unit of LVMH. His exact role at Apple has not been announced.
- MS IM : Mediaset Espana Considers Share Buyback Alternatives: Filing
- MTC LN : Destination Maternity working on fresh bid for Mothercare; shareholders Allianz and Fidelity support board’s rejection of offer 
- NOVN VX :3,900 Novartis Staff in Switzerland Hit by Restructuring: SamS
- PTC PL : Portugal Telecom to Have 8 Percent Less Shares in Oi: Folha Link
- SAN FP : Sanofi Says Currency Hurt 2Q Business EPS by 8-10 Pct Points
- SGO FP : Saint-Gobain CEO Says French Housing Figures Are Worrying
- SHP LN : AbbVie May Still Raise Bid for Shire, Investor Tells Telegraph
- SHP LN : AbbVie head of research to visit UK next week to push case for Shire takeover bid
- SIE GY : Siemens interested in pursuing deals to take advantage of bullish prospects in naturall gas sector.
- TEF SM : Telefonica to pay EUR 295m for Mediaset's 22% stake in DTS
- TEL2B SS : Tele2 Doesn’t Plan on Entering New Countries, CEO Says
- TIT IM : Telecom Italia chairman dismisses claims that Italian govt plans to ban company from selling Tim Brasil, TIT Lost 4% on this news Friday - finish the day -1,47%
- UCG IM : Unicredit’s HVB Wants EU500m From DAB Bank Sale: Handelsblatt
- YAR NO : +ve article in the BArron's
- VIV FP : Spotify Is Preparing Share Sale for 2015, Valued at $10b: Focus
- VOW3 GY : Volkswagen Has Permit for 2 More China Production Sites: Reuters
- WIHL SS : Wihlborgs 2Q Net Income Falls to SEK39m From SEK352m Y/y

>>> Brokers Upgrades & Downgrades -7/7/2014

>>> Up
*CTT RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
*ENAGAS RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
*KBC RAISED TO BUY VS HOLD AT BERENBERG
*WEIR RAISED TO BUY VS NEUTRAL AT CITI

>>> Down
*BLINKX CUT TO NEUTRAL VS BUY AT GOLDMAN
*DEUTSCHE BOERSE CUT TO UNDERPERFORM AT CREDIT SUISSE
*ICAP CUT TO EQUALWEIGHT VS OVERWEIGHT AT MORGAN STANLEY
*M6 CUT TO REDUCE VS NEUTRAL AT ODDO
*SKY DEUTSCHLAND CUT TO NEUTRAL VS BUY AT NOMURA
*SWEDBANK CUT TO HOLD VS BUY AT DEUTSCHE BANK

>>> PT Change

>>> Initiation
*BME RATED NEW NEUTRAL AT CREDIT SUISSE; PT EU35.5

>>> Call
>> Country
*HSBC CUTS DEVELOPED WORLD STOCKS TO UNDERWEIGHT FROM NEUTRAL
*HSBC RAISES EMERGING MARKETS STOCKS TO OVERWEIGHT FROM NEUTRAL

>>> Asian. Update

Asian Market Update: Asian markets subdued on US market holiday; Germany's Merkel in China on trade talks

***Notable Economic Data*** - (AU) AUSTRALIA JUN AIG PERFORMANCE OF CONSTRUCTION INDEX: 51.8 V 46.7 PRIOR (1st expansion after 5 contractions, highest since Nov 2013) - (JP) JAPAN JUN OFFICIAL RESERVE ASSETS: $1.28T V $1.28T PRIOR - (NZ) NEW ZEALAND JUN QV HOUSE PRICES Y/Y: 8.0% V 8.2% PRIOR - (AU) AUSTRALIA JUN ANZ JOB ADS M/M: +4.3% V -5.7% PRIOR

***Index Snapshot (as of 02:30 GMT)*** Market Snapshot (as of 03:30 GMT): - Nikkei225 flat, S&P/ASX flat, Kospi -0.4%, Shanghai Composite -0.1%, Hang Seng -0.3%, Sept S&P500 -0.1% at 1,975

***Commodities/Fixed Income/Currencies*** - Aug gold -0.2% at $1,317, Aug crude oil -0.1% at $104.02/brl, Sept Copper -0.7% at $3.26/lb - (KR) South Korea sells KRW1.95T in 3-yr govt bonds at avg yield of 2.595; Bid-to-cover: 4.2513x - (CN) PBoC gauges demand for 7-day and 14-day reverse repos, 14-day and 28-day repos as well as 91-day bill sales - (CN) PBoC sets yuan mid-point at 6.1658 v 6.1642 prior setting (weakest Yuan setting since Jun 4th) - (JP) BOJ offers to buy ¥300B in 1-3yr JGB, ¥200B in 3-5yr JGB, ¥100B in 10-25yr JGB and ¥30B in JGB with maturity over 25-yr

***Market Focal Points/Key Themes*** - Trading on the Asian bourses was slower than usual following a US market holiday. Japan retailers were one of the more heavily traded sectors after the main retailers posted quarterly results last week. Aeon declined 4.5% by the mid-day break due to weak Q1 results. Familymart was the top performer rising 4% after it was announced Itochu increased its stake in the company.

