Why Businesses Aren't Investing in the U.S.

Businesses aren’t investing in the United States because of a lack of consumer demand, International Paper CEO John Faraci said Friday.


“I think this was all about consumer spending and demand. You know, the problem we have is there’s inadequate demand to create jobs. We know how to respond when there is demand,” he said on CNBC’s “The Kudlow Report.”

The U.S. Commerce Department estimated that gross domestic product expanded at a 2.2 percent annual rate in the first quarter, falling short of analysts’ expectations it would grow 2.5 percent and slowing down from the fourth quarter’s 3-percent rate.

Consumer spending has been damped partly because the nationwide housing market has yet to recover, he said.

“Until it does, we’re not going to see the kind of consumer spending you would expect coming out of a recovery,” he said.

Asked again by host Larry Kudlow why companies were not investing, Faraci once more pointed to demand that has not materialized.

“Productivity has obviously been very good, so we’re creating more capacity with less resources. But at the end of the day, this is really about responding to demand, whether it’s automobiles or packaging products we make for a whole variety of industries and end users,” he said.

“We’re investing in India. We’re investing in Russia. We’re investing in Brazil. Not to ship products back here but because demand exists in those markets,” he said. “At the end of the day, this is really about responding to demand. We’re not going to go out and invest unless there’s demand.”

Earlier in the day, International Paper posted a better-than-expected quarterly profit on strong sales of shipping boxes and paper.

“I feel very good about the rest of the year,"Faraci told Reuters. "It’s not a macro-bullish story. It’s a macro-positive story.”

Don Peebles, CEO of Peebles Corp., a real estate developer, said that housing remains a drag on the economy.

A strong market, cheap money and high leverage fueled growth before the financial crisis, he said.

“What’s happening now is the housing market is not able to carry the economy,” he said. “Americans’ wealth has been decimated as a result of the lost value in their homes.”

Peebles also acknowledged, as the only small-business owner, that rising health-care costs and uncertainty over taxes were a challenge. But, he added, the No. 1 issue was access to capital.

Mort Zuckerman, founder of real estate investment trust Boston Properties and publisher of the New York Daily News and U.S. News & World Report, took aim at the slow growth.

Zuckerman blamed the housing-market collapse, as well as health-care costs and what he called an “inadequate, badly structured stimulus program.”

“Clearly, you should’ve had a GDP growth now of somewhere between 6 and 8 percent, with the degree of monetary and fiscal stimulus,” he said.

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Monday Morning Musings

The market is lower in early trade after a 4-day bounce last week that resulted in solid weekly gains for the major indexes.

The big news has come on the M&A front this morning.  First, Microsoft (MSFT) said it will invested $300 million into Barnes & Noble (BKS) to form a strategic partnership aimed at accelerating the transition to e-reading.  BKS stock is up a whopping 62% on the news, aided by short-covering.

Also, Gen-Probe (GPRO) reported solid earnings but also said it will be acquired by HOLX for $82.75, which is roughly a 20% premium to Friday's closing price.

In economic news, the Chicago PMI was disappointing at 56.2 vs. a reading of 60 that was expected.  Personal spending for March was also below expectations at +0.3% vs. +0.5% consensus.  Friday will bring the monthly jobs report, and I just saw that Goldman is estimating the economy added 125k jobs in April.

Asian markets were mostly higher overnight, while Europe is lower this morning on confirmation that Spain is officially in recession.  But is that really a surprise?

Earnings reactions have been mostly to the downside from what I've noticed today.  Examples of stocks falling on earnings reports this morning include: ABV, HUM, SOHU, and NYX to name a few.

The dollar is roughly flat vs. the euro, but commodities are mostly lower today.  Oil prices are lower near $104.40 and gold prices have eased back to $1657.

The 10-year yield is drifting lower to 1.91%; and the VIX is +6% higher so far near the 17.35 level.

