Monday Morning Musings

I was out of the office for the last couple of days last week but I'm back in the saddle today and liking the action.  Readers know that the one thing I always caution about is a market that opens too strong too early.  That sets the market up for selling later in the day and a disappointing close.  So we will have to watch to see if today's early strength can last into the close.  Still a lot of time left on the clock.

If you looked at the futures early this am it didn't look like we would have such a strong open.  Overnight action in Asian was mixed.  Many markets were closed for the Golden Week holiday.  The China manufacturing PMI index climbed to 49.8, but even that figure remains below the 50 line that marks the difference between expansion and contraction.  This is the second straight reading that marks contraction, something that hasn't happened since 2009.  Chinese banks are closed all week for the holiday. (can you imaging that in the US?)

Sentiment improved after Europe opened and released a string of better than expected manufacturing PMI readings.  PMI readings from France, Germany, Spain, and Italy all came in higher than expectations.  But while that gave a short-term boost to the markets, the readings remain below the 50 level we mentioned that marks continued economic contraction.  Also, the Eurozone unemployment reading ticked higher to a record 11.4%.

In the US, our ISM manufacturing index rose to 51.5 from 49.6 in August.  So our manuf sector looks a little better in the sense that it has moved back above the 50 level.  This also helped give stocks a boost in early trading, pushing the Dow up nearly 150 points to start the new month. 

In corporate news, 3M (MMM) will buy Ceradyne (CRDN) for a 43% premium to Friday's close.

The dollar is lower today, which is helping commodities.  Oil prices are higher to $93.  Gold prices are up near $1785, and silver and copper prices are higher as well.

The 10-year yield is getting a boost on the ISM data, with yields up slightly to 1.64%.  Still below the 50-day average.

The volatility index (VIX) is only slightly lower near 15.67 currently.

Trading comment: Stocks ended the last day of the quarter on a weak note, but are bouncing back today on the first day of October.  Some of today's strength could be from fund flows at the start of the month, a phenomenon that occurs far too often to be considered random.  Financials are outperforming in early trading while defensive utilities are lagging.  Tech stocks are also trailing the broader market.  But these overall sector rotations have been healthy for the market and have kept the stair-step higher pattern intact.

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Mitt's Tax Cut Mulligan

For some unknown reason, Mitt Romney dialed back his tax-cut plan yesterday, the same day new reports showed incomes are dropping.

Last month, median household income fell by about $500, and since Obama became president, income is down over $4,500. But under Mitt Romney’s 20 percent tax-cut plan, if he truly believes it and follows through with it, a married couple making $70,000 a year would save over $2,000. And take-home pay for a middle-class married couple earning about $140,000 -- with their tax rate dropping to 20 percent from 25 percent -- would increase by over $7,100. Obama has no such middle-class tax cuts.

So why would Governor Romney tell an Ohio crowd on Wednesday that they shouldn’t “be expecting a huge cut in taxes, ’cause I’m also going to lower deductions and exemptions.”

What is that all about? What kind of message is he sending? Is it pro-growth take-home pay? Or is he pulling back and hedging his bet?

I wrote in my last column about the potential benefits of the Romney plan. And I suggested that Romney should give specific examples of higher take-home pay from his tax cuts. And then I suggested that he draw a red line for middle-income taxpayers, and say “you will not lose you’re your deductions.” In other words, send a true growth message. And make it clear, not muddied.

This afternoon, one of the most senior people in the Romney-Ryan camp called me to say that Mitt misspoke, and that I should give him a mulligan. This person told me there’s no pull-back on the pro-growth tax-cut message, no new overemphasis on debt, and no departure from the Reagan-Kemp tradition.

Okay, even though I’m a tennis player, I’m willing to give Mr. Romney a mulligan. But I’ll say this: The growth message has to be crystal clear for the debate next Wednesday night. Mitt is slipping in the polls. People are confused about his message. He must clarify it.

Lower marginal tax rates. Higher middle-class take-home pay to offset lost income under Obama. More family financial resources. More growth and more jobs.

This doesn’t have to be so hard.

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Just How Fragile is the U.S. Economy?

As if the looming "fiscal cliff" isn’t frightening enough, new results suggest it’s already doing very serious damage to the economy. And it’s only September.

According to a new survey released by the Business Roundtable, corporate America’s view of the economy is as bleak now as it was in 2009, when the economy was struggling to emerge from recession.

Also, the survey shows executives are now more likely to cut jobs over the next six months, and that companies are less likely to raise their capital spending.

Largely the CEOs who participated in the study cited the "fiscal cliff," or the confluence of tax hikes and spending cuts that could go into effect as soon as January 2013, as a major influence behind their decisions.

Dow Chemical CEO Andrew Liveris called the fiscal cliff a 'multiplier' that makes any negative catalyst that much worse.

As much as $500 billion in federal spending reductions and expiring tax cuts are due to take effect if Congress and the White House are unable to find a compromise on these issues by Dec. 31, 2012.
As a result, the CEOs also lowered their forecasts for U.S. economic growth.

