Posts Tagged ‘stock advisors’
As key stock indices like the S&P 500 make new highs, bullishness increases almost daily, and stock advisors are saying buy more.
I am not surprised by this. All of these irrationalities tell us something very important: the bear is doing a great job of luring investors back into stocks as it gets ready to take their money away once again.
Dear reader, heed the warning signs of a market top…
Those who are very close to the companies in key stock indices are selling their shares at an extreme pace. According to CNBC, in February, insiders sold $5.3 billion worth of shares and bought roughly $268 million worth of shares; for every one dollar of stock they bought in February, they sold about $20.00 worth. (Source: “Insider Activity and Concentration by Industry,” CNBC web site, last accessed March 5, 2014.)
According to the Vickers Weekly Insider Report, corporate insiders are more bearish on the stocks of the companies they work for today than at any other time since 2007. (Source: MarketWatch, March 4, 2014.)
But insider selling activity isn’t the only indicator that worries me about the direction of the key stock indices. We see problems in corporate earnings, as well.
The number of companies warning about their corporate earnings for the first quarter of 2014 continues to increase. So far, 84 companies on the S&P 500 have issued negative guidance about their first-quarter 2014 corporate earnings. (Source: FactSet, February 28, 2014.) Remember: corporate earnings, at the core, are what drive the key stock indices higher. Even analysts aren’t very optimistic about corporate earnings; they are expecting first-quarter … Read More
The stock market in France has been on a tear! Below, I present a chart of the French CAC 40 Index, the main stock market index in France.
Looking at the chart, we see the French stock market is trading at a five-year high. With such a strong stock market, one would expect France, the second-largest economy in the eurozone, to be doing well. But it’s the exact opposite!
As its stock market rallies, France’s economic slowdown is gaining steam. In January, the unemployment rate in France was unchanged; it has remained close to 11% for a year now. (Source: Eurostat, February 28, 2014.) Consumer spending in the French economy declined 2.1% in January after declining 0.1% in December. (Source: National Institute of Statistics and Economic Studies, February 28, 2014.) Other key indicators of the French economy are also pointing to an economic slowdown for the country.
Chart courtesy of www.StockCharts.com
And France isn’t the only place in the eurozone still experiencing a severe economic slowdown. In January, the unemployment rate in Italy, the third-biggest nation in the eurozone, hit a record-high of 12.9%, compared to 11.8% a year ago.
I have not mentioned Greece, Spain, and Portugal because they have been discussed in these pages many times before; as my readers are well aware, they are in a state of outright depression.
Just like how investors have bought into the U.S. stock market again in hopes of U.S. economic growth, the same thing has happened in the eurozone. Investors have put money into France’s stock market in hopes of that economy recovering—but it hasn’t. We are dealing with a … Read More
Mainstream stock advisors are blowing air…telling us the U.S. economy is stalling due to cold weather. They say the economic chill caused by the uncharacteristically cold weather this year is only temporary. I don’t believe this for a moment.
Sure, the weather had its impact. Consumers have been reluctant to go out and shop, and higher home heating bills might have them spending otherwise so far in 2014, but there’s more to the story.
While discussing existing-home sales for January, the chief economist at the National Association of Realtors said, “Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception.” Existing-home sales in the U.S. economy declined by 5.1% in January from the previous month. (Source: “Existing-Home Sales Drop in January While Prices Continue to Grow,” National Association of Realtors, February 21, 2014.)
The reality of the situation is that existing-home sales in the U.S. economy have actually been declining since August of last year. The annual rate of already built homes being sold in the U.S. economy was 5.33 million in August. In January, it was 4.62 million. (Source: Federal Reserve Bank of St. Louis web site, last accessed February 24, 2014.)
Below, I’ve prepared a table that shows the extent of the drop in existing-home sales in the U.S. economy.
Sales (Annual Rate)
% Change from Previous Month
Source: Federal Reserve Bank of St. Louis web site, last accessed February 24, 2014.
But weak home sales aren’t … Read More
The housing market simply isn’t improving at the rate many in the mainstream media are telling us.
Home prices are still significantly lower than what they were during 2005 and 2006. On its own, there is no housing market recovery. All we are witnessing is the mere reflection of easy money provided by our central bank.
As I often write, to see a real recovery in the housing market, we need to see first-time home buyers active in the market. Unfortunately, they are not involved.
In April, first-time home buyers accounted for only 29% of all existing home purchases in the U.S. housing market. This was three percent lower than the previous month and 17% lower than April 2012, when first-time home buyers accounted for 35% of all home purchases. (Source: National Association of Realtors, May 22, 2013.)
