Posts Tagged ‘economic recovery’
Stocks are going to gyrate around second-quarter earnings, but that’s exactly what this market needs—the corporate bottom line and expectations for the rest of the year.
With so many stocks trading at their all-time record-highs, I view investment risk in equities as being high at this time.
This is actually a tough environment in which to be an investor looking for new positions. There’s not a lot of value around and good businesses have already been bid.
It’s been years now since the stock market was first in need of a material price correction, and the next one will probably come out of nowhere.
It could be a shock from the Federal Reserve, but the central bank has been extremely delicate in how it effects and communicates monetary policy. More likely, stocks will be vulnerable to an unforeseen shock like a geopolitical event or a big derivative trade gone bad.
The risks are out there and stocks are long overdue for a reckoning.
With this in mind, I’m still a fan of the market’s existing winners, especially dividend-paying blue chips. In the absence of a shock, I think they’ll just keep pushing new highs going right into 2015.
3M Company (MMM) is an enterprise worth following and owning as a long-term, income-seeking investor.
The company’s earnings are material and offer good market intelligence, even if you aren’t interested in owning the stock.
The position has tripled in value on the stock market since the beginning of 2009, while also paying some great dividends.
The stock is still strong in the current environment, and the company represents exactly the kind of … Read More
By no surprise to me whatsoever, the government’s third and final estimate of first-quarter U.S. gross domestic product (GDP) came in at a negative annual pace of 2.9%. (Source: U.S. Bureau of Economic Analysis, June 25, 2014.) The U.S. economy’s growth rate in the first quarter of this year was the worst since 2009.
I’ve been writing since the fall of 2013 that the U.S. economy would see an economic slowdown in 2014. I have been one of the few economists warning of a recession in 2014. My calls are not to scare or create fear; rather, they are based on the government’s own data.
Not to boast, but it’s like the creators of the first-quarter U.S. GDP report have been reading Profit Confidential! Everything we have been warning about came out in this most recent GDP report.
I’ve been harping on about how the U.S. consumer was tapped out…and low and behold, consumer spending in the U.S. economy increased by only one percent in the first quarter of 2014. In the fourth quarter of 2013, consumer spending increased by 3.3%. The fifth year into the so-called economic “recovery” and consumers are pulling back on spending for the simple reason that they don’t have money to spend.
The poor have no money; the middle class has been wiped out. And the rich are far from spending enough to make up for the lack of spending by the poor and middle class.
But have no fear, dear reader; stocks are up. The stock market is telling us we have nothing to worry about? It seems so.
I, for one, … Read More
Don’t buy into the notion that there’s economic growth in America!
We’ve already seen U.S. gross domestic product (GDP) “unexpectedly” decline in the first quarter of 2014, and now there are signs of another contraction in the current quarter. (The technical definition of a recession is two negative quarters of GDP—we’re halfway there!)
As you know, consumer spending is the biggest part of our U.S. economy, accounting for about two-thirds of our GDP. And consumers are pulling back.
Consumer spending in the U.S. economy declined 0.26% in April from March. This was the first monthly decline since December of 2013. (Source: Federal Reserve Bank of St. Louis web site, last accessed June 4, 2014.)
And while consumer spending is one indicator that suggests a recession may soon be coming into play in the U.S. economy, there’s also one very interesting phenomenon occurring that suggests the very same.
The Federal Reserve is serious about pulling back on its quantitative easing program. And in anticipation of the Fed pulling back on money printing (when it first indicated it would start tapering), the yields on bonds shot up.
But since 2014 began, and the Federal Reserve actually started to taper, the yield on the long-term 30-year U.S. bond has declined more than 12%.
Chart courtesy of www.StockCharts.com
If the Fed is pulling back on printing (it has said it wants to be out of the money printing business by the end of this year), why are bond yields declining?
From a fundamental point of view, it suggests the market anticipates very slow growth for the U.S. economy ahead.