“The government is failing us as a whole,” charged Liveris on The Kudlow Report. “This is self-inflicted uncertainty.”

They now expect real gross domestic product to rise 1.9 percent in 2012, down from a June forecast of 2.1 percent growth.

In turn, these concerns have already begun to ripple across the economy, and may in part explain the spate of lowered earnings forecasts from companies such as FedEx and Norfolk Southern.

The findings come less than two months ahead of the U.S. presidential election, in which the weak economy and stubbornly high unemployment are shaping up to be key elements in voters' choice between incumbent Democratic President Barack Obama and Republican challenger Mitt Romney.

The Romney campaign was quick to call out the results as a sign that Obama's economic policies were not working.

"Business leaders have the gloomiest outlook in three years and the President's failed economic policies of higher taxes and more regulations will only make things worse," spokesman Ryan Williams said in a statement.

The Obama campaign did not immediately respond to a request for comment.

“Whatever president and congress we get in November, it doesn’t matter. What matters is that we get one that gives us solutions,” said Liveris.

CEOs who participate in the Business Roundtable collectively generate $7.3 trillion in annual revenue and employ some 16 million people.

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Is Focus Turning Back To Spain?

Global markets are lower today with Asian selling off overnight and Europe lower this morning. 

The broad weakness in Europe comes amid continued protests in the streets of Madrid.  Spain's prime minister said the country would only seek a bailout if interest rates became too high for the economy.  The ECB has done its part to help keep a lit on yields, but comments like that are never well received in the bond market and Spanish yields rose 24 basis points overnight to hit 6.0% again.

To make matters worse, the Bank of Spain said that GDP will continue to contract in Q3.  Also, the province of Catalonia said it will hold an election to consider secession from Spain.  Ouch.  If Spain gets back in the crosshairs of global markets, one would expect Italy to get thrown in the mix and it would get harder for equities to continue their recent rally.

Asian markets were also lower overnight following the decline in the US yesterday.  Reports are that Japanese auto makers are cutting production in some Chinese factories amid the political turmoil.  China's Shanghai Comp fell below the 2000 level for the first time since early 2009.

In corp news, Jabil Circuit (JBL) became the latest company to issue downside guidance for the coming quarter.  It's stock is down roughly 10% on the news.

Investors are rotating back to defensive groups.  Although the markets are mostly lower today, the utilities are consumer staples sectors are bucking the weakness so far. 

The dollar index is higher again benefiting from weakness in the euro.  Commodities are lower across the board.  Oil prices have fallen back below $90 to $89.25.  Gold prices are pulling back to the $1746 level.  And copper prices are down as well. 

The 10-year yield is showing weakness and has dropped below its 50-day support to 1.63%.  The VIX is moving higher up more than 6% so far.  The VIX spiked higher yesterday and today's move has pushed it above its 50-day average.

Trading comment:   Signs of strains in the credit markets are on the rise today after months of easing angst in the indicators.  We knew that one day we would wake up and the issues that were with us earlier this summer would be back on the front burner.  The question is are those issue back now, or is this just a small flare up.  The S&P 500 has now pulled back roughly 3% from its recent highs to today's lows. If this is just a mild pullback one would expect the market to find support around these levels and bounce.  But if recent bullish sentiment has peaked, it could take a more prolonged and deeper correction to shake the confidence of the newly minted bulls-- as so often happens.

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2012 Tech Marketing Budgets, Trends

We are now publishing the results of our major annual Tech Marketing Benchmarks survey. Our tenth year of doing so!

My thoughts today:

1) Most importantly: The Marketing Transformation effort is accelerating. Many vendors have been at this for a few years but as we now do some accounting for  results,  we see as many false-starts as we do successes. And so there are renewed and bigger efforts underway to Transform.  The best evidence of this is in recent, aggressive marketing budget overhauls and  larger, more sweeping re-organizations of the marketing function. 

The good news is that top marketing  execs and C-Level execs DO understand that "future" Marketing can and should be the game-changer function, and so they are going to keep at the Transformation efforts until they see results. 

Here are three major outcomes to watch for and benchmark, on your own Transformation journey: Shorter purchase cycles; reduced overall cost of (combined) Marketing + Sales; and vastly improved customer analytics as a result of integrated marketing plus sales automation efforts.


2) Budgets remain under pressure: we see the average large Tech Vendor getting a 1.7% budget increase this year. That is 1/2 the increase of last year...and we were even "closer" to the 2008-2009 recession at that point.  The main culprit is the economy: management teams not willing to spend until better signs of demand pick up. The second factor is media shift: going-to-market with digital ve traditional media.

3) Tech vendors still spend 3-5 times as much on selling as they do on marketing. Heavy salesmanship has deep deep roots in IT vending. My belief is that the future holds a more even application of monies and activities between selling and marketing.

Rich Vancil

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More Earnings Warnings Trickle In

Global markets were mixed overnight while US markets are higher this morning.

