No Cliff Calamity: That's What Stocks Are Correctly Predicting

Despite all the media hullabaloo about the fiscal cliff and a potential recession if none of the Bush tax cuts are extended, stock markets have behaved calmly throughout this whole period. In fact, as of this writing today, the Dow is up 100 points.

I’m gonna guess that stocks, in their wisdom, are correctly sniffing that there will be no calamitous falling off the cliff. By that I mean there will be no $500 billion tax hike, which would be an economy killer.

Instead, after speaking with prominent Republican House and Senate members, I have come to believe the following: The GOP knows that Obama has the upper hand in this post-election battle. Therefore, they are preparing a strategic retreat.

Republicans don’t want to be the party of rich people and let Obama maintain his hold on the middle class. Republicans also don’t want to be the party of recession. So if no comprehensive deal is reached by President Obama and Speaker John Boehner, Republicans will not block an extension of the so-called middle-class tax cuts, which are roughly three quarters of the total.

It’s hard to know how this story will work itself out. There may be deals on upper-end tax rates, say 37 percent instead of 39.6 percent. And maybe even some lower tax penalties on capital gains and dividends.

Ideally, the GOP can get solid promises on spending cuts and entitlement reforms in return for a tax package. That tax package may include a dollar limit for tax deductions along with the rise in upper-end tax rates. Entitlement reform is also on the table. And so is a roughly $60 billion 2013 spending cut, which carries over from the across-the-board sequester. That is still possible.

But what is not possible is that House Republicans give up their constitutional prerogative to set the debt ceiling. That is their biggest point of leverage. And that leverage will carry over into 2013 as lawmakers once again attempt an across-the-board effort for pro-growth tax reform (flatter rates, broadening the base), serious structural entitlement reform, and more discretionary spending cuts. This will be the battle royale of next year.

As I said, no one knows how all this is going to play out in the next two weeks. But from the standpoint of the economy and the stock market, a worst-case tax-hike scenario that would sink GDP is not likely to happen.

There will be a deal to extend most of the tax cuts. And while higher tax rates on successful earners, small-business owners, and investors are most definitely not pro-growth, at least the across-the-board tax-hike calamity will be avoided.

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Bulls Get Back On The Offensive

The market is trading nicely higher this morning.  There hasn't been any huge catalyst to boost stocks this morning, so most likely it is just continued optimism that fiscal cliff won't be as bad as feared as well as a technical buy signal with SPX retaking its overhead 50-day average.

The Nasdaq is leading the action this morning, with the tech sector up 1.7% led by Apple.  AAPL is trying to put in a double bottom after three tests of the $520 level that held.  This morning its up $18 so far and trying to get back to $550.  A continued rally in AAPL will likely embolden the bulls as it remains a favorite among investors and as such is a pretty good proxy for sentiment.

In corporate news, Liberty Interactive (LINTA) bought a big stake in TripAdvisor (TRIP) for $62.50 a share, which is boosting the stock 7%.  Urban Outfitters (URBN) is up 6% after reporting strong sales.   And AIG is up 4% after confirming that the US Treasury will sell its remaining shares of AIG stock. 

Asian markets were mixed overnight.  China was down -0.4% after new loan data missed estimates.

European markets are generally higher this morning.  The FT is reporting that Italy's PM Monti is in talks with the centrist party who are encouraging him to stand in next election.  But the big boost came from the ZEW German Sentiment reading which came in well above expectations at 6.9 vs. estimates of -12.0.  It was also the first positive reading in 6 months.

The dollar index is lower today as the euro bounces.  Commodities are a bit heavy relative to stocks.  Gold prices are a touch lower to $1708.  Oil prices are also a little weaker near $85.39.  And silver and copper prices are lower as well.

The 10-year yield is getting a boost to 1.65%.  And the volatility index is sliding more than 3% back down to the 15.50 level. 

