Odd Drop In Consumer Sentiment

I haven't dig into the numbers, as I'm only an armchair economist but today the Univ. of Michigan consumer sentiment index dropped to 71.8 from 77.6 last month.  That's a pretty big drop, and its lowest level since December 2011.  I would be willing to bet that there has never been a drop that large at the same time the Dow was making new highs.

Other consumer sentiment figures don't seem as bearish, so maybe this will turn out to be just a one-month blip.  We shall see.

In other economic news, Feb. industrial production rose 0.7%, above expectations.  And capacity utilization ticked a bit higher to 79.6%.

Financial stocks are mostly bucking the weakness after the Federal Reserve released its latest stress test results.  Only Ally Financial and BB&T failed to meet the requirements.  Other banks, like Bank of America (BAC) and Wells (WFC) either raised their dividends or increased stock buybacks.

Asian markets were mixed overnight.  China's foreign direct investment fell 7.3%.  Singapore's retail sales declined -2.0%.  And the cabinet of Japan's PM raised its economic assessment for the third month in a row.

European markets are modestly lower.  The Eurozone CPI rose 1.8%.  And the Troika agreed to give Portugal a one-year extension (until 2015) to reach its 3.0% budget deficit-to-GDP target.

The dollar is lower today and helping some commodities.  Oil prices are higher to $93.40.  Gold is up near $1595 and silver prices are higher also.  But ag prices and copper are lower.

The 10-year yield is lower today, back down to 2.00%.  And the VIX was as much as 5% higher earlier, but so far has faded back and is now up just 1% to a still very very low level of 11.40.

Trading comment: I still see folks trotted out on CNBC and every single one of them is calling for a small pullback that can be bought.  Since the market rarely likes to accommodate the consensus opinion, it makes it more likely that we see one of two alternate scenarios: Either the market continues to stairstep higher and frustrate everyone who is waiting for a pullback to buy, or the market sells off harder than most anticipate and scares those who are waiting for an orderly pullback to feel comfortable stepping up and putting money to work. 

KAM Advisors has long positions in BAC and WFC

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Investors Like Trend In Jobless Claims

The market is higher again in early trading with the S&P 500 getting closer to its all-time highs.  I would expect another round of media hype touting the stock market once this happens.  The S&P really needs to get above 1575 to make an all-time high.  It is currently near 1560.

In economic news, today's weekly jobless claims were pleasing to the economic bulls.  Jobless claims declined by 10,000 to 332,000.  This marks the 3rd consecutive reading below the 350k level which was basically the floor for most of last year.

Asian markets were higher overnight.  The Bank of New Zealand held rates unchanged at 2.50%.  S. Korea's central bank held their rates steady at 2.75%.  And Australia's  unemployment rate remained at 5.4% vs. expectations for an uptick to 5.5%.

Europe's markets are also higher today.  Spanish retail sales fell -10.2%, but this was a smaller decline than expected.  In Greece, reports indicate the Troika left without reaching a final agreement on the next tranche of aid.

The dollar is a bit lower today, but commodities are mixed.  Oil prices are a touch higher to $92.75.  Copper prices are higher also.  But gold prices are lower near $1585, silver prices are down, and ag prices are slightly weak as well.

The 10-year yield is hovering around 2.05%, a level its been flirting with for the last 5 days.  And the volatility index continues to trade down, now around 11.65.  This is a very low level.  The last time we saw the VIX this low was April 2007.  It's not a perfect timing indicator, but I would expect a selloff in the near future that causes a spike in the VIX from these low levels.

Trading comment:  The stairstep market continues, and we are beginning to sound like a broken record.  The S&P paused briefly for 2 days and is attempting to work its way higher today.  Of course, the longer this steady uptrend continues the more complacent folks will become and that could set the market up for a bigger correction.  But as of now we have not seen sentiment get too complacent.  The AAII survey of individual investors comes out today, but for the last 2 weeks it has shown more bears than bulls it its survey, a rare occurrence with the markets at fresh highs.

