Posts Tagged ‘european economy’
April 2012 Devastating for Retailers
By Michael Lombardi, MBA for Profit Confidential
Just how bad is it getting out there?
There is no question that the U.S. east coast just experienced the warmest winter in decades. And, as a result, shoppers who were normally held back by cold weather were free to visit their favorite local store to shop and the retail sector welcomed them with open arms.
As strong retail sales—when compared to the previous year when we actually had a winter—rolled in during January, February and March of this year, some were claiming that this was proof of consumer confidence…that the economic recovery finally had some traction…that the retail sector looked great.
That theory hit a roadblock this past April. The retail sector missed sales estimates for the first time in five months this April (source: Reuters, May 3, 2012).
Also in April, McDonald’s Corporation (NYSE/MCD), the world’s largest fast food chain, came in with weaker than expected same-stores sales. The company says the weak sales reflect a difficult economic environment with challenged consumer confidence.
In Europe, Germany was supposed to have escaped recession…
But retail sales in Germany fell at the fastest rate in April in over 18 months (source: Markit Economics, April 27, 2012). Operating margins were under pressure in the retail sector and retailers felt they needed to provide deep discounts to get sales going. Not a good sign of consumer confidence in Germany.
In France, retail sales plunged to their lowest level on record in April (they started keeping records only in 2004). Oddly enough, this was the biggest falloff in 18 months and the retail sector in France had to discount, which squeezed margins; … Read More
Social Government in France: A Wrench in the Plans
By Michael Lombardi, MBA for Profit Confidential
Germany has lost its dance partner…
Francois Hollande is France’s first elected socialist president in 17 years. He has stated that he will reduce the government’s budget deficit while increasing taxes and increasing spending. He believes he can eliminate the budget deficit by 2017.
Just the kind of guy France needs…
Because of the European economy’s recession, France’s budget deficit is already worse than it was a year ago because of lower tax revenue. Hollande wants to spend €20 billion to get the economy going, lower the retirement age back to 60, and raise taxes on businesses and the rich.
The problem is that Hollande doesn’t spell out how France is going to pay for this spending and how he will be able to increase spending and reduce the budget deficit at the same time.
Let’s get real…
The wealthy and corporations in France are going to have little incentive to invest and create jobs if they know their tax rates are going to rise. Their profit margins are going to be squeezed by higher taxes.
These “disincentives” to business come at the worst possible time for France, which needs to create jobs in order to grow with the European economy’s recession hanging over them.
Hollande wants to meet with the Chancellor of Germany, Angela Merkel, to ratify the European fiscal pact, which focuses on austerity measures and reducing budget deficits through fiscal discipline. (I’m sure Merkel can’t wait to have a serious discussion with France’s new leader.) Hollande has explicitly said he will not go along with the fiscal pact of reducing budget deficits unless there are growth provisions … Read More
Quarterly Earnings Shocker from a High-tech Leader
By Sasha Cekerevac, BA for Profit Confidential
We just had a buffet of quarterly earnings releases from some of the largest technology firms: Google Inc. (NASDAQ/GOOG); Microsoft Corporation (NASDAQ/MSFT); Intel Corporation (NASDAQ/INTC); and International Business Machines Corporation (NYSE/IBM).
Following the release, three out of the four firms’ stocks were up. Would you be surprised to learn that it was Google that disappointed investors with their quarterly earnings release? Investors have sold the stock hard; now down over $50.00, or 7.8%? Obviously, Google is an outstanding company with innovative products and a huge market lead in many sectors. What I find interesting is that, since the rise of Google, all we’ve heard is how you should replace “old” technology firms in your portfolio with the “new” high-tech firms as the prime investment strategy. This recent quarterly earnings release is a sign that even the best and brightest of new technology companies have a few lessons to learn from the old, blue-chip high-techs.
To start, Google actually had pretty good numbers in its quarterly earnings, with revenue rising 25% to $10.5 billion. The real problems are: Google’s ability to communicate with investors what the future plans will be regarding its investment strategy; how will the firm monetize some of its assets; and the European economy.
Part of the job for the executives of any organization is to let investors know what their investment strategy and guiding future expectations are with a solid business plan. While Google’s CEO Larry Page has tried to alleviate investor concerns, a drop of over seven percent immediately after the quarterly earnings release obviously shows there was a disconnect between what investors believed … Read More
Two Major Eurozone Countries to Fall Back into Recession in 2012
By Michael Lombardi, MBA for Profit Confidential
Two big eurozone countries are headed back to recession this year.
Spain, the eurozone’s fourth largest economy, will fall back into recession in early 2012, according to a statement made by its Economy Minister.Spainhas the highest unemployment rate in the eurozone at a staggering 21.5%.Spainand its citizens are in real trouble.
Italy, the third largest eurozone economy, will also be technically in a recession in the first half of 2012. Italian consumer confidence sits at its lowest level in 16 years. We can see this in retail sales, which were at a 10-year low this holiday season (source: Codacons web site).Italyand its citizens are in real trouble.
Dear reader, I’m sure you’ve heard enough about woes in the eurozone in 2011. But here’s why it’s important to us here inNorth America:
Firstly,ItalyandSpainare respectively the third and fourth largest economies in the eurozone. These economies cannot fall back into recession without affecting the other 17 member countries. The biggest risk (a country that could fall back into recession as well) I believe is France, the second largest eurozone member.
Secondly, banks in the United Stateshave major exposure to eurozone countries. Hence, the risks that weak, or defaulting, eurozone countries represent are high for large American banks. Between the eurozone exposure andU.S. residential real estate bust, it’s no wonder to me that the stock prices of big American banks have yet to recover.
Thirdly, while there has been plenty of talk regarding fixing the eurozone countries with the largest debt exposure, there has been no execution.Germanycontinues to balk at idea of the European Central Bank (ECB) printing more money. (Our central bank; … Read More
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