According to a survey by Fannie Mae, last month, 40% of Americans said it’s a good time for them to sell their home. In April, the survey showed only 30% thought the same thing, and in the same period a year ago, this number stood at 16%. (Source: Realtor Magazine, June 11, 2013.) Hence, we are going to see more listings hit the housing market.
The inventory of homes for sale in the U.S. housing market increased four percent in April from the previous month nationally, but what’s troubling is that in a few areas, such as Stockton and Sacramento, California, new listings have surged 75% from a month earlier.
The basic concept of economics: when demand declines and supply increases, prices go down.
And the most common mortgage in the … Read More
My advice: if you want to know what’s happening in the global economy, do not look to the key stock indices. They are misguiding investors into believing all is well, while the global economy stands on the verge of an economic slowdown.
In these pages, I have written about major economic hubs in the global economy, namely China, Germany, and France, going through an economic slowdown. But now the smaller countries are flashing warning signs as well.
India grew at the slowest pace in a decade in its fiscal year (ended March 31, 2013). The Central Statistical Office reported that production in India at factories, in utilities, and at mines only increased by two percent in April from a year ago. In March, it increased 3.4%. (Source: Bloomberg, June 12, 2013.)
The troubles for the global economy don’t end there.
In April, Malaysia reported its trade surplus fell to the lowest level since 1997. The country’s exports to the global economy surprisingly declined 3.3% from a year ago. There are now fears that Malaysia can very well run its first trade deficit in 16 years. (Source: Reuters, June 12, 2013.)
Exports from the Philippines fell 12.8% in April from a year ago. Indonesia has been witnessing an export slump for 13 consecutive months and recorded a trade deficit in April.
In the other parts of the global economy, the situation is similar.
We have no further to look than exports of iron ore from Brazil to China. In terms of tonnage, in 2012, Brazil exported 170 metric tons of iron ore to China, three percent higher than the previous … Read More
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
The U.S. economy is fundamentally tormented; no amount of money printing can fix it. The Federal Reserve continues to print $85.0 billion a month in new money, and the government continues to spread hopes of economic growth. Sadly, there isn’t any. In fact, Americans are struggling.
In a period of economic growth, the general standard of living is supposed to improve as people get jobs, spend money, and live in prosperity. As the economy improves, businesses spend, hire more staff, produce more products, and are able to see rising profits. In the U.S. economy today, we have the complete opposite.
A record amount of people in the U.S. economy are on food stamps. In January of this year, there were 47.8 million Americans on some form of food stamps. This number is eight percent higher than it was in January 2011, when 44.2 million people were using food stamps. (Source: United States Department of Agriculture, April 5, 2013.) Of the entire U.S. population, 15.1% are using some form of food stamps.
Why are so many Americans in the U.S. economy on food stamps? Millions of Americans are unemployed, and those lucky enough to find a job are working in low wage-paying sectors. And real wages are declining. This is all contrary to economic growth.
As for businesses in the U.S. economy, in March, factory output in the U.S. economy declined 0.1%—the second decline in the first three months of 2013. Furthermore, the capacity utilization for manufacturing—a measure of what manufacturers can produce and what they’re actually producing—declined by 0.2% in March. (Source: Board of Governors of the Federal Reserve System, … Read More
The corporate earnings season for the first quarter of 2013 may not be as positive as optimistic stock advisors believe it will be. The reality is that companies in the U.S. economy are struggling to maintain corporate earnings growth, so they’re resorting to employee cost-cutting measures.
Consider the six largest banks in the U.S. economy; they announced a reduction in their collective labor force of about 21,000 in the first three months of 2013—the highest amount since the third quarter of 2011. (Source: Bloomberg, April 9, 2013.) Why? Because if it’s difficult to increase revenues, just cut expenses to maintain profits.
JPMorgan Chase & Co. (NYSE/JPM), a component of the S&P 500, posted record corporate earnings for the past three years but has planned to cut 17,000 employees by the end of 2014.
American Express Company (NYSE/AXP) is planning to cut 5,400 jobs this year, reducing its workforce by 8.5%.
Other measures companies are taking to maintain corporate earnings growth include major stock buyback programs. In the fourth quarter of 2012, S&P 500 companies purchased $93.5 billion worth of their own shares. For the whole of 2012, S&P 500 companies purchased $385 billion worth of shares. Of all the companies on the S&P 500, 70% were involved in buying back their shares in 2012. (Source: FactSet, April 3, 2013.)
