Consumer spending, which is so desperately needed, only increases when consumers are happy—when they are confident about their jobs, savings, investments, and overall wealth.
Right now in the U.S. economy, none of that is present. For consumer spending to increase, you need consumer confidence in the U.S. economy to increase. I don’t see it, even after multiple rounds of quantitative easing and the government adding a significant amount of debt. Consumers are worried about the economy and are hesitant to spend.
A recent survey by Employee Benefit Research Institute proves the point. According to the national survey, Americans are losing confidence in their ability to retire comfortably. Their biggest concerns include job uncertainty and debt, with 42% of the respondents believing that job uncertainty is the biggest hurdle to their financial success. Likewise, 60% of the workers reported that they have total household savings and investments of less than $25,000. (Source: Employee Benefit Research Institute, March 13, 2012.) How can there be consumer spending growth under these circumstances?
The demand for most basic goods by consumers isn’t there either. As an example, the demand for cheese in the U.S. has been softening as we approach the holiday season. The Chicago Mercantile Exchange (CME) spot prices for cheese declined significantly during the week of November 5. Cheddar blocks fell by $0.19 a pound (lb) to $1.92/lb—more than nine percent. (Source: Milk Producer Council, November 9, 2012.) Weak cheese sales are a clear indication that consumer spending is pulling back.
And some 100 California farmers are closing down, because they are facing financial hardships due to weak demand for milk and … Read More
In a sense, the stock market continues to be held hostage by the continuing sovereign debt crisis in the eurozone and the “fiscal cliff” in the U.S. But investor sentiment changed before recent worries regarding these two issues, and corporate earnings growth is slowing. I think we’ll be very lucky to see any gross domestic product (GDP) growth next year from Western economies.
Wall Street still expects broad-based earnings growth next year, but the estimated pace of this growth is being reduced considerably. Lots of Dow stocks, even Exxon Mobil Corporation (NYSE/XOM), are seeing their earnings estimates revised lower for 2013.
So we’re in a stock market where investment risk is high, uncertainty is great, and earnings outlooks are going down. It’s not a great time to be a buyer.
Apple Inc. (NASDAQ/AAPL) remains this market’s perfect benchmark stock, capturing investor sentiment at its core. Apple’s share price is now off its recent all-time high by $160.00 a share—that’s correction territory and the stock’s near-term downward trend looks intact. Apple’s stock chart is below:
Chart courtesy of www.StockCharts.com
And the pain (on the stock market) doesn’t stop there; Amazon.com, Inc. (NASDAQ/AMZN) is now at a major technical price floor and is very close to breaking down further. Google Inc. (NASDAQ/GOOG) is holding up okay in this market for now, but the position is still off by $100.00 a share since last month. (See “What Many Blue Chips Are Signaling.”)
The stock market is at a crossroads right now. All the information is in the marketplace: the declining expectations for earnings, the continuing sovereign debt crisis in the … Read More
China may be slowing, but the resource-hungry country is always on the hunt for resources to help fuel its industrial growth in the decades ahead. And if you believe the country and its objective to double its gross domestic product (GDP) by 2020 (read “China’s Golden Years Still to Come”), then you have to believe that reliable resources will be needed. This means internal exploration and the buying of foreign resource companies.
In 2009 and 2010, Chinese energy firms made about $48.0 billion in acquisitions in North America, according to the International Energy Agency (IEA). The country has investments in the Canadian tar sands in Alberta, and I expect to see more Chinese capital flowing in.
And according to the IEA, China has targeted Iraq as its top oil source by 2030. (Source: “China to be main buyer of Iraqi oil by 2030, says IEA,” China Daily, November 13, 2012.)
Whether it’s in the Middle East, Africa, or Canada, China wants to and needs to pump up its access to oil reserves, regardless of the location.
Take Canada, for instance. In spite of political roadblocks from the Canadian government, China has been targeting Canadian energy plays; albeit, not all have played out.
CNOOC Limited (NYSE/CEO), one of the three major state-owned oil producers in China, wants to buy Canada-based Nexen Inc. (NYSE/NXY) for $15.1 billion in cash, or $27.50 a share. With the prevailing market share price at $24.50, there’s a sense the deal could fail. The problem is that the deal has yet to be accepted by the Canadian regulators and government, which have … Read More
Spain—the current epicenter of the credit crisis in the eurozone—has seen its credit rating downgraded to a credit rating of BBB- from BBB+ by the Standard and Poor’s (S&P) credit rating agency. A credit rating of BBB- is the lowest investment grade credit rating issued by S&P and just one notch above “junk” status. (Source: Standard & Poor’s, October 10, 2012.)
In 2007, eurozone member Spain saw its national debt equate to 36% of its gross domestic product (GDP) that year. Now, with the government’s plan to borrow more than 207 billion euros next year, the country’s debt as a percentage of GDP will reach 91%. (Source: Business Week, October 11, 2012.)
Let’s not forget; Spain is a major contributor to the eurozone economy and is the 12th largest economy in the world.
From all of this, what bothers me is that the U.S. economy—the biggest economy in the world—is sitting on the credit rating of AAA, as issued by Moody’s Investor Services, and AA+ by S&P, the same credit grading that puts Spain’s rating at BBB-.
While the U.S. enjoys a strong credit rating of AAA, the national debt compared to GDP for the U.S. is much higher than that of Spain, a eurozone country. In the U.S., this year’s GDP is estimated at $15.5 trillion. (Source: Bureau of Economic Analysis, September 27, 2012.) But the total national debt of the U.S. stands at $16.2 trillion (see the U.S. debt clock at www.investmentcontrarians.com). This makes the … Read More
The majority of you have likely heard of the growing reference to “Chindia,” the regions of China and India. The explosive demand for goods and services here will be driven by a combined population of about 2.5 billion people, or about 37% of the world’s population.
Yet it will not be just the staggering growth in population that will substantially increase demand, but also the size of each country’s economy and middle class. China and India, whose respective economies are ranked second and tenth in the world, will be a driving force behind the global demand for goods and services.
According to consulting firm Bain & Company’s web site, “China, followed by India and other emerging Asian economies, is creating a vast new population of consumers, whose growth will continue into the coming decade.” (Source: “The Great Eight: Trillion-Dollar Growth Trends to 2020,” Bain & Company, September 9, 2011.) The research suggested that about two-thirds of the world’s growth in the middle class will be derived from Chindia.
While the real gross domestic product (GDP) growth in the U.S. is estimated to run at 2.4% in 2013 and 2.8% in 2014, the number is below the world average of around three percent and 3.3%, respectively, according to the World Bank. China, which is showing some stalling, is still expected to expand its economy by 8.6% and 8.4%, respectively, while India’s GDP growth is estimated at 6.9% and 7.1%, respectively. The GDP growth in China is optimistic, as the country tries desperately to avoid a hard landing that is being affected by slower growth in the eurozone and global economy.
I … Read More
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