Asian markets were mixed overnight.  JPMorgan suggested that China has more room to cut rates while the China Securities Journal disputed the notion and said that the current monetary stance is appropriate.

European markets were mostly lower this morning after a weak Spanish T-bill auction.  The arguments over the ECB's bond buying program continues with the ECB and Germany's Bundesbank seeking legal advice to verify the ECB's new program.  Also, Angela Merkel reiterated her opposition to Eurobonds.

In the US, consumer confidence for September rose to 70.3 from 65.9 last month.  The July Case-Shiller home price index rose 1.2%.  I think a lot of consumer sentiment is tied to the housing market, and if prices continue to firm it should boost confidence.

In corporate news, we are starting to see more earnings warnings and guidance reductions creep up.  Semiconductor company Infineon (IFNNY) lowered guidance for the next two quarters citing demand.  Tesla Motors (TSLA) also lowered guidance.  But the one with probably the one with the biggest implications for the global economy is Catepillar (CAT).  CAT said recession remains possible but unlikely in the US, and while 2013 sales look locked in 2014-15 will be below earlier estimates. 

The dollar index is lower today, which is helping commodities.  Oil prices are higher to $92.71 and gold prices are up near $1775.  Silver and copper prices are higher also.

The 10-year yield is slightly higher to 1.72%.  And the VIX continues to hover around very low levels at 14.15.

Trading comment: Yesterday was another day where we saw early weakness in the market but dip buyers quickly came in and the market firmed by the end of the session.  Looking at the charts of the major indexes shows that since the big rally a couple weeks ago we have pretty much just consolidated in a sideways fashion.  This type of behavior is usually followed by more upside after the pause, as the market rebuilds its internal energy for another push higher.  There is some risk to chasing that next push higher as investor sentiment has become very bullish and the potential for a "fakeout breakout" is higher.

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IDC Tech Marketing Benchmark: Behind the Scenes

This week the IDC CMO Advisory Service will start revealing results from the 2012 Tech Marketing Benchmark. In this 10th annual study we found some surprises – as you might expect in this era of marketing transformation. In anticipation of the results, I thought I would share a bit of what goes on behind the scenes in the benchmark.

First – what is a benchmark? The term was first used by early land surveyors to describe the fixed point against which all others were compared. Today, benchmarking means the systematic practice of comparing your business processes to what others are doing in order to achieve superior performance. Companies benchmark against peers to learn how they compare with similar companies and best-in-class to compare with those that achieve optimal results.

Why do companies benchmark? A benchmark provides context for decision-making. You spend a million dollars a year on social marketing. So what? If your CEO asks you this question, what will you say? Tech marketers tell us that they like to benchmark for the following reasons:

• Improve the quality of annual planning: Last year’s program budget and gut feelings are no longer sufficient input
• Gain insight into critical trends: Learn what industry leaders and competitors are doing – and how you stack up
• Reallocate costs: Identify areas of overspending and opportunities for better value
• Transform with confidence: Answer questions such as how much to invest in new areas like social marketing or how should I re-organize my department?
• Drive with data: C-level executives increasingly expect marketing leaders to manage their business with the same level of operational excellence as other corporate functions.
• Get an independent view: Benchmark data provides IDC analysts with a wealth of information that make guidance to clients personalized and accurate guidance

How does benchmarking work? At IDC, we use a six-step method.

1. Participants are given a standard taxonomy. This is SUPER important.  IDC requires that participants bucket responses in accordance with rigorous activity-based costing methods and a marketing taxonomy based on 10 years of experience so that we're truly comparing apples to apples. We start agonizing over the taxonomy early in the year. It must evolve with changing times but maintain enough consistency for trending.  This year, we carved out marketing automation as a new category and adjusted definitions to accommodate new media and practices.
2. Participants bucket their marketing investments into categories.  We start participant recruitment in the spring. Fortunately, IDC has a large constituency of companies that participate annually, but we always conduct outreach to get new blood. 
3. IDC collects the data. For IDC's benchmark, the tech company participants are primarily mid-sized and large companies and we have a 95% B2B focus.
4. IDC creates a database of normalized data. This is our secret sauce and takes a ton of work.  Every survey gets scrutiny. Anomalies get investigated. We use statistical methods, sophisticated tools, and marketing experience to work the data so that it really means something.
5. IDC analyzes the database for benchmarks and trends. We conduct analysis of various kinds – comparing years, industry sectors, and program and people data. We also conduct interviews with CMO's to lend color to what we are seeing (although we are constantly out talking to practitioners and marketing leaders during the year).
6. IDC reports.  All participants are invited to a webcast and get a free report that includes a large amount of data and IDC insights.  Over 100 tech companies each year contribute to the database and get this free report.  For participants who desire a more personalized view, IDC offers a custom service that compares their data with a "market basket" of appropriate peers. IDC conducts an analysis of this custom benchmark and then works with companies to provide guidance decision-making and for instigating change.

Watch this space as well as the press for this year's findings!

 

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