Posts Tagged ‘Europe’
Oil prices have rallied back to the $100.00-per-barrel level on some near-term supply and inventory concerns.
While the upside move is rewarding the buyers of oil stocks, I don’t think oil prices are set for an extended rally.
The chart of the West Texas Intermediate (WTI) crude oil shows oil prices bouncing higher after the formation of a bullish double bottom, based on my technical analysis. And while oil prices can head higher on the chart, I just don’t see any moves being sustainable.
The catalyst for higher oil prices has more to do with tight inventories driven by a rise in demand. The inventory of oil contracted by 1.5 million barrels per day in October to December 2013, according to the International Energy Agency (IEA). The IEA suggests the demand for oil will rise by 50,000 barrels per day to 1.3 million barrels in 2014. (Source: Johnson, C. and Sheppard, D., “Robust demand tightening oil market, IEA says,” Reuters, February 13, 2014.) If this estimate pans out, oil prices could edge higher and hold above $100.00, but I doubt the move will last that long.
Now, if China jumps out of its sluggish growth (read “Investment Opportunities in Depressed Chinese Stocks”) and Europe can drive its economic renewal, then we could see brighter prospects for oil prices.
On the supply side, America is relying less on the Organization of the Petroleum Exporting Countries (OPEC) and foreign oil as American oil companies continue to squeeze more oil out of the ground, specifically shale oil.
There may even be a time down the road when … Read More
Copper prices are collapsing, a sign that manufacturing activity in the global economy is slowing.
The chart below shows copper prices are down more than five percent so far this year. Notice the steep decline in copper prices starting this January.
Copper is a major commodity used as a material ingredient in a wide variety of manufactured goods. If copper prices are declining, which means demand is falling, we get an early indication that manufacturers are producing less because customer demand is soft.
At the same time, in another startling development, the Baltic Dry Index (BDI), the next chart below, has collapsed 50% from the beginning of the year.
Chart courtesy of www.StockCharts.com
The BDI basically tracks shipping prices of raw materials in the global economy. When the BDI declines, it means fewer goods are being shipped in the global economy, a sign that the worldwide economy is slowing.
Chart courtesy of www.StockCharts.com
Last but not least, as we have been hearing in the news, the emerging markets in the global economy are in trouble.
Manufacturers in the global economy, not being able to sell enough to developed countries like the U.S. and Europe, were hoping to sell more of their goods to once “fast”-growing emerging markets. But now, economic growth in these countries is slowing, too.
Russia, one of the major emerging markets in the global economy, reported its 2013 economic growth rate was the lowest since 2009! The Russian Federal Statistics Service said the economy grew by 1.3% in 2013 compared to 3.4% in 2012. (Source: Bloomberg, January 31, 2014.)
Other emerging markets like India and China have … Read More
Apple sold a whopping record 51 million “iPhones” and 26 million “iPads” in its fiscal first quarter, which is great stuff at first glance. So why did investors scramble for the exits?
The problem is that the market expectations placed on Apple are enormous. But that’s what happens when you’re the top seller of smartphones in the United States. Wall Street wanted to see the company sell 55 million iPhones, so its four-million-unit miss was a disappointment.
What’s failing the company is its reluctance to sell a really cheap iPhone that caters to the emerging markets, which is, in reality, where much of the growth is for smartphones.
Apple has a deal with China Mobile Limited (NYSE/CHL) to mass market its phones in the massive Chinese market, where there are more than 750 million users. (Read “Apple Finally Takes Step That Will Take the Company to the Next Level.”) But while the deal was only recently formalized, the early indications are that sales of the iPhone in China aren’t all that great.
The problem is (as I have discussed on numerous occasions) Apple’s reluctance to sell a cheap iPhone. Price points are critical when selling products in the emerging markets, so the lack of a cheaper offering from the company will hurt its sales in China. China is not like America, Japan, or Europe as far as available discretionary income. When the per-capita income in China hovers around US$6,500 or so annually and Apple wants to charge $600.00-plus for an “iPhone 5S,” there’s clearly a disconnect.
CEO Tim Cook doesn’t seem to get it or it’s simply an … Read More
You don’t often hear a lot about United Technologies Corporation (UTX) these days; it’s an old economy name that doesn’t seem to garner much attention from the media.
Nevertheless, the company that makes elevators, helicopters, airplane engines, and HVAC (heating, ventilation, and air conditioning) and fire/security systems continues to perform excellently. It’s a component of the Dow Jones Industrial Average, and the stock’s had an exceptional year. (See “The One Market Sector That’s Consistently Outperforming the Rest.”)
Approximately $17.0 billion of the company’s total sales in 2012 came from its “UTC Climate, Controls and Security” business. Next was “Pratt & Whitney” aircraft engines at $14.0 billion. “Otis” elevators and escalators brought in $12.0 billion in sales last year, followed by “UTC Aerospace Systems” at $8.3 billion and “Sikorsky” helicopters at $6.8 billion.
