Dec 9, 2011

DuPont and Texas Instruments Cite Weakness

December 9, 2011

“Dr. Copper is telling us that while the U.S. equity markets are being priced by such frivolous things as U.S. holiday retail sales, the global economy is experiencing a deceleration in growth [that will become evident] in the first half of next year.”-Jason Schenker, Prestige Economics.

DuPont (DD) is down today after lowering their Q4 2011 earnings and revenue forecast due to falling demand for consumer electronics and plastics and continued weak demand for construction products. The company cited the destocking of polymers in the distribution channel as companies react to global uncertainty. Texas Instruments (TXN) also lowered its sales forecast for Q4, citing weak electronic sales and falling orders from telecommunications-equipment makers. The company cited broad-based weakness with the exception of wireless, which remains strong. TXN stated that both Europe and Asia are weak, with only Japan showing strength as it rebounds from the earthquake and tsunami.

RealtyTrac is reporting that US mortgage delinquencies are now just under 6%, and should be around 5% by the end of 2012. A normal level is 2%.

The EU is inching closer to becoming a German run continent as leaders debate whether to adopt centralized oversight of national budgets. An intergovernmental treaty which may take a few months to craft and would bind the members and restrict spending and borrowing will be the next step. In the meantime, expect more austerity measures and a recession out of Europe in 2012. In a separate effort, EU leaders have been pushing large European banks to raise additional tier 1 capital to cushion against losses on sovereign debt.

I spent the last three days meeting with companies, and I’d say that 80% of them are cautious about the outlook for 2012, but planning for modest growth. Europe and domestic regulatory issues were the biggest concerns of these CEO’s. This is one of the few times I’ve heard this many management teams so outspoken about the leadership, or more specifically the lack of leadership of our country.

The Financial Times is reporting that financial services firms faced 14,000 regulatory changes in the 11 months ended November 30.

Speaking of the leadership of our country, the payroll tax cut extension continues to be slapped around like a badminton birdie at a birthday party. House Speaker Boehner has submitted a bill that would extend the cut for another year, but has tied it to approval of the Keystone XL pipeline and some reduced industrial emission restrictions. Senate Majority leader Harry Reid wants to tie it to a surcharge on incomes greater than $1 million. The President has threatened a veto if any legislation includes “unrelated” measures. Meanwhile, with three weeks left in the calendar year, companies and employees have zero idea what their withholding will look like for 2012.

China appears to be getting a leg up in their battle against domestic inflation as the rate fell to 4.2% in November vs. 5.5% in October. With growth slowing, this easing of inflation might give the central authorities maneuvering room to add some stimulus.

On Wednesday afternoon I walked through the 3rd Street Promenade in Santa Monica to check out a few retail stores. Every store was slow, with the exception of the Apple store, which was busy but not crazy. The busiest part of the store was the Genius Bar, where repairs are made. The scariest store I saw was the PlayStation HQ, a huge store featuring Sony’s PlayStation and accessories. There were six employees in the store (actually, one was outside demonstrating a musical app), and there wasn’t a single shopper inside. I purposely made a second pass by the store about 45 minutes later, and there still wasn’t a shopper inside. I guess they were waiting for the teenage boys to get out of school.

Bloomberg reported that John Paulson, famous for his directional call on the mortgage market, is struggling dramatically in 2011, down 46% through November 30th.

The most exciting news in professional sports came from Southern California yesterday as the Los Angeles Angels of Anaheim (yes, we all know they are an Orange County team, but we let them pretend they are from LA because Arte Moreno doesn’t get the difference yet) signed the biggest name in baseball, Albert Pujols. His contract: 10 years, $250 million!!! They weren’t done, signing home grown pitcher CJ Wilson to a 5-year, $77 million contract, $23 million less than the Marlins offered. Meanwhile, it appeared that the Lakers had completed a deal to bring point guard Chris Paul to town in exchange for forwards Pau Gasol and Lamar Odom. Amazingly, after shooting themselves in the foot, missing the first two months of the season, and damaging their brand significantly, the NBA was at it again as Commissioner David Stern decided to block the trade due to pressure from other owners. And what about that other baseball team in town, the Dodgers? They were in bankruptcy court for a hearing yesterday.

Have a great weekend


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