Posts Tagged ‘Economic growth’
Stock Advisor Sentiment Suggests Sell-Off Ahead
By Michael Lombardi, MBA for Profit Confidential
As the key stock indices continue to climb higher, optimism amongst investors and stock advisors rises to a dangerous level.
According to the Advisor Sentiment tracked by Investors Intelligence, an indicator I follow to gauge optimism in the stock market, the number of stock advisors who are bullish towards key stock indices is at its highest since April of 2011. (Source: Investors Intelligence, May 22, 2013.) To bring this into perspective, in April of 2011, the key stock indices like the S&P 500 started to decline, dropping nearly 20% through October of that year.
The stock market is becoming very overbought and very overpriced. It’s not a matter of “if” the market faces a major set-back, but “when.”
The U.S. economy continues to struggle and early indicators of economic slowdown are flashing warning signs. Consider the Business Outlook Survey by the Federal Reserve Bank of Philadelphia, which provides an outlook for manufacturing activity in the Philadelphia area. The survey indicates demand has been weak, with new orders and shipments declining and inventories building up. (Source: Federal Reserve Bank of Philadelphia, May 16, 2013.)
The index of current manufacturing activity in the Philadelphia region registered at negative 5.3 in May compared to positive 1.3 in April. Any number below zero indicates conditions in the manufacturing sector are becoming poor.
This isn’t the only troubling statistic that shows the U.S. economy is headed towards an economic slowdown. Our economic growth is questionable; unemployment is still staggering; the majority of jobs created since the financial crisis have been in low-paying jobs, and a significant portion of the U.S. population is on food stamps…. Read More
Federal Reserve’s Quantitative Easing Making U.S. Economy Fundamentally Weak?
By Michael Lombardi, MBA for Profit Confidential
While testifying in front of the Joint Economic Committee in Washington regarding monetary policy and the economic outlook of the U.S. economy, the Chairman of the Federal Reserve, Ben Bernanke, said yesterday, “…the committee has said that it will continue its securities purchase until the outlook for the labor market has improved substantially in a context of price stability.” (Source: “The Economic Outlook,” Board of Governors of the Federal Reserve System, May 22, 2013.) In other words, the Federal Reserve has made it clear, once again: it will not stop quantitative easing until the unemployment rate comes down.
The Federal Reserve continues printing $85.0 billion a month in new money, using this newly created money to purchase long-term U.S. bonds and mortgage-backed securities (MBS). The Fed has already inflated its balance sheet to over $3.0 trillion, and by keeping the pace of quantitative easing the same, its balance sheet will reach $4.0 trillion very quickly.
I believe the longer the Federal Reserve continues with the quantitative easing, the bigger the eventual troubles will be.
First of all, quantitative easing and artificially low interest rates by the Federal Reserve have essentially forced investors to take higher risk elsewhere, as guaranteed yields have collapsed. The yield on 10-year U.S. bonds is less than two percent; meanwhile, tax-favored dividends from the rising Dow Jones Industrial Average stocks pay 2.35%.
It is very well documented in these pages how investors are rushing to get higher yields as the Federal Reserve stays the course. Investors are adding junk bonds to their portfolio; conservative investors, like the central banks, are buying stocks; and bond funds … Read More
Six Reasons Why I Remain Skeptical About the Housing Recovery
By Michael Lombardi, MBA for Profit Confidential
A healthy housing market is essential to economic growth in the U.S. economy. But despite what we are hearing from the media, the housing market rebound is facing major headwinds.
To start with, home prices in the U.S. housing market are nowhere close to their pre-crash levels. There are millions of homeowners in the U.S. economy whose homes are worth less than what they originally paid for them. From their peak in 2006, home prices in the U.S. housing market are still down roughly 30%. For millions of homeowners to break even on their home investment, home prices will have to go up by at least 40%.
We just learned housing starts plunged 16.5% in April from March. (Source: U.S. Census Bureau, May 16, 2013.) This decline in new housing starts was one of the sharpest declines since mid-2011.
The chart below depicts housing starts from 2001 to today. Notice the recent sharp decline in housing starts.
Chart courtesy of www.StockCharts.com
Housing starts may not be a very exciting number to some, but I follow housing starts to gauge consumer spending. Think of it this way: when a family buys a new home they need to buy things that are needed in the household—new furniture, appliances, lawn mowers, and so on. It is this spending that ultimately results in economic growth for the U.S. economy.
Construction spending in the U.S. economy is also on the decline. It registered an annual rate of $893.6 billion in December of 2012, and by March 2012, construction spending fell to an annual rate of $856.7 billion—a decline of four percent. (Source: Federal Reserve Bank … Read More
First-Quarter Demand for Gold Jumps 19% in China, 27% in India
By Michael Lombardi, MBA for Profit Confidential
This doesn’t make it easy to understand for investors who bought gold stocks and have now seen them go down in price…
But while the prices of gold stocks have pulled back significantly this year, demand for physical gold bullion has gone through the proverbial roof.
The U.S. Mint had to halt the sales of its most-sold 1/10-ounce gold bullion coin. In Australia, the Perth Mint is working in overdrive to fill rising orders. The British Mint reports British consumers’ buying of gold has accelerated as well.
In the first quarter of 2013, total demand for gold bullion from China amounted to 294 tonnes, as jewelry demand in the country increased by 19% from the same period last year. Bar and coin investment demand rose by 22% from the first quarter of 2012. (Source: World Gold Council, May 16, 2013.)
In India, demand for gold bullion came in at 257 tonnes in the first quarter, up 27% from the first quarter of 2012. Retail investments in gold bullion edged up by 52%, and demand for jewelry was up 15% in the first quarter.
Likewise, demand for gold bars and coins in the U.S. were up by 43% in the first quarter of 2013 compared to the first quarter of 2012.
And that’s not all! The biggest driver of gold bullion prices in my opinion, central banks, bought more gold.
The first quarter of 2013 marked the seventh straight quarter when central banks accumulatively added more than 100 tonnes of gold bullion to their reserves. But we still have central banks, such as the Bank of China and the Russian central … Read More
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