As a conglomerate with a strong constituent in aerospace, United Technologies has an excellent track record of increasing its dividends to stockholders.
In 2012, the company increased its common share dividend by a total of 11.5%, representing its 76th consecutive year of paying dividends. According to the company, from fiscal year-end 2002 to year-end 2012, United Technologies delivered a 225% total return to shareholders, which is more than double the total return of the DOW or S&P 500.
In 2008, the company paid out $1.35 in total dividends per share. By the end of last year, that figure was $2.03 per share.
Of the company’s total sales, 40% are in the U.S. market, followed by 26% in Europe and 20% in the Asia Pacific region.
Since the recession, United Technologies’ sales, earnings, and earnings per share … Read More
I’m blessed to be able to travel to Europe once or twice a year. I use the trips as an opportunity to see how the economies are faring over there. And I can tell you this first-hand: the economic situation in Europe is much worse than what we’re hearing from the mainstream media in the U.S. economy.
Here’s just one small story that paints the picture…
A couple of weeks back, while in Venice for four days, I walked into my favorite ice cream store for my daily fix of Italian ice cream. I’m chatty wherever I travel, as I want to get the locals talking so I learn what’s going on.
After engaging the store’s only employee in conversation (I’m fluent in Italian), the young man, who was between 25 and 30 years old and educated, told me how happy he was to have his job as an ice cream scooper at this particular location of a well-known chain of Italian ice cream stores. “Jobs in Italy are very hard to come by,” he told me.
But what he said next really got me thinking…
The ice cream scooper said he travels 65 kilometers (that’s about 40 miles) each way to and from work each day. He takes the train. Total travel time is four hours a day; two hours in the morning to get to work, and two hours at night to get home from work. Yes, four hours a day to travel to a job scooping ice cream for tourists.
When I asked him about getting a job closer to the town he lives in, he … Read More
What the heck is with this stock market? The ability of the stock market to hold and avert a major correction over the past two weeks and then follow this with an upward move on the charts is a surprise—at least in my view it is, as it clearly shows the bullish bias controlling this stock market.
The NASDAQ and Russell 2000 are at new recent highs as the desire for growth by investors continues, which has largely been the story this year.
The S&P 500 is within striking range of its September record high.
The focus on the debt ceiling is important but also way overdone, in my opinion, given that we are in the midst of the third-quarter earnings season and, well, it has been subpar early on.
Yes, it’s still early in the earnings season, but I expect more subpar results. Of course, what I expect doesn’t matter—momentum and speculation are what drive this stock market.
So far, about six percent of S&P 500 companies have reported, and a dismal 55% of these companies have beaten estimates. That’s just not good. The results are also well below the historical average at just over 60%, and to make matters worse, the results were compared to estimates that were already lowered by Wall Street. Revenue growth is also lackluster, as I expected, which is not what we should be seeing with an upward-trending stock market.
The big banks reported decent results, but much of the easy money in this stock market sector has been made. The retail sector, which I view as critical due to its impact on … Read More
Central banks have pretty much stopped selling gold bullion, which is very important. In 1999, a number of central banks in Europe formed an alliance and agreed that they would not sell more than 400 tonnes of gold bullion per year. The agreement was called the Central Bank Gold Agreement (CBGA). In 2004, the CBGA was renewed again; this time the limit was 500 tonnes. Once again, it was renewed for another five years in 2009, and the limit is back to the sale of no more than 400 tonnes of gold bullion per year.
The chart below shows how much gold bullion the central banks in Europe sold in each period of the CBGA. (Source: World Gold Council web site, last accessed October 11, 2013.)
Sales in Tonnes
* Sales are until 2013.
Notice anything different? The central banks in Europe have put the brakes on their sales of gold bullion. In fact, from September 27, 2012 to September 26, 2013, these central banks only sold 5.1 tonnes of gold bullion! This is hands down the lowest amount sold since the agreement started in 1999.
When it comes to stocks, if owners of a stock aren’t selling and there’s a significant number of buyers who want to buy, the price of the stock usually goes up as the simple rule of economics … Read More
Companies in key stock indices have started to report their corporate earnings for the third quarter of this year. Not surprising, they are weak and show signs of stress.
According to FactSet, up until October 4, 90 companies in key stock indices like the S&P 500 issued negative guidance about their third-quarter corporate earnings per share. This is the highest number of companies posting negative guidance since the research company started to track earnings guidance back in 2006. (Source: “Earnings Insight,” FactSet, October 4, 2013.)
The corporate earnings growth rate for the S&P 500 is expected to be about three percent in the third quarter, and just like the last quarter, once again, a significant portion of the boost in earnings will come from the financial sector. If you take the financial sector’s corporate earnings out of the equation, earnings growth rates drop down to about 1.7%. Take away all the stock buyback programs public companies have conducted this year, and the earnings growth picture gets really ugly.
