Sunday, November 17, 2013

Views from Walmart, Cisco Systems and Janet Yellen's Confirmation Hearing

Last week, as weakness was reported in the Eurozone (economic growth), Japan (exports) and the New York region (manufacturing), firms continued to report corporate earnings.
  • Management comments included Wal-Mart’s U.S. Chief Executive Bill Simon saying the holiday shopping season "is going to be about as competitive of a market as we've ever seen…at the same time, some customers feel uncertainty about the economy, government, jobs stability and their need to take care of their families through the holidays."
  • In addition, after network equipment firm Cisco Systems reported poor results, CEO John Chambers said, “I do think we are seeing a slowdown in these emerging markets both in the decision making and their economies.” He also suggested that concerns about NSA surveillance activities might be affecting sales.
Separately, from a U.S. Congressional hearing to confirm Janet Yellen as Federal Reserve chief:
  • Senator Mike Johanns (Republican, Nebraska) said he was concerned about stock market and real estate bubbles - "Here's what I'm saying... I think the economy has gotten used to the sugar you've put out there. And I just worry you're on a sugar high." Yellen’s response - “We have to watch this very carefully, but I don't see this as an asset bubble" and believes positive price moves are a "logical response" to the Fed’s actions.
  • When Senator Charles Schumer (Democrat, New York) said he was concerned about income inequality and the struggling middle class, Yellen said income inequality "is a very serious problem" that goes back to the 1980s. She noted that contributing factors may include the nature of technological change, globalization and the decline of unions in the U.S., and said, "We can't change all of those trends. The solutions involve a multitude of things".
MY TAKE
  • Regarding Walmart – Given the firm’s broad exposure to the U.S. economy, the CEO is another voice highlighting the challenges facing many Americans.
  • Regarding Cisco Systems - In addition to weak product demand and the impact of NSA issues, the firm is likely facing competitive challenges from Asian hardware manufacturers as well as software based network routers and switching solutions.
  • Regarding Janet Yellen – As stimulus efforts continue, improving employment and income inequality issues may remain significant challenges. Hopefully, her management of a potential bubble is better than Alan Greenspan.

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