Dear reader, the perfect … Read More
There still is no real trend in the equity market. One day, stocks sell off big-time; the next, the S&P 500 and Dow Jones Industrial Average hit new record-highs.
This is a very tough market to figure; anything can happen when monetary policy is highly accommodative.
A lagging NASDAQ Composite isn’t a worry. Neither is the Russell 2000 index. Stocks won’t come apart so long as so many large-caps are pushing their highs.
And not all technology stocks are retrenching, either. Some of the old technology bellwethers are actually doing quite well these days. Microsoft Corporation (MSFT) is trading right at a multiyear high, with a 2.8% dividend yield and a forward price-to-earnings ratio of approximately 14.
Even Intel Corporation (INTC), which is having a pretty tough time generating much in the way of top-line growth, is recovering on the stock market and is very close to breaking out of a multiyear price consolidation. Intel currently offers a 3.4% dividend yield and is not expensively priced.
One day, stocks are reacting to geopolitical events in Ukraine; the next, it’s Chinese economic data, then it’s mergers and acquisitions…
If anything, the reaction to first-quarter earnings was pretty muted. But even though the beginning of the year started out with considerable downside, stocks recovered strongly after policy reassurance from the Federal Reserve. While the action’s still choppy, underlying investor sentiment is holding up.
This is a market that continues to favor existing winners, but not necessarily at the speculative end. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”) The reticence that launched blue chip … Read More
One week ago today, the Bureau of Labor Statistics reported 288,000 jobs were added to the U.S. jobs market in April. The unemployment rate fell to 6.3% from 6.7 % in March. (Source: Bureau of Labor Statistics, May 2, 2014.) Even the most optimistic of economists weren’t expecting a jobs creation number this big.
But it’s just the same old story…
When you look closer at the details of the jobs market, the employment picture actually looks terrible.
First and most important, the number of long-term unemployed in the U.S. economy remains very high. As of April, individuals who were out of work for more than six months made up 35% of all unemployed in the jobs market. The longer they are out of work, the harder it will become for them to find another job.
The number of part-time workers in the U.S. jobs market continues to increase. More part-time employees essentially means less personal earnings and, eventually, less consumption.
In April, there were 7.46 million Americans who were working part-time—up from 7.18 million in February and 7.41 million in March. These workers are working part-time because they can’t find full-time work.
Back in early 2008, the number of part-time workers in the U.S. economy was below five million. (Source: Federal Reserve Bank of St. Louis web site, last accessed May 2, 2014.) Yes, we’ve created close to 2.5 million part-time jobs since the Great Recession—that’s the majority of all jobs created since 2008.
Adding to the misery, low-wage employment in the U.S. jobs market continues to soar. In April, more than 30% of the jobs to be had … Read More
It’s hard to believe we are nearing the end of another year. It seems as though the move into 2013 was just yesterday. I was bullish at the start of the year, but I was not expecting the kind of stock market advances we have seen with the NASDAQ and Russell 2000 up more than 30% and the S&P 500 nearing that level with multiple record-highs.
Recently, I wrote about the need to ride the current market higher, as the signs point to more upside moves ahead. (Read “Why Stocks Likely to Head Higher into the New Year.”) But at the same time, I remain nervous about the vulnerability of the stock market.
The soft results from what was pumped up as a killer Black Friday failed to materialize, as sales on the Thanksgiving weekend fell 2.7% year-over-year, according to the National Retail Federation (NRF). The NRF did estimate sales during the next few weeks prior to Christmas could rise 3.9%, but while it may pan out, it will only do so because of heavy discounting to clear inventory.
What continues to linger on my mind is the fact that we have yet to see a correction of 10% or more during this four-year bull market, which began in March 2009. This makes me nervous.
Robert Shiller, who was one of three Americans who just won the 2013 Nobel prize for economics, believes there is a bubble in the U.S. stock market, especially given the run-up in stocks in spite of what has been a fragile economic recovery. (Source: Clinch, M., “Nobel Prize winner warns of US stock … Read More
The news headlines are saying the U.S. housing market is witnessing robust growth and flipping homes for profit is back.