As I have continually said in these pages, at the end of the day, corporate earnings fuel real stock market rallies. Right now, key stock indices are running ahead of themselves, and I’m looking at this as a warning sign.
In the third quarter of 2012, S&P 500 companies reported negative … Read More
While the “official” numbers may not show it, inflation in the U.S. economy is a major problem, and it’s hurting any chance we may have of real economic growth.
The Bureau of Labor Statistics says inflation in the U.S. economy has caused prices to increase by only 12% since 2007—what $1.00 could buy in 2007 costs $1.12 today. (Source: Bureau of Labor Statistics web site, last accessed April 5, 2013.) As my readers know, I believe these inflation numbers are materially understated.
In February, the U.S. Producer Price Index (PPI), what many economists consider to be an early signal of where inflation might be headed, posted the highest month-over-month rate of change since October 2012. The PPI rose 0.7% in February from January. (Bureau of Labor Statistics, last accessed April 5, 2013.) Using February’s number as a base, the PPI is rising at an annual rate of 8.4%.
Corn futures at the beginning of 2007 were priced around $350.00 per lot. Now the same future costs $630.00 each—an increase of 80% in the last five years. As corn is an ingredient in a significant number of different foods, general food prices have also increased.
But despite the inflation we are experiencing, Americans’ wages aren’t rising. In the first quarter of 2007, the average hourly earnings of all private-sector employees in the U.S. economy was $20.70 per hour. In the first quarter of 2013, it increased to $23.80 an hour—a six-year increase of less than 15% (source: Federal Reserve Bank of St. Louis web site, last accessed April 5, 2013); not enough to keep up with inflation.
Adding more to the … Read More
Consumer confidence is the key to any growth in the U.S. economy. If it declines, U.S. economic prosperity becomes questionable, as a lack of consumer confidence directly impacts consumer spending. My worry: the Thomson Reuters/University of Michigan’s preliminary consumer sentiment for the month of March plunged to its lowest level since December of 2011.
This popular consumer sentiment index—an indicator of consumer confidence—fell to a reading of 71.8 in March, compared to 77.6 in February. (Source: Chicago Tribune, March 15, 2013.)
The Thomson Reuters/University of Michigan survey also showed Americans are turning pessimistic about their finances. Only 20% of Americans believe their finances will improve this year—a record low for the survey!
Similarly, 30% of consumers believe U.S. economic conditions will get worse. In February, only 22% of American consumers believed the U.S. economy will deteriorate.
But the misery for American consumers doesn’t just end here. According to a report released by the Employee Benefit Research Institute (EBRI), 28% of Americans have no confidence that they will retire comfortably. This was the highest amount of individuals with this belief in 23 years. (Source: Wall Street Journal, March 19, 2013.)
The EBRI report also showed that the number of Americans saving for retirement has plummeted. In 2009, 75% of American workers saved for their golden days; now, this number has declined to 66%—a decrease of 12%.
By no surprise, as consumer confidence is turning sour, companies operating in the U.S. are seeing its effects—to say the least, they are tired of bleak consumer spending.
The CEO of Dollar Tree, Inc. (NASDAQ/DLTR) said, “the consumer is under pressure, burdened … Read More
The euphoria among stock advisors and investors alike seems to be increasing as key stock indices proceed to move into uncharted territories. I see it all as a bearish indicator. Just look at the chart below of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), often referred to as the “fear index:”
The VIX is fairly close to where it was in 2007, just before one of the worst market sell-offs in history hit the key stock indices. Since the beginning of this year alone, the fear index has fallen almost 30%. This index is screaming that investors are too bullish towards the key stock indices!
As Warren Buffett once said, “Be fearful when others are greedy, and be greedy when others are fearful.” (Source: Buffett, W.E., “Buy America. I Am.,” New York Times, October 16, 2008, last accessed March 13, 2013.) And the VIX is saying investors are far too complacent about stock prices today.
Chart courtesy of www.StockCharts.com
The reality of the situation is that there is a significant disconnect between the stock market and the economy—they are moving in opposite directions. Unemployment, consumer spending, and the housing market are still under major stress.
In addition, companies listed on the key stock indices are under profit pressure. According to FactSet, companies in the S&P 500 are expected to show negative earnings growth in the first quarter of 2013—the second time this has happened in three quarters. The expected growth rate is -0.6%. Just this December, the earnings growth rate for these companies was estimated at 2.2%. (Source: FactSet, March 8, 2013.)
Furthermore, of the 107 companies … Read More
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