- At the quarterly Branch Managers meeting BOJ Gov Kuroda reiterated the view that the domestic economy is recovering moderately as a trend and will maintain easing as long as necessary to achieve its 2 percent inflation target. He also added that the y/y rise in the core inflation is likely to be around 1.25% for some time.

- China property developers traded higher for the second consecutive days. China Vanke rallied over 7% over two trading days, after releasing Jun sales results last week. Some other property developers in China also traded higher, such as Poly Real Estate higher by 3%, China Merchants Property Development higher by 3%.

- German Chancellor Merkel is on a three-day visit to China with trade issues on top of the agenda. Topics of discussion will focus around new energy vehicles, energy, environment, high-tech sectors. German businesses have recently raised issues regarding intellectual property rights. Also Japan PM Abe has started his eight-day Oceania tour beginning with New Zealand with both sides remaining committed to a comprehensive TPP agreement.

- In terms of economic data, preliminary May figures for Japan's leading and coincident indexes are due out later today. The leading index is expected to come in at 105.9, down from the final April reading of 106.5 in April, while the coincident is expected at 111.0, easing from last month's posting of 111.1.

***Equities*** US markets: - EXPE: To acquire Wotif Group for approx A$700M in cash - GM: Reports June China vehicle sales 258K units, +9.1% y/y

Notable movers by sector: - Consumer Discretionary: FamilyMart 8028.JP +4.3% (Itochu raises stake); Aeon 8267.JP -4.2% (Q1 results); Wotif.com Holdings WTF.AU +24.2% (acquisition deal with Expedia) - Consumer staples: Arcs 9948.JP -1.6% (Q1 results) - Materials: Shanghai ANOKY Textile Chem 300067.CN +9.6% (H1 guidance); Legacy Iron Ore LCY.AU -14.3% (announces new shares issuance) - Energy: Cooper Energy COE.AU +4.0% (sees record earnings for FY14) - Healthcare: Askul 2678.JP +1.1% (FY13/14 results) - Telecom: Newsat NWT.AU +3.6% (secures contract)

FT : Burberry faces revolt over £20m pay deal for chief executive

Burberry faces revolt over £20m pay deal for chief executive

Burberry is facing a shareholder revolt over a £20m pay deal for its controversial chief executive Christopher Bailey.
The Investment Management Association, which has taken over responsibility for the Association of British Insurers’ investment affairs, has issued an “amber top” alert on Burberry’s pay policies, ahead of the retailer’s annual meeting on Friday. This is the association’s second-most serious level of censure on corporate governance matters.

Mr Bailey, the luxury brand’s longstanding creative director, was elevated to the role of chief executive in October, when Angela Ahrendts quit to join Apple. The move raised concerns among some investors over the breadth of his role at the helm of one of Britain’s biggest retailers. He continues to hold the roles of chief executive and chief creative officer.
Investors are meanwhile unhappy about share awards granted before Mr Bailey became chief executive.
In 2010, he was awarded 350,000 shares, and a further 1m in July 2013 – together worth about £20m at Burberry’s current share price. These will vest between 2015 and 2018, regardless of performance.
The warning comes as shareholder step up their opposition to what they regard as excessive rewards. Last week, a bonus for Mike Ashley, the billionaire founder of Sports Direct, was approved despite a sizeable shareholder revolt.
The past few months have also seen several other high-profile pay revolts at FTSE 100 companies, including Barclays, AstraZeneca, HSBC and Pearson, which owns the Financial Times.
Depending on performance, Mr Bailey’s package in his new role could be up to £10m.
Under the terms of his contract, Mr Bailey receives £1.1m annually, and can obtain 200 per cent of salary in a performance-related bonus. He also receives a pension contribution of 30 per cent of his salary, and a £440,000 cash allowance. Burberry will not break out the components of this, but it does not include allowances for clothing or a car.
On becoming chief executive, Mr Bailey also received a one-off award of 500,000 shares, worth about £7.3m, and vesting in 2017, 2018 and 2019, depending on performance targets.
People close to the situation stressed that Mr Bailey’s remuneration was on a par with creative heads at other global luxury fashion groups, and that Burberry’s pay also reflected the performance of the company.
Ms Ahrendts, who with Mr Bailey is credited with elevating Burberry to a global luxury brand and propelling it into the blue-chip FTSE 100 index, was also one of Britain’s best paid executives. She took home £16.9m in 2012 – more than any other chief executive on the FTSE 100.

