The rise of the Internet has created an abundance of easily accessible economic information. Unfortunately, this has made it difficult for investors to understand, digest, and even evaluate. Where, then, can investors turn for objective economic analysis, market research, and breaking fiscal news that affects both Wall Street and Main Street?
Economic analysis means looking at the interconnected effects of global economic events. These events can be as major as geopolitical tensions, elections, corporate earnings, housing markets, consumer sentiment, and rising unemployment rates—to seemingly innocuous news stories, including mergers and acquisitions, crude oil inventories, auto loans, birth rates, and retiring Baby Boomers.
In 2001, Michael Lombardi started his famous daily economic newsletter Profit Confidential. Written by Lombardi Financial editors who have been offering stock market guidance to Lombardi customers for years, Profit Confidential provides a macro-picture on where the stock market is headed, what sectors are hot, and what sectors to avoid.
Over the years, Michael’s financial commentary and the accuracy of his economic predictions have garnered him global attention and the confidence of over one million investors in more than 140 countries.
When the U.S. economy was on the verge of collapse after the financial crisis of 2008, the Federal Reserve came to the rescue. The central bank provided the financial system with quantitative easing (QE)—it printed money and bought bad debt from the big banks. As a result, the Federal Reserve’s balance sheet has grown by almost $2.0 trillion—200% in less than five years. Where did the money come from, and how does it affect the buying power of the average American?
The eurozone is struggling to get out of a debt crisis that has been helping weigh down the global economy. Germany and France, the go-to countries for economic growth and stability in the eurozone, are beginning to experience retractions and may not be able to prevent the region from slipping into a recession. The eurozone unemployment rate reached a record high of 11.7% in October 2012, up from 11.6% in September. There are 18.7 million people unemployed in the region, with Spain and Greece’s unemployment rates both exceeding 25%. (Source: Eurostat, November 30, 2012.)
What does this mean for the eurozone? How will it impact the United States? Or, affect the Chinese economy?
At the same time, it’s important that economic analysis takes an ongoing look at domestic policies. For example, cities like Vallejo, Mammoth Lakes, Stockton, and San Bernardino have already defaulted on their municipal bonds. What caused them to declare bankruptcy, and how does it affect the everyday investor and the overall health of the U.S. economy?
The global economy is constantly going through changes. We currently live in a world where one country is connected with the other. It doesn’t really matter anymore how far or close economies are to each other.
That’s why in-depth macro- and micro-economic analysis is more important than ever. It helps investors see the world from different perspectives and helps uncover opportunities to balance, diversify, and grow stock portfolios.
China’s economic situation, the information age, an end to the 30-year down cycle in interest rates, the credit crisis , the coming debt crisis in America, the eurozone crisis—these are only a few of the economic events occurring in the global economy. That’s what drives Profit Confidential. We take the economic information churned out daily, analyze it, and deliver understandable, even fun-to-read, economic analysis to our readers each day.
Some of the biggest names in investing publicly stated months ago that the U.S. dollar would fall hard against other world currencies. Big investors, like Warren Buffett, have actually made investment bets the dollar would fall. Why hasn’t it happened?
Patience, my dear reader, patience. The financial markets rarely do what they are expected to do. And, in a case like this, when so many have proclaimed their belief in the eventual demise of the U.S. dollar… and if even if they are right… the market will take its sweet time to deliver the goods.
It’s all about interest rates. Yes, China is sitting with $1 trillion U.S. dollars. And yes, Greenspan took away the public availability of M3 (the broad money supply). But foreigners and most investors didn’t expect the Federal Funds Rate would go up 425% in two years!
So, if you are China, and you have a $1 trillion U.S., you are enjoying the highest interest rates available in the free world. Interest rates in the U.S. are now the highest of the G7 industrialized countries. And, until interest rates start coming down in the U.S., the U.S. dollar will not start its decent in value against other currencies.
That begs the big question: When will rates fall in the U.S.? Interest rates in the U.S., which I believe will be lowered, will not fall until there are clear signs the U.S. economy is in trouble. The Fed watches the economy, but it is also very aware of foreign investor demand for U.S. Treasuries. Right now, foreigners like U.S. bonds because the U.S. dollar has been stable … Read More
(Make sure to read my important comments today about the stock market in “Where the Market Stands; Where it’s Headed” below.)
The U.S. economy, as measured by gross domestic product (GDP), contracted in the fourth quarter of 2012 for the first time in three and a half years. According to the Bureau of Economic Analysis, U.S. GDP “unexpectedly” declined 0.1% in the fourth quarter of 2012 from the third quarter. (Source: Bureau of Economic Analysis, January 30, 2013.) Economists were estimating growth of one percent in the GDP for the fourth quarter of 2012.
If the first quarter of 2013 proves to be weak for GDP again, the U.S. will have technically entered a recession once more.
What’s behind the contraction in GDP? Defense spending took the biggest cut in 40 years. (Source: Associated Press, January 30, 2013.) But there are other troubles brewing.
