Here Comes Credit

Guess who’s back? Over a year into our recovery, companies are now focused on delivering earnings. As a group, they’ve avoided spending, they’re sitting on huge piles of cash, and they’re working hard to build sales. The financial guys see that, and they want in.

If cash is the blood of the economy, does that make credit… the capillaries? I don’t know. (That’s an example of why I shouldn’t make medical analogies in my financial stories.)

Anyway, whatever it is that carries the financial blood into the body of our economy… it’s starting to come back to life in a big, big way, after being pronounced completely and utterly dead two years ago.  

No credit, no business. No business, no nothing; as we definitively saw in the spring of 2009.

In an April 21, 2010 interview on CNBC’s Fast Money program (about 13:30 from the end, if you download it from iTunes,) we saw direct evidence that credit of every kind is about to return to the markets.

According to the interview, a “feeding frenzy” of “global” hiring is going on in the financial markets, indicating that credit markets should be fully open for business as we roll into 2011.

Here’s one perspective (mine) on the return of credit.

In round numbers, the Dow topped out at 14,280 the week of October 8, 2007.

Business was good. Business continued strong deep into 2008, even as the Dow withered to a trading range around 8,500.

An association president told me in November of 2008 that all of the people he talked to were reporting a record sales year, with big backlogs. And yet they were terribly concerned about what lay ahead. It didn’t look good.

They were right. Q1 of 2009 was a bloodbath. We’ll skip the details and just note that the Dow tanked to 6,440.

Top to bottom in the equities markets took about six quarters. We’re now 5 quarters into our recovery, climbing a little over half way back. Again, in round numbers, the Dow is at 11,100. Halfway is about 10,360.

I think most forecasters see us over 12,000 by the end of 2010.

I’m guessing, here, that the financial guys see enormous companies sitting on enormous piles of cash, very possibly blasting into new market highs sometime next year.

That translates into high volume, low risk business with lots of profit . They all want a piece of that.

In the Fast Money program I referred to, the guest was Scott Page, founder and co-CEO of Solomon Page, a leading global executive search and staffing firm.

Here’s my loose, but fairly accurate transcript of the interview. He opened with this statement:

“I’ve been doing this for 25 years now. I would have never expected this to come back so quickly. Two years ago, we were in the middle of a credit crisis.  All of a sudden, you’re seeing people hiring in credit areas that have been dead for two years.”

Q: Specifically, what?
A: High grade credit, high yield, sub-prime, mortgage backed securities, where people haven’t been hiring mortgage traders for two years.

All of a sudden, we’re seeing people starting to hire again. And this is not just a domestic phenomenon, this is a global phenomenon.

Q: Are these buy side firms, too?
Absolutely, but what we’re also seeing is people actually leaving the buy side to come back to the sell side. So it’s quite an interesting situation, where for many years you saw the migration to one side, they’re migrating back.

Q: If firms are hiring people now, at what point will we start to see those new hires impact the earnings on an upside?
A: I think that what you’ll start seeing is the second half of this year, into first half of next year. That’s the plan, because you’ve got to estimate it takes three to six months for people to really get up and running.

Q: And you feel that what you’re seeing right now… is as strong a beefing up as we saw pre-crisis?
Absolutely. We haven’t seen this for two years. The markets have been dormant. All of a sudden, you’re seeing a frenzy.

This is another landmark statement. When a major recruiter is going crazy, helping to put the credit markets back together, that means money is going to flow again. Our industry group will be an immediate beneficiary in the last half of 2010. In fact, I’m already seeing activity now that supports that. Bottom line: This is a very, very good thing for the markets and for job creation.