Investment Contrarians

Big Banks

There are thousands of banks in the U.S., but only a few “big banks.” These big banks are of such size and market share penetration that they have a dominant position in the markets in which they are active. Big banks tend to cover the entire nation, including an international presence. They also provide services in all areas of the financial industry, whereas a small bank might only cover a certain subset of services.

Tune Out Wall Street Bulls: Nothing Left for S&P 500 to Rally On

By for Investment Contrarians | