Investment Contrarians

Ben Bernanke

Ben Bernanke is an American economist and the current chairman of the Federal Reserve. The Federal Reserve is the central bank for the U.S. Bernanke initially became chairmen for the Federal Reserve in 2006, for a four-year term, which was again renewed for another term. Prior to becoming the chairman for the Federal Reserve, he was a member of the Board of Governors of the Federal Reserve System from 2002 to 2005. Before his career in government, Bernanke was a professor at Stanford Graduate School of Business and a tenured professor at Princeton University.

ECB Calling U.S. Out on Its QE Mistakes

By for Investment Contrarians | Nov 22, 2013

U.S. Out on Its QE MistakesRecently, European Central Bank (ECB) policymaker Jens Weidmann said the strategy of printing money was not the solution to the eurozone crisis. (Source: Carrel, P., “Printing money not the way out of crisis: ECB’s Weidmann,” Yahoo! Finance, November 20, 2013.) Ya, no joke!

Of course, Weidmann was not referring to the Federal Reserve, but to thoughts from within the ECB that perhaps buying assets was another tool to use. He may as well be talking about the Federal Reserve’s quantitative easing strategy, though. I’m sure he’s been looking at the Federal Reserve’s massive money printing and its overall ineffectiveness; he’s likely studying the U.S. situation and realizing that the act of simply printing money is not the end-all for achieving success in rebuilding an economy.

There’s that old saying that you learn from other people’s mistakes—that’s what we have here.

The Federal Reserve continues to balk at stopping the money printing. Current Federal Reserve Chairman Ben Bernanke expressed his disappointment in the recent jobs market readings in a recent speech, saying there were insufficient reasons to stop the quantitative easing.

Five years of quantitative easing by the Federal Reserve and, while it clearly helped the country from a much deeper recession and breakdown, the benefits are stalling.

So I say to Weidmann, fight against the use of quantitative easing via printing money in the eurozone, as it will simply cost the eurozone hundreds of billions of euros and would likely do very little for the economy. The already historically record-low interest rates in the eurozone will suffice.

The same thing should be the case on this side of the Atlantic. … Read More

Advance 3Q GDP Growth Reading Doesn’t Tell the Whole Story

By for Investment Contrarians | Nov 11, 2013

3Q GDP Growth ReadingThe market was impressed with the advance reading for the third-quarter gross domestic product (GDP) growth last Thursday. The fact is that with the Q3 GDP growth at 2.8%, the news was a relief, as it was much better than the consensus estimates of 1.9% and the 2.5% final reading for the second-quarter GDP growth.

The U.S. Department of Commerce said it was the fastest rate of growth since the third quarter in 2012. But while the market appears to be applauding the result, I’m not.

Yes, the GDP growth was better than if we had a soft reading, which many were expecting.

The Federal Reserve, at first glance, may look at the number and decide it’s time to rein in its quantitative easing at its December meeting.

But hold on… A closer look at the components of the GDP growth report would show some fragility that makes me concerned about the country’s economic renewal.

Spending by the businesses stalled in the third quarter, based on early indications. This is a red flag, as companies will generally spend more if they are growing and the economy is healthy and in an upturn. This lack of spending by businesses may indicate continued weak revenue growth.

Another warning in the report is that real personal consumption, which accounts for about two-thirds of America’s GDP growth, rose 1.5% in the third quarter—that’s not that good. Actually, it’s a decline from the 1.8% GDP growth in the second quarter. Given this, the retail sector could continue to struggle, so I would be careful when buying. I would continue to stick with the discounters, such … Read More

Two Ways to Profit from Lagging Jobs Growth

By for Investment Contrarians | Oct 30, 2013

Lagging Jobs GrowthWith the slew of economic data being released this week, we’re obviously starting to get a better sense of where stocks could be heading over the next few weeks.

Of course, the focus will be on the Federal Reserve meeting today, where it’s really a no-brainer that Federal Reserve Chairman Ben Bernanke will leave his bond buying in place. Now some may argue that it may have been a different outcome if the government impasse didn’t occur, but I doubt that.

The talking points at today’s Federal Reserve meeting? The Federal Reserve will likely talk about how the economy is showing signs of growth, but that it remains fragile and will need to strengthen. The Federal Reserve will also talk about the soft results from the jobs market, and how it also needs to pick up.

The end outcome? A non-response from the Federal Reserve as far as tapering its bond purchases. In fact, based on what is happening, it doesn’t look like any tapering will occur until at least December, but most likely not until Bernanke leaves his post as head of the Federal Reserve in January.

Traders realize the Federal Reserve will keep the flow of money going, which has helped to add support to the stock market. Yet I’m still debating how high stocks can run. The key will be what consumers do during the holiday shopping season that begins in about a month with the critical Black Friday on November 29.

I’m not that optimistic, based on what the retailers said in their September reports. Also, jobs growth continues to be marginal at best, and this … Read More

Is Sitting on the Fence the Best Investment Strategy Right Now?

By for Investment Contrarians | Oct 28, 2013

Best Investment StrategyRecently, a friend called me up and asked for some investment advice. He wondered if he should run for the exits, given the recent run-up in the stock market in what is now a somewhat euphoric investment climate.

My response? Yes and no.

I told my friend to take some profits off the table, but at the same time, he should also ride the stock market higher to what will likely be higher upside moves.

This is something that I have constantly advised during this recent stock market rally.

Hey, why take all of your profits off the table now when there will surely (at least I’m thinking) be more gains to end the year? That is, of course, if the shopping season doesn’t tank and Federal Reserve Chairman Ben Bernanke doesn’t decide to surprise us with tapering. I doubt Ben will be smart enough to taper, but then again, with his stint as the head of the central bank drawing to a close, he may yet give us a surprise.

At this time, it’s all about maximizing your opportunities in the stock market while the easy money is flowing in. In other words, follow Dow theory and ride the ticker tape higher.

Even long-time perennial bear David Rosenberg of Gluskin Sheff appears to be conforming to the mass populous. In an interview with CNBC, Rosenberg seemed the most bullish I have ever seen him towards the stock market over the past decade, when he was constantly telling us stocks were set to fall.

In the interview, Rosenberg went as far as to suggest a stock weighting of just over … Read More

Markets Heading Higher on Bridge Deal a Bad Sign

By for Investment Contrarians | Oct 18, 2013

Bridge DealA bridge deal on the impasse and debt ceiling was reached in Washington on Wednesday. The deal will see the government reopen until January 15, and the debt ceiling will be extended until February 7 to allow both sides to try to hammer out a deal.

Now of course, the agreement doesn’t mean everything is rosy in Washington. A deal for the budget and an increase in the debt ceiling must still be forged. The extension of the deadlines just gives time for a deal to be ironed out and for the country to avoid an embarrassing default.

Yet the constant barrage of news on any developments towards the debt ceiling will continue to impact the stock market, as we move through the fourth quarter and into the New Year.

The stock market clearly favors the extension, as we see the stock markets rise on the news. Now, the Federal Reserve won’t likely begin to taper until after Ben Bernanke leaves office in January and, in fact, we may not see any tapering until later into 2014 under the direction of the next Fed Chairman Janet Yellen. The easy money will help support the stock market, but for further gains, there must be a fresh catalyst to drive stocks higher.

For investors, this doesn’t mean the stock market will continue to rally at the same rate. In fact, with the extension, perhaps traders could finally focus on what’s important: think third-quarter earnings and revenues, jobs, and the upcoming Black Friday and holiday shopping season. If these metrics pan out, then I would expect the stock market to advance higher into … Read More