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One-on-One with Congressman Paul Ryan

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Retail Sales Rise In Feb

The market is roughly flat in early trading, and once again yesterday we saw sellers try to push the market lower but dip buyers again showed up late in the day and helped save the Dow and keep in in positive territory.  The S&P closed only slightly lower on relatively light volume.

In economic news, retail sales for the month of February rose 1.1% which was better than expected, and up from the prior month's reading of 0.2%.

Utility stocks are leading the early action, while the materials sector is lagging.  Financials are up slightly so far.

Asian markets were lower across the board overnight, led by a 1.5% drop in Hong Kong over concerns about a slowdown in China's property markets.  S. Korean unemployment was reported at 3.5%, slightly ahead of what the market was looking for.

European markets are also lower today, led by a 1.6% drop in Italy.  Eurozone industrial production declined 0.4%.  Italy auctioned off 3-yr debt at a yield of 2.48% vs. 2.30% from the previous auction.  And reports indicate the Troika and Cyprus are in talks regarding a smaller bailout agreement for the troubled nation.

The dollar index is trading higher today, and weighing on commodities.  Gold is lower near $1586, and silver and copper prices are lower also.  Ag prices are down today as well.  Oil prices are bucking the trend and trading higher to $93.08.

The 10-year yield is higher today, within its recent range and trading at 2.05%,

The volatility index remains remarkably low at 12.32.  When the VIX is this low, we often see a selloff in the market even if it turns out to be brief.

Trading comment: Waiting for a market pullback continues to be a difficult plan.  We have been looking for situations to add to stocks that have been performing well but are not too extended in price.  That list isn't too large these days as many stocks have had big runups and look like they are in need of a rest at this point and not worth chasing.  But investor sentiment is not nearly as high as we would expect with the market at new highs, so we continue to think pullbacks will be brief affairs in this environment.

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Staffing Shambles

According to the Managing Director of Manpower, the recruitment agency:

"We've noticed that a number of public sector organisations have begun recruiting again with renewed vigour... in their efforts to implement budget cuts there has been a degree of over-firing. We've seen the number of people leaving public sector employment slow as they reach the minimum they need to provide services, while some have gone too far and they need to begin re-hiring."

Yes, that's right: the public sector is now trying to replace staff it only just fired. And it's doubtless paying organisations like Manpower a big fat fee along the way, having already doled out who knows how much in redundancy payments.

The big picture is that public sector employment has fallen by about 600,000 from its peak under Labour. That's a headcount reduction of around 10%, and although the cut in full-time equivalents is less (around 400,000), that seems like a pretty impressive response to the fiscal squeeze. Maybe George is going to do it after all. But not if the reductions are now being reversed.

The public sector has a long and sorry history of cutting the wrong jobs, and then having to shell out even more to fill the gaps.

In some cases, that means bringing in temps who are much more costly than directly employed staff, even though they are often the very same people who've previously been employed by the public sector. For example, back in 2006 it emerged that the NHS was spending nearly a billion a year on agency nursing staff to cover for a shortage of permanent nurses (see this blog).

Even worse, we've seen innumerable cases over the years of staff being made expensively redundant only to be rehired back into the very same organisations. Take this story from last year:

"MORE than £3 million was paid out in redundancy packages to 171 council workers – only for them to return to work for the same authority in new jobs. Staffordshire County Council ran up the bill over the past three years, paying off staff who had lost their posts. But the same employees were later rehired to fill new roles at the local authority. 

The details have emerged after The Sentinel revealed neighbouring Stoke-on-Trent City Council had shelled out £330,603 in redundancy payouts to 25 workers, only to re-employ them. One person was taken back on the council's books just 27 days later."

A big problem here is that public sector management fights shy of deciding who specifically is going to lose his job. Making people compulsorily redundant is never pleasant (trust me, I know), and it's much easier to offer voluntary redundancy or early retirement packages. Unfortunately, what then happens is that it's often the people you don't want to lose who take the money and go. The people you would quite like to leave - maybe the ones doing the least productive jobs - tend to stay, sensing perhaps that they'll be lucky to find a comparable job elsewhere. And according to the man from Manpower, that's certainly happened here:

"In central government there has been a reliance on voluntary redundancies. This allows some people in key roles to leave, creating gaps that need to be filled at a later date. Some of the hiring over the next few months will be re-hiring to fill these gaps."

