Posts Tagged ‘U.S. dollar’
The Great Big Gamble: Can a Little Earnings Growth Turn into a Lot?
By Mitchell Clark, B.Comm. for Profit Confidential
At a recent dinner with old pals, the conversation migrated from cars, sports, food, and family to the economy and the unbelievable performance of the stock market.
Everyone said that in their respective professions (a manufacturing sales manager, an insurance adjuster, a foodservice executive, and a bank manager) business conditions were flat.
I’ve heard this from many people. Countless businesses are holding steady, but despite profound efforts, they can’t generate meaningful top-line growth.
Yet, the stock market just hit an all-time record high on modest first-quarter earnings results.
Quite obviously, this stock market is overbought.
Wall Street and institutional investors are in the business of betting on the future using someone else’s money.
Corporate earnings over the last several quarters have held up. But the earnings have mostly been squeezed out of worker productivity and cost controls.
Blue-chip balance sheets continue to grow stronger, and the lack of certainty in the global marketplace has dampened the willingness of corporations to make new investments.
The result is continued growth in quarterly dividends and share buybacks; and this is one of the many reasons why institutional investors have been buying this stock market—there is nowhere else to go.
I think it is still worth keeping a sharp eye on the crucial movements in the Dow Jones Transportation Average. It is old-school, but I believe that many component companies do provide a decent reflection of economic activity in the U.S.—at least from a corporate perspective. (Read “BlackRock Takes In Billions for Equities: A Signal the Stock Market Is Near a Top?”)
What I learned from many large-cap earnings reports was that sales … Read More
Bond Funds Buying Stocks?
By Michael Lombardi, MBA for Profit Confidential
According to BlackRock, Inc. (NYSE/BLK), the biggest U.S. money manager by assets, $70.1 billion was funneled into exchange-traded funds (ETFs) in the first quarter of this year. What’s even more surprising is that 93% of all the inflows were in the U.S. equities market funds. (Source: Wall Street Journal, April 2, 2013.)
Morningstar, Inc. (NASDAQ/MORN), an investment research firm, states that 352 mutual funds that are classified as bond funds had exposure to the equities market as of the end of March 2013. This number is up from 312 at the end of 2012 and 283 in the first quarter of 2012. (Source: Wall Street Journal, May 1, 2013.)
Take Loomis Sayles Strategic Income fund, for example. This $15.0-billion fund is shifting its gears toward stocks, as its allocations to the equities market soared from five percent in mid-2011 to more than 19% now. According to the fund, it can allocate up to 35% of its assets into the equities market in preferred stocks and dividend-paying common shares. (Source: Loomis, Sayles & Company, L.P. web site, last accessed May 3, 2013.)
On top of this, and as it has been documented in these pages before, central banks are investing in the equities market, too.
It is no longer a hidden fact: investors, like central banks, and bond funds are rushing toward the equities market, because investment returns elsewhere are very low. These investors are taking a higher risk for an average rate of return.
The Dow Jones Industrial Average rose 11% in the first quarter—the best start to a year since 1998—and the S&P 500 soared 10%.
All … Read More
U.S. Dollar to Become the Next Yen?
By Michael Lombardi, MBA for Profit Confidential
In its latest meeting minutes, the Federal Reserve said it will continue with quantitative easing, creating $85.0 billion in new money monthly, in order to bring economic growth to the U.S. economy. (Source: Federal Reserve, May 1, 2013.)
The Federal Reserve, once again, didn’t provide any clear indication as to when it will end the quantitative easing; rather, the central bank stated it will continue to do the same “until the outlook for the labor market has improved substantially in context of price stability.” (Source: Ibid.)
The Federal Reserve has already increased its balance sheet to over $3.0 trillion, and if it continues its quantitative easing at this pace, its balance sheet will balloon even more, possibly even reaching $4.0 trillion—or even $5.0 trillion—in a very short period of time.
This is troublesome news, dear reader. The more money created out of thin air via quantitative easing, the more the fundamentals of the reserve currency, the U.S. dollar, deteriorate.
As I have mentioned in these pages before, we only need to look at the Japanese economy to see quantitative easing is not a viable option for us.
The Japanese currency has plummeted since the Bank of Japan revved up its quantitative easing. Just look at the chart below of the Japanese yen compared to other major currencies in the global economy; it seems as if the currency has fallen off a cliff. If we keep up with all this money printing, the U.S. dollar may eventually look the same!
Chart courtesy of www.StockCharts.com
A falling U.S. dollar will drag down the buying power of Americans even further, as they … Read More
American Real Disposable Income Collapses in First Quarter of 2013
By Michael Lombardi, MBA for Profit Confidential
In the first quarter of 2013, real personal disposable income (the amount of money the average American has left after paying taxes) in the U.S. economy decreased 5.3% compared to the same period of 2012.
As consumers in the U.S. economy experienced a contraction in their income, their expenses increased. Personal outlays increased 4.1% in the first quarter of 2013 compared to the first quarter of 2012. As a result of contracting income and rising expenses, the personal savings rate compared to disposable income in the U.S. economy was only 2.6% for the first quarter of 2013.
Similarly, private businesses in the U.S. economy are seeing their inventories rise. Businesses increased their stockpiles by $50.3 billion in the first quarter of 2013, $13.3 billion in the fourth quarter of 2012, and $60.3 billion in the third quarter of 2012.
What all of these numbers show is that consumers in the U.S. economy are struggling and businesses are not selling. This phenomenon is further proven by the corporate earnings of companies in the key stock indices; while many are beating their profit targets, only a handful are meeting their revenue expectations.
The U.S. economy is consumer-focused—consumer spending makes up a huge chunk of our gross domestic product (GDP). Consumers in the U.S. economy are in pain. We have wages that are declining, expenses that are rising (thanks to the weakening value of the U.S. dollar and rising inflation due to too many new printed dollars in the system), savings that are falling, and an unemployment rate that remains high.
As I have been saying, real economic growth takes place in a … Read More
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