While many are now saying there is growth in the U.S. housing market and that it will continue, I disagree with them, based on many different factors…all of which I want my readers to know about.
Yes, home prices have gone up, but that’s about it for positive developments. The housing market still suffers, and there are problems that need to be fixed before it sees a full-on recovery.
The delinquency rate on single-family residential mortgages in the U.S. remains staggeringly high. In the second quarter of this year, it was 9.41%. Yes, again; it has declined from its peak of 11.27% in the first quarter of 2010, but it’s still almost 140% higher than its historical average of 3.94%! (Source: Federal Reserve Bank of St. Louis web site, last accessed November 8, 2013.)
As I have been harping on about in these pages; institutional investors jumped into the U.S. housing market buying residential homes in bulk, and as a result, prices increased. But we didn’t see first-time home buyers run towards the housing market—an increase in first-time home buyers is essential for any economic recovery.
According to the National Association of Realtors, in September, first-time home buyers accounted for 28% of all existing home sales in the U.S. Meanwhile, investors were behind one-third of all existing home sales! (Source: National Association of Realtors, October 21, 2013.)
The “U.S. Economic and Housing Market Outlook” report issued in October by the Office of the Chief Economist at Freddie Mac said, “According … Read More
The U.S. Department of the Treasury has reported that for the federal government’s fiscal 2013 year, which ended on September 30, 2013, the U.S. government budget deficit was $680 billion—the smallest budget deficit in five years. (Source: Bureau of the Fiscal Service, October 30, 2013.)
Should this be taken as great news? No, it’s “smoke and mirrors,” as I will explain below. But the mainstream certainly thinks this year’s budge deficit, which came in below $1.0 trillion, is good news. They forget that no matter how you look at it, any budget deficit, no matter how small or large, is adding to a bigger problem at hand—our massive national debt.
Let’s face it: a budget deficit at the end of the day means the government spent more money than it received. Where does this extra money that the government spends come from? The answer is simple: it borrows. And as a result, the national debt rises.
Our national debt has increased significantly over the past few years. At the beginning of 2008, the U.S. national debt stood at $9.2 trillion. Today, it stands above $17.0 trillion. (Source: Treasury Direct web site, last accessed October 31, 2013.) This represents an increase of almost 85% in the national debt in the matter of a few years.
I believe the national debt will double from here…from $17.0 trillion to $34.0 trillion.
Why am I so negative on the national debt? I’m skeptical because I don’t believe this year’s numbers present the real story on government spending. Let me explain…
In the fiscal 2013 year, the U.S. government paid … Read More
The Federal Open Market Committee (FOMC) decided this week to keep quantitative easing and easy monetary policy going. The statement by the Federal Reserve said, “To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.” (Source: Federal Reserve, October 30, 2013.)
I’m one of those economists who believes the longer this goes on, the more troubles we are going to see. Is the Federal Reserve playing with fire?
It’s been almost five years since the Federal Reserve introduced the idea of quantitative easing to the U.S. economy. The goal was to help spur the economy and to help the average Joe, who, at the end of the day, lost his job and his house.
Has that happened?
It’s very clear: quantitative easing and the easy monetary policy that the Federal Reserve has been implementing for some time haven’t really filtered down to the average American. But it is helping the big banks; we have seen their profits grow significantly since 2009, while the average consumer has seen his/her real wages decline. Those who are closing in on retirement are forced to stay longer in their career or rethink their options because their savings have either been depleted or haven’t grown enough.
And we are seeing consumer confidence slide lower. This is the exact opposite of what the quantitative easing was supposed to do. For the week ended October 27, the Bloomberg Consumer Comfort Index declined to the lowest … Read More
More evidence consumer confidence in the U.S. economy is plunging…
The monthly Bloomberg Consumer Comfort Index, a consumer confidence indicator that shows the expectations of Americans about the U.S. economy, plunged to its lowest level in October since November of 2011. The index stood at -31 in October, down from minus nine in September. (Source: Bloomberg, October 17, 2013.) This index ranges from +100 to -100 (very optimistic to very pessimistic).