Trading comment: I read an interesting article asking whether traders were preparing for the same summer selloff pattern that the markets experienced in 2010 and 2011.  While the fundamental backdrop seems similar (slowing economic data, unsettling news out of Europe) we don't have the same shocks like the flash crash or the earthquake.  Also, bond yields are already lower at current levels than they were before both summer rallies the last couple of years.  Additionally, corporate profit growth has been strong so valuations are cheaper than they have been as well.  There were the arguments that were made for any pullback to be more mild in nature.  But I would argue that we simply don't know, and that once a selloff picks up steam, its usually investor fear that drives prices lower than most investors were looking for.  So we are trimming some equity exposure ahead of time just to try to position ourselves better ahead of summer.

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Is The Market Whistling Past A Greek Redux?

The markets are slightly higher in early trading on the heels of more than 100 earnings reports that have come out last night and this morning, some mixed economic data, and another downgrade of Spain.

So far there doesn't seem to be much reaction to the S&P downgrade of Spanish debt to BBB+ from A, and a negative outlook.  Is the market whistling past a Greek redux?

In economic news, advance Q1 GDP estimates for the U.S. show the economy grew +2.2%.  This is below the 2.5% that had been expected, but in light of the slowdown in many other countries looks pretty good by comparison.

Also, the final reading on Univ. of Mich. consumer sentiment for April improved to 76.4 from the prior reading of 75.7.  So the mood among consumers remains upbeat, and that hopefully bodes well for the economy near-term, considering nearly 70% of our GDP is driven by consumer spending.

Asian markets were mostly lower overnight.  The dollar is a bit lower today, giving a small boost to the CRB Commodity Index.  Oil prices are down slightly around $104.40.  And gold prices are higher near $1665.

There were tons of earnings reports in the last 24 hrs, but here are a few notable movers:

Stocks rising on earnings:

• AMZN, SPG, NWL, AEM

Stocks rising on earnings:

• DECK, WDC, SBUX, PG, HMSY, KLAC, MDRX

The 10-year yield hasn't moved much on today's economic reports, and is flattish near 1.95%.  The VIX is up a fraction today to 16.35, still a very low absolute level.  For those worried about the summer, you can still buy protection pretty cheap in the options market.

Trading comment: There have been more stocks falling on earnings reports than rising today, at least from what I have seen.  The indexes are still comfortably above their 50-day support, so investors are in buying mode.  But many leading growth stocks have more work to do in terms of consolidating their recent gains and building new bases from which they launch new rallies.  I would be somewhat surprised if the market went right back to new highs at this juncture.  Something tells me we are more likely to be in a trading range in the near-term.

KAM Advisors has long positions in SPG, SBUX, PG

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Fewer Upside Surprises In Today's Earnings Reports

The market is flattish in early trading as scores of earnings reports continue to flood in.  Looking over today's report, there seems to be fewer upside surprises and more stocks that are trading down on in-line earnings reports.  Here's a few examples:

Stocks rising on earnings:

• NUAN, SWI, EQIX, STMP, VIVO, REGN, MWW

Stocks falling on earnings:

• VAR, AKAM, LVS, DOW, DB, UPS, XOM, LSTR, NUS

In economic news, pending home sales for March spiked 4.1%.  This news has helped lift the homebuilding stocks, but overall the data from the housing industry has been mixed and lumpy in recent weeks as the recovery remains very uneven.

Asian markets were mixed overnight, while Europe is mostly lower this morning.  The dollar is lower vs. the euro and that is helping boost commodities.  Oil prices are higher to $104.70 and gold prices have finally made a push above $1650 (currently $1657).

The 10-year yield again got rebuffed at the 2.0% level and is lower to 1.95%.  And the VIX is fractionally higher to 16.95 after moving back below its 50-day yesterday.