>>> what to look at this Week End

US Market was closed on friday after a strong close on thu.
* Dubai Shares Climb as Aabar Revives Confidence; Abu Dhabi Rises
* Israel Shares little changed


Macro :
- Lagarde Signals IMF to Cut Growth Forecast Even as U.S. Economy Rebounds
- China’s Central Bank Wades Into Fiscal Waters as Li Seeks to Spur Growth
- Alibaba-Backed Kuaidi Challenges Uber in China With Audi, BMW Luxury Cars

Keep an eye on :
- AF FP : Air France-KLM to put cargo division, including Martinair, up for sale
- AIR1 GY : Air Berlin, Etihad Deal to Get European Approval: Focus
- AIR FP : Airbus Sees ‘Good Commercial Dynamic’ at Farnborough: Lahoud
- AIR FP : Strategy chief: not decided yet if Airbus will formally launch A330neo at the Farnborough Air Show this month, but confident about the number of orders we will get at the show - press - The A330neo is an update version of the A330, which is now a 20 year old design - Farnborough to take place from 14th to 20th.
- BES PL : ESFG Proposes Vitor Bento to Be Banco Espirito Santo CEO
- BLNX LN : Blinkx the subject of bid speculation
- CU FP : Caisse des Depots Hasn’t Been Asked to Join Club Med Bid: CEO
- EDF FP : France, EDF Discuss Pace of Electricity-Price Increase: Parisien
- EDF FP : EDF in Talks With China Over U.K. Nuclear Site Sale: S. Times
- ENL IM : Enel Hires BNP and Deutsche Bank for Slovakia Asset Sale: Sole
- Formula One : Ecclestone Preps Bid for Formula 1 as CVC Looks to Sell: Express
- GBL BB : Groupe Bruxelles Lambert Adj. NAV EU102.52/Shr on July 4
- GOW SM : Gowex to File for Insolvency as CEO Resigns on Fake Accounts
- III LN : 3i Said to Plan $1.4 Billion Sale of Finnish Company Eltel
- MS IM : Telefonica May Buy 10% of Mediaset Italian Pay-TV Unit: Radiocor
- ORA FP : France’s Phone Company Orange to Test German Market Entry: WiWo
- ORA FP : Richard Says Orange Ready to Participate in French Consolidation
- LHA GY : Lufthansa Plans Venture With Air China to Expand in Asia: FAZ
- MC FP : Apple hires exec from luxury watch maker Tag Heuer ahead of expect launch of iWatch later this year - tech blogs - Has hired Patrick Pruniaux, VP for sales at Tag Heuer, a unit of LVMH. His exact role at Apple has not been announced.
- MS IM : Mediaset Espana Considers Share Buyback Alternatives: Filing
- MTC LN : Destination Maternity working on fresh bid for Mothercare; shareholders Allianz and Fidelity support board’s rejection of offer 
- NOVN VX :3,900 Novartis Staff in Switzerland Hit by Restructuring: SamS
- PTC PL : Portugal Telecom to Have 8 Percent Less Shares in Oi: Folha Link
- SAN FP : Sanofi Says Currency Hurt 2Q Business EPS by 8-10 Pct Points
- SGO FP : Saint-Gobain CEO Says French Housing Figures Are Worrying
- SHP LN : AbbVie May Still Raise Bid for Shire, Investor Tells Telegraph
- SHP LN : AbbVie head of research to visit UK next week to push case for Shire takeover bid
- SIE GY : Siemens interested in pursuing deals to take advantage of bullish prospects in naturall gas sector.
- TEF SM : Telefonica to pay EUR 295m for Mediaset's 22% stake in DTS
- TIT IM : Telecom Italia chairman dismisses claims that Italian govt plans to ban company from selling Tim Brasil, TIT Lost 4% on this news Friday - finish the day -1,47%
- UCG IM : Unicredit’s HVB Wants EU500m From DAB Bank Sale: Handelsblatt
- YAR NO : +ve article in the BArron's
- VIV FP : Spotify Is Preparing Share Sale for 2015, Valued at $10b: Focus
- VOW3 GY : Volkswagen Has Permit for 2 More China Production Sites: Reuters

FT : Goldman muscles in on Europe’s private banks

Goldman muscles in on Europe’s private banks

Goldman Sachs is expanding its European wealth management business to offer loans to rich clients in a move that is taking it further into the domain of centuries-old private banks in Europe.
The US investment bank this month quietly launched a European lending unit for its private wealth management clients in another push beyond its volatile trading business into more traditional areas of banking.