Well, isn't that great. In the private sector, managers cannot afford to wimp out of making tough decisions on who goes and who stays. But public sector managers leave the choice to their staff, with the costly consequence we now see.

What this reflects of course, is a much broader management failing right across the public sector: its chronic inability to connect up resources and delivery. Or as the Public Accounts Committee put it last year:

"Most departments cannot link costs to outputs to identify the consequences of changes in spending. This lack of basic management information is a serious impediment to making sustainable cost reductions that minimise the impact on frontline services. An understanding of how spending relates to key outputs is a necessary prerequisite of good decision-making and is essential if departments are to understand the impact of changes in spending."

Organisations that cut staff and spending without having a clue how that will affect the services they deliver are organisations that need to go out of business. But while the public sector still has a monopoly on our vital services that isn't an option. Break it up, bring choice and competition to bear, and force managers to think about efficient service delivery rather than blind cost cutting.

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IDC's 2013 Chief Marketing Officer ROI Matrix: Are you a Marketing Leader, Achiever, Contender or Challenged?

IDC's 2013
Chief Marketing Officer ROI Matrix

If you are a B2B Marketer you've read the articles, heard the pundits, and attended the conferences - marketing is transforming. This is not ground breaking news. However, what you probably have not seen is a tangible and holistic way to measure your organization's marketing performance. Today you are in luck.

IDC's CMO Advisory Servicehas just released our Chief Marketing Officer ROI Matrix. This Matrix not only provides measurement on Marketing ROI for those companies who participate in our annual benchmark survey, the recently published reportalso provides fact based analysis, actionable recommendations via IDC Analysts and best practices from leading marketing organizations.

For the down and dirty on the report view our press release

For some quick and interesting facts from the study look no further, you are in the right spot!

You must have the muscle (ie: budget) to move the needle.

 #CMOFact: As a percentage of revenue, Marketing Leaders spend ~3X more on marketing than the Challenged http://bit.ly/CMOROI Tweet This!

It is important to note these properly funded Marketing organizations were not just blessed by their CEO with a strong budget, they first proved their worthiness. The first step to earning your budget is to be efficient and effectivley track the dollars given to your department. Leading companies spent years optimizing (and wisely spending) their budget before earning a larger piece of the pie.

"Marketers, tear down these walls!" 

#CMOFact: Marketing leaders staff Campaign Mgt roles at 5.4% of their staff. http://bit.ly/CMOROI Challenged staff at 1.7%... Tweet This!

The quote was once said by Ronald Reagan…ok, maybe he didn't say that, but we are seeing leading marketing organizations aggressively staffing areas that promote communication and knock down proverbial departmental walls. Leaders staff Campaign Management, Sales Enablement and Marketing IT at a significantly higher rate than the challenged.  They also staff MarCom and Executive & Admin positions at much lower rates.

Remember who keeps the lights on and bust your…you know…to make their lives easier.

#CMOFact: Marketing challenged spend 22% of their program budget on digital. http://bit.ly/CMOROI The leaders spend 33%! Tweet This!

Within tech we often think of innovation as tied to R&D and the product; however leading companies are actively innovating their marketing tools and strategy. The buyer has changed and no matter how good your product is, if the value proposition is not delivered in a way that 'speaks' your buyer's language you will risk losing business. Leading companies are pushing boundaries through new and innovative digital strategies and cap spend in areas like Email Marketing and Events.

This is research the team is excited about and truly believes it will help marketers continue to improve their organizations. What is clear from this research is the gap is widening between the marketing teams that "get" the marketing transformation (the Marketing Leaders) and the ones still wallowing in traditional ways (the Marketing Challenged). Continue working hard and using all the resources at your disposal to stay ahead!

