Posts Tagged ‘U.S. economy’
Since May, when it was near an all-time low, the U.S. dollar has rallied. Compared to other major currencies of the world, the greenback is up five percent since July, as the chart below illustrates.
The question: should investors get into this U.S. dollar rally?
Dear reader, the U.S. dollar is not moving higher because the fundamentals of the U.S. economy are getting better. It’s moving higher because other parts of the global economy are doing worse than the U.S.
The eurozone economy is so weak that the European Central Bank has lowered interest rates again, pushing the value of the euro lower. In the United Kingdom, Scotland is looking for independence. The crisis between Russia and Ukraine continues without resolution. New troubles are brewing in the Middle East. China reported yesterday it would start pumping money into its largest banks.
Chart courtesy of www.StockCharts.com
Right now, with the majority of major world central banks either printing more of their paper money or bringing interest rates even lower, the U.S. is the best of the worst.
But I believe the rally in the U.S. dollar will be short-lived.
Central banks are trying to move away from the U.S. dollar as their reserve currency. At one point, trade in the global economy was dominated by the U.S. dollar. This is changing, slowly but surely.
Consider just one of many recent examples; the Chinese and Argentinian central banks will be doing an $11.0-billion currency swap operation. This will allow Argentina to increase its reserves and pay for Chinese imports in yuan—the deal was signed in July. (Source: Reuters, September 7, 2014.)
Putting … Read More
A week ago today, the Bureau of Labor Statistics (BLS) released its jobs market report for the month of August. To say the very least, there was nothing in that report that says the labor market in the U.S. economy is back on its feet. In fact, the report painted a gruesome image of employment in this country.
In August, 142,000 jobs were added to the U.S. economy—the lowest monthly pace in 2014. And the jobs market numbers previously released for June and July were revised lower. (Source: Bureau of Labor Statistics, September 5, 2014.)
But this is just the tip of the iceberg.
Americans who have been out of work for more than six months continue to make up a significant portion of the total unemployed population—31.2% of all unemployed to be exact. Over the past few years, this number hasn’t really come down much.
What’s worse is that the labor force participation rate, that is the rate of those who are in the working-age population and are looking for work, stood at 62.8% in August. This is the lowest rate of labor force participation in the U.S. economy seen since the late 1970s! (Source: Federal Reserve Bank of St. Louis web site, last accessed September 5, 2014.)
Adding to the misery, and as I have reported many times in these pages, we are seeing more part-time jobs created than ever and job creation remains concentrated in the low-wage-paying sectors, like service and retail.
There’s another problem that doesn’t get much attention. Incomes in the U.S. economy are falling. According to a report by the Federal Reserve, median household … Read More
A 1962 Ferrari 250 GTO Berlinetta has set a new record selling for $38.1 million at an auction in Pebble Beach, California. News of the sale was all over the Internet and made it into major newspapers like The New York Times, The Wall Street Journal, and the Los Angeles Times.
But it’s not just old, rare cars that are selling. The high-end luxury car market is also booming. For example, Maserati sold 6,573 cars this past July, compared to only 1,536 cars a year ago. (Source: Motor Intelligence web site, last accessed September 2, 2014.)
The markets for high-end real estate and high-end fashion goods are hot in the U.S. economy, too.
The mainstream is looking at the boom in various luxury markets and calling it economic growth. Truth be told, only a very small fraction of Americans can afford to live a lavish lifestyle and buy expensive cars, homes, and other gadgets.
The other side of the story—the story of the 99%-plus—usually goes untold.
What follows below is a picture (I personally took) of a sign posted in every grocery store I went into in a prominent town very close to New York City. The picture not only shows how the average American is struggling, but it also puts a big dent in the theory of economic growth in the U.S. economy.
Americans are using food stamps and other government assistance programs like never before. The truth is that if the U.S. economy was witnessing economic growth, we wouldn’t have 46.25 million Americans and 22.5 million households using food stamps in the U.S. economy…. Read More
So long as transportation stocks are ticking higher, the stock market is much less susceptible to a price retrenchment.
The Dow Jones Transportation Average just blew past 8,500, recently hitting a new record-high after taking a well-deserved break around mid-July and August.
Airline stocks led the index’s recent price strength. Some examples: JetBlue Airways Corporation (JBLU) was $8.00 a share in May, now it’s pushing $13.00. Meanwhile, Southwest Airlines Co. (LUV) was $20.00 a share at the beginning of the year, recently hitting a price of more than $33.00 for a new all-time record-high.
But it isn’t just airline stocks that are doing well on the Dow Jones Transportation Average; railroad stocks and trucking companies are pushing through to new highs, too, and earnings estimates for a lot of these companies are increasing, especially for 2015.