I think the smart money is sensing companies are struggling to grow, so they are starting to pull money out of the market.
According to the Investment Company Institute, for the week ended September 25, the long-term U.S. stock mutual funds had a net outflow of $3.8 billion in capital. Similarly, for the week ended October 2, the net outflow continued and increased to $4.12 billion. (Source: Investment Company Institute, October 9, 2013.)
Key stock indices like the S&P 500, Dow Jones Industrial Average, and the NASDAQ have shed some gains recently; they are much lower than their all-time highs posted just … Read More
In 2010, on average, for every one dollar in sales posted by the S&P 500 companies, $0.135 came from Europe. In 2011, this number declined to $0.11. In 2012, sales from Europe accounted for only $0.097 for every one dollar of sales generated by the S&P 500 companies. (Source: S&P Dow Jones Indices, August 2013.) These statistics should not be taken lightly.
The debt ceiling fiasco and the U.S. government shutdown are front and center now. Europe has been pushed to the back of the stage in spite of the fact that continued troubles there will have a negative impact on the S&P 500 companies.
Even though there has been growing optimism towards Europe, the region’s troubles are staggering. Unemployment in the common currency region of Europe remains ridiculously high. Bad debt is everywhere, and economic uncertainty remains high.
England, one of the biggest economic hubs in Europe, looks to be stalling once again after seeing menial growth. British industrial output declined 1.1% in August. This was the biggest drop since September of 2012. Output in the manufacturing sector fell 1.2% and other sectors, such as pharmaceuticals, electronics, and food and beverages, witnessed a decline as well. (Source: Reuters, October 9, 2013.)
So if Europe is far from being “out of the woods,” where will the S&P 500 companies get sales growth from? Growth in the U.S. economy is almost nonexistent and the Chinese economy is slowing, too.
Europe is an integral part of the global economy. The longer it takes for Europe’s economy to recover, the more scrutiny there will be on the revenues of S&P 500 companies. In … Read More
You can learn a lot about the welfare of the global economy by looking at global bellwether stocks such as FedEx Corporation (NYSE/FDX), MasterCard Incorporated (NYSE/MA), and Visa Inc. (NYSE/V). These are the companies that tend to ebb and flow along with the action of the global economy, so I generally follow them as a benchmark for some of my market analysis.
FedEx just reported its fiscal 2014 first quarter (ended August 31, 2013) that saw the delivery company beat the Thomson Financial consensus earnings-per-share (EPS) estimate by $0.03 per diluted share. Revenues expanded at 1.9% year-over-year. In my books, the revenue growth, while acceptable, does not suggest a boom in the global economy. The global economy is progressing along at a steady rate.
For 2014, FedEx is predicting EPS to expand at a rate of seven to 13% year-over-year. The estimate is based on U.S. gross domestic product (GDP) growth of 2.1% and 2.6% growth in the global economy. The assumptions are more or less in line with the Organisation for Economic Co-operation and Development (OECD) and International Monetary Fund (IMF) estimates, suggesting that the global economy will continue to grow at a moderate pace in 2014.
The positives of the moderate growth are that inflation likely won’t play a major factor and central banks around the world will maintain their record-low interest rates.
Now, if the assumptions are correct, I would expect the jobs market to improve and corporate revenues to rise, which are two key areas in my view. The U.S. GDP grew at 2.5% in the second quarter, so it looks like the expected growth is … Read More
At the top of my watch list in the coffee sector is Starbucks Corporation (NASDAQ/SBUX), just because of its strong brand recognition not only in the United States but worldwide. Whether it’s in Asia, Europe, or Latin America, you can always find that familiar green Starbucks logo.
However, when I have a craving for a baked treat (though I seldom do), I do like the “Boston Kreme” donut and “Cheddar Cheese Bagel Twist” at Dunkin’ Donuts, operated by Dunkin Brands Group, Inc. (NASDAQ/DNKN), which also owns Baskin-Robbins. Dunkin is known more for its donuts than its coffee; nevertheless, it is a coffee shop that many customers will venture out to for a sweet treat.
Chart courtesy of www.StockCharts.com
Dunkin is still primarily an American brand, but the company is considering returning to the United Kingdom. The company is looking at opening 50 outlets in the greater London area within five years, but that number could run as high as 150 outlets in the United Kingdom. (Source: Rocco, M., “Dunkin’ Donuts Plans Return to U.K.,” Fox Business Network web site, September 12, 2013.) The company also has plans to move into Moscow.
While the expansion plans are encouraging, I really doubt the Dunkin brand can become the global icon that Starbucks has become. In China, for instance, Starbucks is rapidly growing.
An alternative investment opportunity to Dunkin—and a company that the people at Dunkin should be … Read More
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