Sure, government spending declined. In the fourth quarter of 2012, federal government spending declined 15% in the U.S. economy compared to an increase of 9.5% in the third quarter. Defense spending decreased 22.2% in the fourth quarter, compared to the 12.9% increase in the third quarter of 2012.
Looking deeper into the Bureau’s report, we discover:
• Exports of goods and services adjusted for price change from the U.S. economy fell 5.7% in the fourth quarter. In the third quarter of 2012, exports rose 1.7%.
• In the last quarter of 2012, businesses in the U.S. economy produced less than they did in third quarter of 2012. Inventories increased only by $20.0 billion in the fourth quarter, compared to a $60.3 billion increase in the third … Read More
The key to China’s economic progress will be the rapid growth of the country’s middle class. In a research finding, Credit Suisse predicted that the household wealth in the country will double to $35.0 trillion by around 2015, based on achieving sustainable GDP growth at or near the current growth rate.
The economic analysis is simple; the extra renminbi mean more cash to spend on non-essential goods and services. This includes furniture, real estate, vehicles, and travel. The mobile phone market is staggering at nearly 900 million users, which I discussed in “China’s Mobile Sector Still Sizzling.”
An area in China that I continue to believe has tremendous long-term potential is the auto sector, but the short term will pose hurdles.
I have been a big supporter of the Chinese auto sector, but sales have been slowing as the government eliminated credits for fuel-efficient cars in 2011 and, in trying to ease the traffic congestion on Chinese highways, set a quota on vehicles sold.
The slowing is quite evident. In the first quarter of 2012, auto sales fell 1.2% in China. In the 11 months to November 2011, auto sales increased a trepid 2.6% year-over-year to 16.8 million units, down from a staggering 30.0% and 50.0% growth in 2010 and 2009, respectively, according to the China Association of Automobile Manufacturers (CAAM). The growth in 2011 is the lowest since 1999 and clearly poses issues for carmakers.
Yet there are some positives for the foreign carmakers operating in China. Sales of foreign vehicles continue to top the charts, while the domestic brands fell 2.3% for the first 11 months of 2011, … Read More
As it stands, on January 1, 2013, tax benefits to consumers and businesses and government spending increases—which includes extended unemployment benefits—are set to expire.
These incentives that helped the economy “rebound” from the crisis add up to roughly $433 billion or approximately 2.9% of GDP (source: Bloomberg).
For the first quarter of 2012, Lombardi Financial believes that U.S. GDP growth is likely to come in well under two percent. For the remainder of 2012, I believe GDP growth in the one-percent range could be a best-case scenario.
The Congressional Budget Office (CBO) believes that GDP growth will be two percent in 2012. The optimistic economists believe that not only is two percent GDP growth attainable, but also higher levels can definitely be achieved.
For argument’s sake, dear reader, let’s assume a two-percent GDP growth rate for 2012. The CBO believes that, even after the tax benefits and spending increases expire, the U.S. economy will achieve GDP growth of 1.1% in 2013.
If the tax benefits and spending increases take away 2.9% of GDP growth in 2013, and GDP growth is to be 1.1% in 2013, then real GDP growth in the U.S. in 2013 would have to be four percent in order for these projections to materialize.
With the recession in Europe, the slowdown in China, and a U.S. consumer that is experiencing no real disposable income growth, the chances of this occurring are close to zero.
Even if these tax benefits and spending increases are extended another year, and GDP growth in 2013 is in the 3.0%-3.5% range, we know the economy is not growing on its own, but … Read More
Consumers just can’t stop spending…
U.S. consumer debt levels increased by $19.3 billion in December, after November’s steep rise of $20.0 billion, bringing total consumer credit in 2011 in the U.S. to $2.5 trillion (source: Federal Reserve).
Some economists are hailing this as a sign that economic growth is on the rebound, due to the consumer exhibiting confidence by taking on more debt.
Normally, in times of economic growth, income levels rise, job growth is widespread, and consumer assets increase in value, which provides the consumer with wealth (or perceived wealth). In times of typical economic growth, increased consumer credit can be seen as a sign of confidence.
However, in this current environment, we are witnessing real personal incomes falling over the last few years. Wage growth has been stubbornly anemic. We’ve had a minor pickup in job growth, but nothing sustainable as of yet. In the meantime, consumer assets (real estate and stocks) have been flat to down over the last few years. No economic growth here!
Combine this with rising food and energy costs (see “Michael’s Personal Notes” below), and one can only conclude that the increase in credit is a result of people trying to maintain their standard of living and paying their current bills; this is not economic growth.
As I’ve written before, almost one-in-two American households receive some form of government assistance. With the underemployment rate—“U6”—still at 15.1% (the rate includes discouraged people who have stopped looking for work and those part-time that would like full-time work), 46 million people on food stamps and real personal incomes flat, credit expansion can only be the result … Read More
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