Trading comment: The other day I commented that the recent price action in the S&P 500 was setting up for another test of the 50-day average and that I didn't want to fight the price action.  Yesterday the SPX closed above its 50-day for a second day, and today we are seeing the big spike above that key moving average.  Moreover, all of the major indexes have now recaptured their respective 50-day averages.  That is a positive technical sign and likely has increased the confidence of the bulls to put money to work on the long side.  I still worry about the inability of any grand compromise on the fiscal cliff, but as they say-- don't fight the tape.

KAM Advisors has long positions in AAPL

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#CMOFact: IDC 2013 Marketing Investment Planner

With 2012 coming to an end, for many businesses planning for 2013 will bleed into the New Year. Marketers are no exception; in anticipation of the planning cycle each year, the CMO Advisory Service publishes our annual Marketing Planner in August/September, developing the B2B tech industry's leading marketing (and sales) benchmarking study. To anyone familiar with the industry, you are probably used to hearing that Marketing is transforming. What is so exciting about our Marketing Planner is we are able to provide specific guidance on changes, challenges, and successes within the industry through incredibly accurate industry data and qualitative information provided by you, the senior marketers. Marketers in turn are able to use this information to successfully plan for the upcoming year.

I’ve taken the liberty of pulling out some key facts below from our report that are particularly interesting or useful. Feel free to share them and remember to follow me on twitteror check out the CMOFact hashtag - we will continue to share some marketing goodness there.

#CMOFact Number 1:  In 2012 the average large B2B Marketing organization is in receipt of a 1.7% budget increase. This is 50% LESS than the 2011 rate.

#CMOFact Number 2:  The Marketing Budget Ratio for B2B tech companies has declined each year from 2009 through 2012. Marketing Investment is not keeping up with revenue growth.

#CMOFact Number 3: B2B Tech CMOs are spending approximately 30% of their budget on digital marketing programs. This is up from 12% in 2009. 

#CMOFact Number 4: For Large Tech Companies, only those in Software (vs Services & Hardware) are receiving increased budgets!

#CMOFact Number 5: The marketing automation train is picking up speed, and fast. Jump on now or prepare to be left behind. This is a new category in our survey and is already at 3.1% of programs budget and 1.6% of staff allocations.

These are just 5 nuggets from the 2013 Marketing Planner. The full version includes a complete overview of the current state of the B2B Tech Marketing it includes; program spend, staffing breakdowns, up and coming technology, and forward looking advice. For your own copy, reach out to Wendy Pemberton at wpemberton@idc.comor find it here. 

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Monday Morning Musings

Markets are slightly higher in early trading, led by healthcare stocks while financials are lagging so far.

Food stocks are getting a bounce after McDonalds (MCD) posted a better than expected +2.4% increase in global same store sales.  Expedia (EXPE) is lower after being the latest company to report a special dividend.  Normally a stock pops higher on this news.

In M&A news, Intermec (IN) is 22% higher after being acquired by Honeywell (HON) for $10 per share.  And Nexen (NXY) is 15% higher after getting Canadian approval  for the merger with Cnooc of China.

Apple (AAPL) was lower again in early trading but has since reversed off its lows and is inching its way back into positive territory, currently trading near $535.

Overnight Asian markets were mixed.  China outperformed with a 1.1% gain.  But Japan posted GDP contraction of -0.9%, marking its second quarter of contraction which puts it back in an official recession.

European markets are lower this morning after Italian PM Mario Monti announced his intention to resign.  Former PM Berlusconi has thrown his hat back in the ring to run again.

The dollar is up slightly, but not hurting commodities so far.  Oil prices are bouncing near $86.45.  Gold prices are higher to $1715.  And copper prices are higher as well.

The 10-year yield is a bit lower to 1.61%.  And the volatility index is higher by 2% so far near 16.20.

Trading comment: The S&P 500 is inching its way back above its overhead 50-day average.  We have been watching this key technical development, as it usually signals improved bullish sentiment among traders.  It seems odd to watch the market climb as we have all of this fiscal cliff discord in the headlines, but I guess that is the proverbial wall of worry that markets like to climb.  At least that is the case right now.  We still would not rule out the occurrence of a large selloff if and when markets get confirmation that no major deal has been reached and we begin to quantify what effects higher taxes, etc. will have on economic growth.  But for now the market is in the Alfred E. Newman mode of 'what - me worry?'