It may seem like an old-school concept, but strength in transportation stocks is still a leading indicator for the broader market. Price strength in these stocks often shows up at the beginning of a new business cycle.
Union Pacific Corporation (UNP) is one of my favorite railroad stocks for investors and it’s a great benchmark for determining your investment strategy, even for those not interested in the company. Monitoring this stock is a great way to gain market and economic intelligence.
This position still has good potential for further capital gains and earnings forecasts have been going up across the board—including estimates for the company’s third and fourth quarters, all of 2014, and all of 2015.
The stock’s been in a well-deserved price consolidation since May, but it recently broke out of this trend … Read More
So the S&P 500 has touched the 2,000 mark.
Will the S&P 500 continue to march to new highs?
Well, my opinion towards the stock market hasn’t changed. I remain skeptical for a variety of reasons, many of which I have shared with my readers over the past few months.
But I have a new concern about the stock market, something that hasn’t been touched on by analysts: trading volume is collapsing.
Please look at the table below. It shows the performance of the S&P 500 and its change in trading volume.
|Year||Performance||Change in Volume|
*Until August 25, 2014
Data source: StockCharts.com, last accessed August 25, 2014
Key stock indices like the S&P 500 (it is the same story for the Dow Jones) are rising as volumes are declining, suggesting buyers’ participation in the stock market advance is very low. For a healthy stock market rally, any technical analyst will tell you that you need rising volume, not declining volume.
It’s Economics 101: rising demand pushes prices higher. In the case of the S&P 500, we have declining demand (low trading volume) and rising prices. Something doesn’t make sense here.
Looking at the economic data, it further suggests key stock indices are stretched. We continue to see the factors that are supposed to drive the U.S. economy to deteriorate.
Just look at the housing market. The number of new homes sold continues to decline. In January, the annual rate of new-home sales in the U.S. was 457,000 units. By July, it was down more than 10% … Read More
According to Fed Chairwoman Janet Yellen, “More jobs have now been created in the recovery than were lost in the downturn… the unemployment rate, at 6.2% in July, has declined nearly 4 percentage points from its late 2009 peak.” (Source: “Labor Market Dynamics and Monetary Policy,” Federal Reserve, August 22, 2014.)
Great news, right? On the surface, yes. But when you look closer at the numbers, the jobs market paints a very different picture as to what is going on in this country.
Prior to the Great Recession, in January of 2007, there were 4.24 million Americans who were working part-time because they couldn’t find full-time work. In July of this year, the number of Americans working part-time (because they couldn’t find full-time work) was 76% higher at 7.51 million. (Source: Federal Reserve Bank of St. Louis web site, last accessed August 25, 2014.)
The boom in the jobs market has been in part-time work! How do you feed a family with part-time employment?
But the jobs market misery doesn’t end there…
In January of 2007, the average duration of unemployment in the U.S. economy was 16.3 weeks. In July of 2014, this number stood at 32.4 weeks. Once unemployed today, people are taking over seven months to find another job—double the time it took to find a job before the Great Recession. (Source: Ibid.)
And let’s not forget that the “official” government unemployment numbers exclude those people who have given up looking for work. If we look at the jobs market and include those people who have given up looking for work and those who have part-time jobs because … Read More
Between the first quarter of 2012 and the second quarter of 2014, auto sales in the U.S. economy have increased 16%. (Source: Federal Reserve Bank of St. Louis web site, last accessed August 21, 2014.) And auto sales this year have been stellar, too. In July, auto sales reached the highest level since 2007 and are up eight percent from this past January. (Source: Motor Intelligence, last accessed August 21, 2014.)
As auto sales have risen, auto loans have increased as well. In the first quarter of 2012, auto loans amounted to $737 billion; now they are just short of $1.0 trillion. (Source: Federal Reserve Bank of New York web site, last accessed August 21, 2014.)
More auto sales, more auto loans; sounds right. But the problem is that more and more cars are being sold to individuals with bad credit scores.
Looking at it percentage-wise, the amount of auto loans to people with poor credit scores is much higher than to those with good credit scores. As an example, in the second quarter of 2014, $20.6 billion in new auto loans were issued to those with a credit score below 620. That’s an increase of 33% to this group from the first quarter of 2012.
Meanwhile, auto loans to those who have credit scores above 760, called super-prime customers, only increased 17% over the same period.
Now, here comes the kicker…
In the second quarter of 2014, 15.1% of all auto loans originated in the U.S. economy were delinquent for more than 30 days. That’s a 44% jump in auto loan delinquencies from the first quarter of 2012. … Read More
Wal-Mart Stores Inc. (NYSE/WMT) reported its operating income in its second quarter (ended July 31, 2014) declined by 2.4%. Its subsidiary, Sam’s Club (wholesale store), saw its operating income, after taking out fuel, decline by 10.2%. (Source: Wal-Mart Stores Inc., August 14, 2014.)