Trading comment: The major indexes are holding above their respective 50-day support lines.  This has the potential to put the bulls back in the driver's seat.  Yesterday's rally came on rising volume, so that's a start.  For those who follow the IBD-style market trend, we need to see a follow-thru rally on rising volume over the next week or so to confirm yesterday's rally attempt.  We also need to see many of these growth stocks that have been rolling over start to find support and attempt to build new bases.  Today SCSS is rolling over below its 50-day.

KAM Advisors has long positions in NUAN, SCSS, STMP, VAR, XOM

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8 Essential KPI's for the Intersection of Marketing and Sales

Conversations between sales and marketing improve when marketing generates data on the state of joint processes such as lead management.  But companies who are serious about orchestrating sales and marketing in a modern go-to-marketing model need more than these execution-level metrics. At the intersection of sales and marketing, senior executives need operational-level investment, resource allocation, and performance metrics.

Tech marketers have done a great job of growing the range of measurement dashboards within their management tool box.  These reports provide data about process execution and are primarily driven from automation such as CRM, email marketing, and web analytics. The data in these reports can answer important questions such as how many leads were produced and what really happened to them? This data can be extremely useful when talking to sales.  Replacing hearsay, gut feelings, and assumptions with accurate data results in a much more credible and actionable conversation.

Operational Insight Drives Strategy
 

While this kind of data is valuable at an execution level, it isn't the kind that drives strategic decisions. Senior management needs to know how to invest their most powerful resources – money and people – to get the best results. For this task, they need operational key performance indicators (KPIs) that answer questions such as what are my people really doing and where is my money deployed. Just as important, they need context around this data in order to understand its meaning and highlight what to change.

Comparison benchmarks serve as excellent insight into the meaning of operational-level KPIs. IDC has produced such operational-level scorecards for many years for each function separately - for marketing (IDC's Marketing Performance Scorecard) and for sales (IDC's Sales Productivity Scorecard). These scorecards are based on detailed investment data from over 100 tech companies. IDC parses leaders from laggards, mines for best practice nuggets, and combines this information with insights drawn from scores of interviews, interactions, surveys and the IDC teams' deep practitioner experience.

Introducing the Customer Creation Scorecard: Operational KPI's for the Intersection of Sales and Marketing
 

However, operational benchmarks have been lacking for companies who are serious about orchestrating the collaboration between sales and marketing within a more modern go-to-market model.  For this initiative, senior executives need to look at the joint investments in sales and marketing.

Recently, IDC introduced the Customer Creation Scorecard - eight operational KPI's leading companies should add to their dashboard. The eight are organized into three categories: investment, staff efficiency, and productivity levers.

Here are the aggregate level benchmarks for your 2012-2013 planning processes:

1. Investment: Sales + marketing budget ratio = 10.6% of revenue is spent on sales and marketing combined
2. Investment: Sales to marketing ratio = 4:1
3. Investment: Marketing investment per total sales headcount = $40K to $70K
4. Staff efficiency: Quota bearing headcount to field marketing ratio = 32:1
5. Staff efficiency: Program to people KPI = 27% of all sales and marketing investment is spent on programs and the remainder on people
6. Productivity levers: Operations staff percentage = 4.7% of all sales and marketing staff are in sales operations or marketing operations roles
7. Productivity levers:  Sales enablement score = 47 out of 100 is the index that IDC has developed for the technology industry based upon detailed quantitative and qualitative research
8. Productivity levers:  Lead management score = 52 out of 100 is the index that IDC has developed for the technology industry based upon detailed quantitative and qualitative research

IDC finds that these benchmarks vary significantly depending on attributes such as go-to-market model, company size, and industry sector.   IDC's also provides guidance around these KPI's.  For example, IDC recommends that companies measure sales and marketing costs jointly to better control overall expenses (this includes "shadow" marketing investments where sales teams use their own funds to conduct marketing activities).

For more information on the Customer Creation Scorecard, IDC insight on what your KPI ranges should be and what to do about it contact me or anyone on IDC's Executive Advisory Group team.
 