KAM Advisors has long positions in AAPL

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Customer Focus All Ways.

A retail chain revamps its design and there is much back-slapping and pronouncement.

Sarah Doyle, marketing director of Eat says, "We are very excited to be unveiling EAT.’s new look which we feel reflects the core principles on which our brand was originally founded. It is modern and stylish, yet also has a natural, simple and handcrafted feel, which reflects the essence of our food. The new design marks the start of a new stage of growth and expansion for the business."

All very nice, but there's no mention there of improved service or better customer experience. Indeed, there's virtually no mention of the customer at all and even though this is taken from a design magazine, I think that's unforgiveable.

Blinkered broadcasting isn't limited to advertising and if you're not mentioning your customer front and centre, then you run the risk of appearing to belong to the old school of marketing by message. You also run the risk of forgetting what your job is.

Addendum: That said, I do think it's a little harsh of the article to refer to "The new Strand flagship store, with inferiors by Stiff and Trevillion."

They're not that bad.

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Surprise Slowdown In Germany

Nonfarm payrolls for November came in nicely ahead of consensus estimates, but the enthusiasm among stock buyers was short-lived and the market was back at the flat line in the first hour of trading. 

Payrolls gained 146,000 last month vs. estimates for 90,000.  Also surprisingly the unemployment rate dropped to 7.7% from 7.9% last month.  I haven't parsed the figures but my guess is much of that decline is due to a continued drop in the labor force.  I haven't seen any big hiring announcements in the news, other than temporary workers for Christmas.

Asian markets were mixed to lower overnight.  After the close in Japan, a 7.3 magnitude earthquake shook the northeast.  But no major damage reports have surfaced.  The Philippines are still dealing with the cleanup efforts following a deadly typhoon this week.  China was the one Asian market to bounce +1.6% last night, after a former PBOC advisor said he expects 2013 GDP to bounce back to 8.0%.

European markets were lower before the US payrolls data came out, which helped put a bid under shares and lift markets off their lows.  Germany's Bundesbank came out with projections that 2013 GDP will slow to 0.4%.  That is a big downward revision from the 1.6% rate forecast in June.  The bank also warned of a possible recession.  A big slowdown in Germany and France would not be good for the bailout programs the ECB and IMF are trying to implement.  Germany and France are the biggest backers of said programs, and already the credit ratings of the ESM have been downgraded.

The dollar is higher and commodities are mixed.  Oil prices are roughly flat near $86.35.  Gold prices were lower earlier this morning, but have since bounced back above the $1700 level to $1705.  Copper prices are higher as well.

The 10-year yield got a little lift from the jobs report and is higher to 1.62%.  The VIX is a little lower again near the 16.25 level. 

Trading comment: Yesterday I commented that the sideways consolidation in the S&P 500 Index put it in better shape for another stab at breaking above its 50-day average.  This morning's early pop on the NFP news accomplished that feat, but the ensuing fade has put the senior index back below its key overhead moving average.  We are in a real push and pull market, but we still have some time before the close today.  The 50-day average resides around SPX 1417, so we are only about 5 points away right now.  If we don't have too weak of a close this afternoon, I do think we could see some further upside next week.  Boehner's comments on the fiscal cliff certainly did not inspire confidence this morning, so I'm not sure I want to get too bullish even if we do see an upside breakout.  But for those looking for higher prices to do any selling or rebalancing it is worth paying attention to the recent price action.

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Start Making Sense.

So, British Airways serve in-flight croissants. It's hardly a deal-clincher is it? And not just because we all know what fast-food croissants inevitably taste like. But when they go on to describe a light breakfast in such ridiculously overblown and patronising language, you have to wonder if they got the memo about treating customers as sentient human beings.

Guilt-free friend indeed. Too fly to serve more like.

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