For its entire 2015 fiscal year, Wal-Mart now expects to earn in the range of $4.90 to $5.15 per share compared to its previous estimate of $5.10 to $5.45 per share.
The performance of Wal-Mart is very important to economists like me because the massive reach of Wal-Mart is a good indicator of consumer spending. Wal-Mart is the biggest private employer in the world, with a staff of approximately two million, and the largest retailer in the world. More than one hundred million people visit a Wal-Mart store weekly.
So when Wal-Mart comes out with soft earnings, it gives me a reason to be concerned about the direction of consumer spending. But that’s not the only thing I’m worried about in respect to the economy.
According to FactSet, of those major public retailers that have reported their second-quarter same-store sales, 46.8% of them have reported sales below estimates.
Retail sales are stagnant for the simple fact that consumer spending is getting very soft here in the fifth year of the so-called economic “recovery.”
Below is a chart of the widely followed University of Michigan Consumer Sentiment Index.
Chart courtesy of www.StockCharts.com
As you can see, consumer sentiment has tumbled to its lowest level … Read More
The burning question that’s facing economists like me today and that will only be answered in the future: did creating $3.0 trillion in new money out of thin air really make things better or worse for America?
My personal view, as expressed in these pages, is that the rich (the big banks and Wall Street) got richer from the “printing press” era, while the average American did not directly benefit from the Fed’s actions.
In fact, in America today, the spread in wealth between the rich and the poor has never been so great. As for the middle class, they are becoming extinct.
The “Report on the Economic Well-Being of U.S. Households in 2013,” recently published by the Federal Reserve, says 34% of Americans feel they are worse off today than they were five years ago, and 42% said they are holding back on the purchase of major or expensive items. (Source: Federal Reserve, August 7, 2014.)
But the data gets worse…
Of those Americans who had savings prior to the 2008 recession, 57% of them say they have used up some or all of their savings in order to combat the after-effects of the Great Recession.
Only 48% of Americans said that they would be able to cover a “hypothetical emergency expense” that costs $400.00 without selling something or borrowing money. Simply put, about half of Americans have less than $400.00 in emergency funds!
Meanwhile, 31% of Americans say they do not have any retirement savings or pension. Of those who are between the ages of 55 and 64, 24% of them expect to work as long as possible, … Read More
The Bureau of Economic Analysis (BEA) surprised even the most optimistic of economists when it reported the U.S. economy grew at an annual rate of four percent in the second quarter of 2014.
On the surface, the number—four percent growth—sounds great. But how serious should we take that gross domestic product (GDP) figure?
Firstly, I’d like to start by pointing out that the BEA often revises its GDP numbers downward. We saw this happen in the first quarter. First, we saw the BEA say the U.S. economy grew by 0.1% in the first quarter, then after a couple of revisions, they said the economy actually contracted 2.9% in the quarter.
I obviously expect the BEA to lower its initial second-quarter GDP numbers again.
But here’s what really worries me…
If the GDP data suggests the U.S. economy is growing, why are investors pricing in an economic slowdown?
The chart below is of the 10-year U.S. Treasury, the so-called safe haven. Back in 2007 to 2009, investors ran to U.S. Treasuries as a safe haven. As the U.S. economy improved, the yields on the 10-year U.S. Treasury started to rise as interest rates rose with general optimism towards the economy.
Chart courtesy of www.StockCharts.com
But since the beginning of this year, yields on the 10-year U.S. notes have declined 18%. This is despite the fact the biggest buyer of these bonds, the Federal Reserve, has stepped away from buying these Treasuries as its quantitative easing program comes to an end.
At the same time, we have the stock market finally starting to give in. So if the stock market is a … Read More
The S&P Case-Shiller 20-City Home Price Index, a measure of the housing market in key American cities, declined in May by 0.31% from April—the first monthly decline in home prices in 27 months. (Source: Federal Reserve Bank of St. Louis web site, last accessed July 30, 2014.)
The number of homes being built in the U.S. is also falling. In June, the annual rate of new homes being built in the U.S. housing market declined 9.3% from May to the lowest level in eight months. (Source: U.S. Census Bureau, July 17, 2014.)
And pending home sales in the U.S. housing market declined in the month of June by 1.1% from the previous month. Pending home sales now sit 7.3% lower than they were in June of 2013. (Source: National Association of Realtors, July 28, 2014.) Pending home sales are considered to be a leading indicator of the housing market.