At the very core, consumer confidence gives an idea about consumer spending in the U.S. economy. The better the consumer feels, the more they spend: it’s just that simple. If someone doesn’t have a job but has expenses that need to be paid, they will not go out and buy that new flashy car or the house with the greener grass. They are more likely to keep what they have, and cut back on their discretionary spending.
The extent of bleak consumer confidence doesn’t just end here. In these pages, I have been talking about how companies in key stock indices are showing dismal revenues, but one sector is showing the opposite trend—discount stores.
Consider the corporate earnings of Family Dollar Stores, Inc. (NYSE/FDO); the company’s profits increased 27.5% in the fourth quarter of its fiscal year 2013 (ended August 31). Sales at Family Dollar Stores increased 5.8% compared to the same quarter a year ago. (Source: Family Dollar Stores, Inc., October 9, 2013.)
If all the pieces of the puzzle come together as expected (bleak consumer confidence leading to even lower consumer spending), I would not be surprised to see the gross domestic product (GDP) of the U.S. … Read More
These days, central banks are on a very dangerous monetary policy path. Paper money printing has become the norm. Major central banks around the world are taking the same actions; they have learned the phrase “quantitative easing” well. Economy’s soft; no problem! We’ll just print more money so our currency falls in value and our exports rise! (If only it were that simple.)
Two central banks are at the forefront when it comes to implementing paper money printing: the U.S.’s Federal Reserve and the Bank of Japan. And it isn’t a secret how poorly these two nations are faring despite their quantitative easing efforts.
In these pages, I have been very critical of quantitative easing.
With that said, to date, I have only heard one senior financial politician and one central bank head criticize the use of quantitative easing.
Canada’s Finance Minister, Jim Flaherty, at a private dinner with his G20 equals this week, criticized the use of quantitative easing by the U.S. central bank. The following day, he said, “It’s not good public policy.” He said the U.S. should have never implemented quantitative easing, but “Now that they’ve done it, they should get out of it as quickly as they can.” (Source: “‘Not good public policy’: Flaherty appears at odds with BoC, G20 as he criticizes U.S. quantitative easing,” Financial Post, October 16, 2013.)
The governor of the central bank of Canada, Stephen Poloz, has a similar take. He said, “[we] certainly agree that quantitative easing is one of the last things we want to be in a position to have to use.” (Source: Ibid.)
Finally, … Read More
Analysts and investors demand clarity when a company reports or offers up guidance. But when it comes to the Federal Reserve, investors and analysts don’t seem to demand the same level of clarity, even though the central bank has been what I would label “wishy washy” as far as its policies and what it offers up to the market.
The stock market is trading (and it has been for a while) on what the Federal Reserve says about its quantitative easing program, namely its monthly bond-buying strategy.
Yet the Federal Reserve appears to be saying one thing, only to contradict it with the next statement. This type of confusion and uncertainty is not what I want to hear. I want more certainty in order to formalize my trading and investment strategy. The cloudiness offered by the Federal Reserve doesn’t help.
Case in point: at last week’s Federal Open Market Committee (FOMC) meeting, Federal Reserve Chairman Ben Bernanke, to the surprise of nearly everyone both on Wall Street and Main Street, announced that the bank had decided against tapering, despite what I see as moderate growth in the economy. Yes, the country continues to slug along, but with the second-quarter gross domestic product (GDP) growth at 2.5% and with the Federal Reserve estimating the country will continue to expand at a rate above two percent this year and in 2014, the Federal Reserve should have begun to rein in some of its bond buying. Pundits were estimating a $10.0-billion cutback to start.