For more information about the Chief Marketing Officer ROI Matrix and a complimentary executive summary email me smelnick (@) IDC (dot) com. To be considered for the 2014 Chief Marketing Officer, you guessed it, you should email me.

You can also download the full report here and don't forget to join the discussion on twitter by using hashtag #CMOFact

Oh, one last thing… Follow me on twitter: @SamMelnick

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Every Little Bit Helps... But It's Not Enough

Today's IEA speech by Doc Fox was a sharp reminder of how far we have strayed from the paths of fiscal righteousness. We have overspent, over-borrowed, and overtaxed. We have encouraged welfare dependency, and stifled the economic dynamism that made us rich. We have left undone those things we ought to have done, and done those things which we ought not to have done, and there is no health in us.

The question of course, is how do we put it right? And in particular, how do we get government spending down? The Doc makes a number of excellent suggestions, including the abolition of universal welfare benefits, and removal of the protective ring-fence around the NHS and foreign aid. But his big headline idea is a 3 or 5 year freeze on public spending, which he estimates would save us over £300bn.

Which sounds very appealing, but could it work?

A 5 year freeze would lop around £90bn off spending in 2017-18, or about 12% of what's currently planned. It would take spending in real terms back to the level it was in the middle of the last decade - mid-way through Labour's spending splurge. Given all those tens of billions of waste we blog about, that hardly sounds like it would destroy our public services, so maybe it could work.

Well, it could work if it was done right.

The wrong way to do it would be to freeze spending across the board and simply leave public sector bosses to figure out how to make the savings. That's known as "starving the beast", and although it has the attraction of simplicity, past experience tells us that a starved beast is much more likely to deliver waiting lists and terrible services, rather than efficiency and value.

A more promising approach is to cut spending by focusing directly on value-for-money: managing things better and getting more for less. That's the good housekeeping approach of every little bit helps, and it's pretty well what successive governments have been attempting for at least the last forty years.

Take government procurement spending. That's running at well over £200bn annually, and it has long been a target for efficiency savings. It was a major element in Brown's failed Gershon efficiency programme, and one of the Coalition's first acts was to commission retailer Sir Philip Green to identify procurement savings. The idea is that government (aka the Simple Shopper) bumbles around buying the wrong stuff at grossly inflated prices, so there must be huge scope for doing it better. And after his probe, Philip Green reckoned he could save £20bn pa just from central government procurement "without even breaking sweat".

But in practice, delivery of the savings always turns out to be very much more difficult than ministers are led to believe.

For example, the National Audit Office has recently given us an update on the Coalition's attempt to institute a systematic programme of central purchasing for central government departments. Although the"strategy is the most coherent approach to reform to date", the NAO reckons it's only actually saved £426m out of total spending of £45bn - a derisory 1%.

So why's it been so difficult? Because individual spending departments don't want to hand over their purchasing authority to a central agency under the control of the Cabinet Office. And in practice, there are precious few levers to make them do so. As the NAO notes:

"It is a major programme of change for central government, with considerable shifts in behaviour required within departments to ensure it meets its objectives. Its success will depend on full participation among central government bodies, and it is important that the Cabinet Office has in place appropriate governance structures to enable this shift in behaviours."

A shift in behaviours. Yes, that's certainly what's needed. But how do you get it? How do you get central government bureaucrats to prioritise saving money over departmental power? And if it can't even be done within Whitehall itself, how on earth can we expect to do it across the rest of the public sector, such as the NHS and local councils? Because the Coalition's centralised procurement programme only applies to central government departments, which account for less than one-fifth of total public sector procurement.

The reality is that every little bit will help, but to achieve the kind of savings the Doc has in mind will take something far more radical than either starving the beast or good housekeeping. It will take the kind of fundamental reform outlined in the book of BOM: downsize, decentralise, demonopolise, and deuniversalise. To get a real shift in behaviours we have to dismantle our hugely centralised welfare state, and introduce the spur of competition.

We don't suppose that's telling the Doc anything he doesn't already know. But we do wonder about some of his colleagues... well, quite a few of his colleagues actually.

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