The move highlights how Goldman, seen as the last remaining true-bred global investment bank, has become increasingly willing to use its balance sheet for other businesses ever since it converted into a bank holding company and built up customer deposits after the financial crisis.
The new European lending business has a goal of building up a $5bn loan book within the next three years. It is part of London-based Goldman Sachs International Bank and caters to Goldman’s roughly 1,700 wealthiest clients across Europe, the Middle East and Africa.
It will comprise mostly secured loans for a wide variety of purposes including liquidity facilities, portfolio diversification, tax payments or luxury purchases such as yachts.
“Wealthy clients want leverage and they are good quality borrowers. The loan-to-value ratios are very conservative,” said Christopher French, Goldman’s head of private wealth management in the region.
But he added that the move for now was aimed mainly at existing clients rather than “a proposition to gain new clients”.
Goldman established a lending business for rich clients in the US in the wake of the financial crisis. But in Europe, it has so far only given a limited amount of margin loans – lending against securities – to its wealthy customers.
The bank also aims to hand out mortgages for prime properties in London and elsewhere, but it is only expecting regulatory approval to do so within the next 12 months.
Lending to the super-rich has become a growth market for large wealth managers including UBS and Credit Suisse. It is perceived as low-risk, provides a steady income stream and helps to retain clients.
Goldman does not plan to grow its balance sheet as the expansion of the loan book contrasts with a sharp reduction in capital usage in some of its trading areas, particularly in fixed income.
Its investment banking rival Morgan Stanley has already embraced the universal banking model in recent years by curbing its trading business while expanding its wealth management, retail and lending businesses.
But Goldman’s move into more bank lending does not involve plans for a big retail presence, and it does not have plans for a network of branches.
Last month, it promoted Stephen Scherr, a 21-year Goldman veteran, to a new position of chief strategy officer with a mandate to increase the size of its commercial bank and wealth management division.
With a minimum account size of $10m and an average account balance of $40m, Goldman’s wealth management division is catering for a far richer clientele than most of its competitors.
Its London unit operates from a simple open-plan office at Goldman’s European headquarters on Fleet Street, in a sharp contrast to the art-studded and plush Mayfair houses of most of its private banking rivals.
Goldman’s assets managed for wealthy clients in Europe rose 15 per cent in the past year to $30bn at the end of March.

NY Post : Why the 17,000 Dow is bound to crash

As the Dow Jones industrial average broke through the 17,000 barrier to an all-time high on Thursday, many market participants believe this bull (market) may be about to be gored.
Many market skeptics point to one or more reasons for their bearish outlook, citing both macro- and microeconomic concerns.
Here are the the top three reasons this high can’t last.
1. American shoppers are tapped out with this bull market.
They’re not spending enough at the malls to sustain the long run-up in stock prices, analysts say.
That’s a clear signal, these analysts warn, that a full-blown bear market is coming soon.
As the S&P 500 and Dow Jones danced last week with new highs, American consumers — who account for more than two-thirds of US economic activity — are dangerously ”bearish.”
More proof: The widely watched Consumer Confidence Index, at 85.2, is a long way from its historic highs. At the top of the dot-com bubble in 2000, the index soared to 144.7. “The US middle class and low-income workers are broke,” Chadwick Financial Advisors CEO Mike Chadwick said. “They are leveraged up to the hilt.”
2. Corporations have spent the last six quarters performing every conceivable accounting maneuver to grow the bottom line.
From layoffs to outsourcing, stock buybacks and debt offerings, these Fortune 500 firms have reached the limit in their ability to show quarter-over-quarter growth. Those financial acrobatics are propelling stocks to record highs — but this ax can only chop so much, analysts warn.
“Corporations have driven earnings by cutting costs to the bone — and that includes earnings that have been stagnant for years,” Chadwick said.
And after rounds of corporate firings and layoffs with mass outsourcing — and already taking full advantage of low-interest rate conducive to cheap refinancing — these firms have little room to maneuver to keep the faux growth coming, he added.
“This has been the toughest time I have ever seen in the last 20 years,” Chadwick said.
3. So why all the corporate contortions on the financials?
“What is not up is sales…and that is the concern today,” said Howard Silverblatt, senior index analyst at S&P Capital IQ.
“Corporations are squeezing more out of workers, outsourcing jobs, whatever they can do — everything except generating additional sales.” Silverblatt said sales at S&P 500 companies are weak. “We need more sales,” he said.
Per Silverblatt, aggregate sales per share in the S&P 500 are in their own bear territory: $2.49 billion in the first quarter of 2014, versus $2.65 billion per share in the first quarter of 2008, as the Great Recession raged.