Well, even that small cut didn’t happen. Bernanke said the economy was still fragile, and the Fed didn’t … Read More
First, take out the stock buyback programs, and you’ll see that U.S. companies are seeing their earnings and revenues grow this year at their slowest pace since 2009. (More on that in today’s “Michael’s Personal Notes” column below.)
From a boring (but extremely important) economic point of view:
When a country experiences economic growth, industrial production of electricity and gas utilities pick up as factories and consumers use more electricity and other utilities. This is not happening in the U.S. economy. As a matter of fact, industrial production is contracting!
An index tracking industrial production of electric and gas utilities has declined almost eight percent since this past March. It stood at 103.76 then; in August, it stood at 95.62. (Source: Federal Reserve Bank of St. Louis web site, last accessed September 19, 2013.)
But it doesn’t end there.
Another key indicator of economic growth known as “capacity utilization” shows companies in the U.S. economy are operating below their historical norm. In August, the capacity utilization in the U.S. economy was 77.8%, three full percentage points below the historical average from 1972 to 2012. (Source: Federal Reserve, September 16, 2013.)
And we are seeing layoffs and discharges in the manufacturing sector accelerate in the U.S. economy. In March, there were 83,000 layoffs and discharges in manufacturing. In August, that number rose to 91,000—an increase of almost 10%. (Source: Federal Reserve Bank of St. Louis web site, last accessed September 19, 2013.)
When we look … Read More
Yet with the rise in global wealth, we are seeing an associated rise in travel in the airline sector, especially in the emerging markets and China. (Read “Wealth, Lower Oil Prices, Increased Spending—Airline Stocks Headed Higher?”)
The plane builders, suppliers, and airlines are all faring better, and the future looks optimistic, given the rise in world income levels and the global economic recovery.
In July, international passenger traffic jumped 5.1% year-over-year, according to the International Air Transport Association. (Source: “Solid Demand Growth Continues in July – Asia Weakens as Europe Gains Strength,” International Air Transport Association web site, September 3, 2013, last accessed September 10, 2013.)
The report noted that the top domestic growth was found in China (+10.7% in July) and Russia (+11.7%). Other key areas for growth included India (+6.0%) and Japan (+5.7%). Meanwhile, travel in the U.S. domestic travel market was comparatively muted at 1.5%.
In China, the increase in domestic travel will translate into higher demand for lodging, which I feel will continue to be a growth area in the Chinese market. In addition, the country has become one of the top travel destinations in the world for both business and personal travel.
And this means rising demand for accommodations from the value hotels to the luxury. Having stayed at a popular Chinese hotel chain when I was in China, I can say the quality of the accommodations was first rate. Yet with over … Read More
Consumers always shop for bargains and lower prices regardless of the economy. In fact, after going through the recession, consumers are probably stuck in the mind-frame of looking for the best deals when shopping. I know I prefer to buy goods on discounts and rarely for the original ticket price.
If you have been following my column, you know how I favor discount stocks in the retail sector.
Wal-Mart Stores, Inc. (NYSE/WMT) remains the “Best of Breed” in the discount retail sector, but the company is currently facing some growth issues, as are many other stocks in the retail sector. (Read “How Red Flags in the Retail Sector Are Threatening U.S. GDP Growth.”)
What I continue to like in the retail sector are the dollar stores. While these retailers are now selling goods at a price above a dollar, what I like is the move by some companies to broaden their product offerings to include foods, such as perishables. Look at what Wal-Mart has been doing with its move into nearly everything you can imagine, taking advantage of its massive consumer shopping base.
One of my favorite dollar store stocks is Dollar General Corporation (NYSE/DG). This company has a market cap of $18.0 billion, so it’s not small; however, it is tiny in comparison to the $239-billion market cap of Wal-Mart or the $49.0-billion market cap of Costco Wholesale Corporation (NASDAQ/COST).
I initially spotted Dollar General in 2011 when the stock was trading in the $20.00 range. Since then, and with the propensity to look for value, the stock has had an excellent run, as reflected on … Read More
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