Indicators

Then can be little doubt as we look at the economic numbers that the leading edge economic indicators are starting to point up a bit. Yes, while Intel posts great results, a company like Dell doesn't. This simply indicates the differences that will always exist between strong, innovative companies and companies that fail to adjust to changing situations.

This certainly doesn't mean that there still won't be bad news. It is going to be a while before successful companies hire enough to offset the reductions from failed companies. Now, I see some commentators trying to spin unemployment into a leading indicator. It isn't and never will be. All business corrections involve weak or inflexible companies going out of business. One of the reasons they are weak is that they have too much cost. Successful companies will grab market share as this happens, but thanks to the fact that they were already more efficient and the synergies related to increased market share, the people let go by the failed companies will not be absorbed completely by the surviving companies. Further, weaker companies that see the light, shed employees to save costs. So it takes either a new growth industry or growth past the prior level to reabsorb all the employees unless efficiencies decline.

Now the companies that make money during a correction do so by reducing cost and possibly picking up market share. The market share they pick up may offset the reduction they would have seen in their own revenue but it is unlikely to push revenue up until later in the cycle. When growth returns, they are poised to have great improvements in earnings.

If you are a long term investor, this is still a wonderful time to get in at what will look like lows in the fall.