As no surprise, companies directly related to the housing market are struggling. The chart below of the U.S. Housing Index tracks the stock prices of companies involved in construction, mortgages, and home-building materials.
Chart courtesy of www.StockCharts.com
The chart is collapsing, trading near its lowest level of 2014. Over the past few days, the index fell below both its 200-day moving average and its 50-day moving average.
Dear reader, please let me set the record straight: I don’t expect to see an outright collapse in home prices like we saw in 2007. What I am pointing out to you today is that the momentum we saw in the U.S. housing market in 2012 and 2013 is dissipating.
This observation is consistent … Read More
The Dow Jones Transportation Average is close to breaking its 50-day simple moving average. This, in itself, is not the end of the world; it did so most recently in April and recovered nicely.
But it is worth keeping an eye on, especially because the stock market is looking so tired right now.
Earnings are still streaming in and are generally okay. But there’s diminishing momentum. If the broader market opens up on positive news, on many days, it’s not able to sustain the gains. This is indicative of a stock market due for a break.
Summer action is typically slower, and while a 10% stock market correction would make it easier to put new money to work, the investing guide should be corporate outlooks—and they are pretty good going into 2015.
With Federal Reserve certainty, which includes diminishing quantitative easing and a very low interest rate environment going into 2015, the stock market is well informed regarding monetary policy.
Balance sheets remain in excellent condition, especially among blue chips, and the NASDAQ Composite is maintaining its leadership relative to the other benchmarks, which resumed about one year ago.
While the stock market has definitely earned a meaningful break, it very well could turn out to be another positive year with high single-digit returns, not including dividends. This is on the back of an exceptionally good year in 2013—a breakout year from what I view as the previous long-run cycle, that being a 12-year recovery period for the stock market.
But with this fundamental backdrop, I still view investment risk as being high and that quality is something that equity … Read More
Earlier this month, Jeremy Siegal, a well-known “bull” on CNBC, took to the airwaves to predict the Dow Jones Industrial Average would go beyond 18,000 by the end of this year. Acknowledging overpriced valuations on the key stock indices are being ignored, he argued historical valuations should be taken with a grain of salt and nothing more. (Source: CNBC, July 2, 2014.)
Sadly, it’s not only Jeremy Siegal who has this point of view. Many other stock advisors who were previously bearish have thrown in the towel and turned bullish towards key stock indices—regardless of what the historical stock market valuation tools are saying.
We are getting to the point where today’s mentality about key stock indices—the sheer bullish belief stocks will only move higher—has surpassed the optimism that was prevalent in the stock market in 2007, before stocks crashed.
At the very core, when you pull away the stock buyback programs and the Fed’s tapering of the money supply and interest rates, there is one main factor that drives key stock indices higher or lower: corporate earnings. So, for key stock indices to continue to make new highs, corporate profits need to rise.
But there are two blatant threats to companies in the key stock indices and the profits they generate.
First, the U.S. economy is very, very weak. While we saw negative gross domestic product (GDP) growth in the first quarter of this year, the International Monetary Fund (IMF) just downgraded its U.S. economic projection. The IMF now expects the U.S. economy to grow by just 1.7% in 2014. (Source: International Monetary Fund, July 24, 2014.) One more … Read More
According to the U.S. Congressional Budget Office, next year, the government is expected to incur a budget deficit of $469 billion and then another budget deficit of $536 billion in 2016. (Source: Congressional Budget Office web site, last accessed July 21, 2014.) From there, the budget deficit is expected to increase as far as the projections go.
Yes, the government’s own estimates are that our country will run a budget deficit every year for as long as the government’s forecasts go.
That’s quite unbelievable. We live in a country where the government (and politicians) feel it is okay to continue being “negative” every year, indefinitely. It’s like I’ve written many times: if our government were a business, it would have gone bankrupt long ago. But the government, through its non-owned agency, the Federal Reserve, has the luxury of printing paper money to fund its budget deficit and debt. If a business did that—printed money to pay its bills—that would be illegal.
Today, the U.S. national debt stands at $17.6 trillion with about $7.0 trillion of that incurred under the Obama Administration. (Is it any wonder a CNN/ORC International poll said this morning that 35% of Americans say they want President Obama impeached with about two-thirds saying he should be removed from office?)
But what happens to the budget deficit once interest rates start going up? We’ve already heard from the Federal Reserve that interest rates will be sharply higher at the end of 2015 and 2016 than they are now.
Earlier this month, the U.S. Department of the Treasury was able to borrow money (issued long-term bonds) at an interest … Read More
Profit Confidential — IT'S FREE!
"A Golden Opportunity for Stock Market Investors"