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Speculation St.

I had a thought in mind to write a piece about market speculation given the recent earning reports out of the USA, but then I realized I need to do more research before I sound like a rambling fool. However, a few news reports later, including a completely random but very interesting article in the LA Times, and I was reminded the USA is the epicenter of sales culture. Thanks to that sales culture, China is having an amazing growth rate, so this “little” post will be all about China, without really talking about China.

Earnings reports came out last week ranging from AMD to Xerox, with big ones like IBM, McDonalds, GE, and Google. Several companies actually beat estimates and posted better than expected earnings (Google), which immediately sent their stock prices down.

This is obviously strange to someone who is not an avid investor, why would the stock go down if you beat analyst expectations?

The simple answer is that investors already had speculated you’re going to do so well that they invested “ahead of the curve”. If any of you watch BBN or MSNBC, there is a term known as “priced in” which gets flung around pretty often. Investors already “priced in” that certain companies will be beyond analyst expectations, resulting in a sell-off if they don’t.

This is just the tip of the iceberg when it comes to market speculation, which I’m still researching more about. However, markets got hit even harder by speculation of the effect of the Obama’s administration looming tax to try and regulate risk taking by banks. All this didn’t help the fact that China decided to tighten lending at its banks because they don’t want too much growth, cause 9% annually is just dandy for now (compare US – 1.1% UK – 0.7% Canada – 0.4%).

For China?

Thanks to all this wonderful news, stock markets plummeted by as much as 5% in the last 5 days.

So I placed this on my to-do or to-research-then-write about list, but then another news report comes out about Sam’s Club (owned by Wal-Mart) cutting 11,000 jobs. Sam’s Club has been underperforming, even when compared to Costco, who had a 2% decline in 2009. Wal-Mart is the king of discount shopping but they are not so good at trying to copy exactly what Costco is doing, and not doing it any better.

So to compensate they are firing, a lot. To fix the situation Wal-Mart is hiring a marketing company to sell its products at Sam’s Clubs more aggressively. I found it somewhat funny that the laid-off workers can re-apply to those new sale intensive jobs, good luck!

Because Wal-Mart is going to hire what they say is “approximately” the same amount of people in sales, the company said “In terms of overall jobs in the U.S., it would not be a loss or a gain, but neutral.” – Something I highly doubt.

So how the does all this financial mumbo-jumbo point to growth in China? I’ll get to in a bit.

While reading the Wal-Mart article, I noticed an interesting title for another LA Times piece called “Marketing to Muslims poses a challenge for retailers.” Writing about this article deserves its own post, but it did remind me of a book by Clotaire Rapaille, called Culture Code (It’s a cool little marketing book if you’re into that). It makes a point about the USA being a young culture, driven by adolescence and dreams. To that effect sales plays a huge part in the US, this type of young culture usually wants more of everything, the States is also a world leader in advertising and marketing companies.

Leader of China

In order to tie all this up to China, we go back to the earlier point about Sam’s Club going for the marketing “guns for hire”, hiring good marketing firms mean more sales, and more of that means more production in China for everything from adjustable air beds to jeans and their zippers. You’re very welcome Hu Jintao.

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