Europe, Earnings, Economy and Traffic

October 24, 2011

This week marks the 13^th emergency summit regarding the European debt crisis in the past 27 months. As opposed to the twelve prior meetings, this one should be gangbusters as the market is expecting a Grand Bargain, yet is partially resigned to the inability of the ECB to come to any viable conclusion. While the numbers leaked out last week seem to be closer to what will be needed to address the problem, 1 trillion Euro, the devil will be in the details. An announcement is expected mid-week.

The Fed’s Beige Book last week concluded that the US economy is expanding very slowly in all 12 Fed districts. Consumer spending is increasing in most districts, with autos the biggest driver as household spending was flat ex-autos. Labor conditions remain bleak, and forward hiring plans are weaker than last quarter. The report also cited subdued inflationary pressure. The economy continues to be weak, unfortunately not strong enough to generate the job growth required to offset high unemployment.

This will be a busy week of earnings as 40% of the S&P 500 will report. Caterpillar (CAT) started off the earnings week with a strong quarter and gave positive economic guidance for 2012.

Has anyone else noticed a dramatic increase in traffic since Columbus Day?

Oracle (ORCL) announced that they will be acquiring CRM provider Right Now (RNOW) for $1.5 billion. This deal turns up the heat on the rivalry between Larry Ellison’s ORCL and Marc Benioff’s Salesforce.com (CRM). Google (GOOG) and Microsoft (MSFT) are rumored to be separately looking at the assets of Yahoo (YHOO) along with private equity partners. My guess is that the only interest GOOG has is in forcing MSFT to pay more to acquire the struggling search maker.

In one of those instances where I have to scratch my head, US solar-panel manufacturers have filed a complaint with the Commerce Department accusing the Chinese of violating trade rules by giving its companies subsidies. The makers are asking the US to impose tariffs of 100% on panels imported from China. Wasn’t Solyndra a solar panel maker? Didn’t we heap billions into panel makers ourselves? China’s response included comments about ‘having our heads in the sand’ regarding subsidies and criticizing us for attempting to start a trade war instead of addressing our economic woes.

President Obama announced that all troops in Iraq would be home before the holidays. Safe trip to all and thank you!

The long awaited Groupon IPO appears ready to hit the market. Originally filed at $30 billion last spring, the deal looks like it will be valued around $11.5 billion and may come in early November. This one reminds me of Webvan, which lost $1 billion before going out of business. Groupon doesn’t seem to have the same type of cash burn or high fixed costs, so they will be able to leverage their IPO proceeds for much longer than Webvan. The real issue is that there are no barriers to entry for Groupon. Being first doesn’t always guarantee success-do you remember the first online computer retailer?

Are we wondering why California has the second highest jobless rate in the country? Occidental Petroleum announced that their oil and natural gas output may fall this year because they can’t get the permits needed for new drilling projects in the state. The Division of Oil, Gas and Geothermal Resources has granted permits for 14 new projects this year, out of 199 received. That 7% approval rate compares to a 27% rate in 2010 and 71% in 2009. A report by the Los Angeles County Economic Development Corporation estimates delays in drilling have cost the state $1 billion in investments and 6,000 jobs. The US Energy Information Administration estimates that the Monterey shale formation in Southern California, of which Oxy owns almost 1400 square miles, contains over 15 billion barrels of oil, enough for two years of US consumption.

In sports, the World Series is now tied at 2 games apiece, the Saints pounded the Colts 62-7, and the Fighting Irish had better take three weeks off before next year’s game at the Coliseum and stop thinking because they schedule teams like Navy and South Florida that they are ready for the Trojans!

Have a great day

Ned