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Earnings Trump Economic Data In Early Trade

The markets are nicely higher in early trading on the heels of some better than exepcted earnings reports.  There was a disappointing economic report this morning in the form of durable goods, which fell -4.2% in March.  But investors are giving the data a pass and focusing on earnings.

The big earnings report last night was of course Apple (AAPL).  In case you missed it, AAPL blew out the numbers by more than $2.  It also sold 5 million more iPhones than the analysts were forecasting, and gross margins also posted significant upside.

I had been saying coming into the report that the recent action in AAPL seemed to me to be reflecting dramatically lowered expectations for the earnings report.  So I felt the stock was poised to bounce on the report, even if they only posted a mild beat.  But the stock has ramped on the earnings announcement, up by more than $50 (or 10%) back above the $610 level.

Stocks rising on earnings reports:

• S, MOS, BA, HOG, GNC, PNRA, FTNT, AMGN, NSC

Stocks falling on earnings reports:

• ABB, CAT, GD, BIDU

Asian markets were mixed overnight, while Europe is higher this morning.  The dollar is also a little bit lower, while commodities are mixed.  Oil prices are flattish near $103.50.  Gold prices are lower near $1638, still having difficulty getting above that $1650 resistance level.

The 10-year yield is getting another small bounce, but is still bumping its head at the 2.00% level, which has been resistance all year, despite a few brief spikes above those levels.

And the VIX is down 4% to 17.36.

Trading comment: The market is up a lot in early trading, but it remains to be seen if the strength can last into the close.  We also have the FOMC announcement today, and I think many are looking for the Fed to provide some hints about QE3.  I don't think the Fed is going to go there right now.  My guess is that they remain on point with what they have been saying recently.  I think they will reiterate holding rates low into 2014, and again say that they see inflationary pressures as temporary. 
KAM Advisors has long positions in AAPL

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Stocks Attempt To Bounce In Early Trade

I think after yesterday's selloff I would prefer to see stocks open weak this morning and then rally into the close.  Stocks have opened strong, and if they can't maintain these early gains into the close it will not inspire much confidence.

Speaking of confidence, the April Consumer Confidence index eased to 69.2 from 70.2 the prior month, but the index is still at a fairly high level.

Housing data was mixed.  New home sales improved in March, but the Case-Shiller index fell -3.5% in February after falling -3.8% the prior month.

There has been a flurry of earnings reports out last night and this morning.  Reactions have been mixed. I don't see any huge gainers on earnings, and the one big disappointment I see is Netflix (NFLX).

Stocks rising on earnings reports:

• MMM, T, UTX, KSU, ITW, TROW, PH, BHI

Stocks falling on earnings reports:

• NFLX, SYMC, COH, BIG, RSH, APD, ARMH

Asian markets were mixed overnight.  Europe is higher this morning, bouncing back after yesterday's sharp losses.  An April consumer confidence poll in France rose to 88 from 87 the prior month.

The dollar is lower vs. the euro today, and that is helping the CRB commodity index gain 0.4%.  Oil prices are higher to $103.75 while gold prices have risen to $1646.  Gold hasnt' been able to get above that $1650 level in awhile.

The 10-year yield is getting a small bounce to 1.96%.  And the VIX is down 2% to 18.56 after spiking to the 20 level yesterday before reversing lower.

Trading comment:  All eyes will be on Apple (AAPL) tonight.  The stock is down again today on weak activation numbers out of T-mobile.  I feel like the big pullback from recent highs has lowered expectations sufficiently going into the earnings report that AAPL should trade okay following the report.  If the stock had continued to run ahead of the earnings report, I would be much more worried about a plunge on any disappointing numbers.  But at current levels I feel there is at least a little bit of a margin on safety in the stock given that it remains very cheap on a P/E and PEG basis.

KAM Advisors has long positions in AAPL, MMM, and UTX; short NFLX

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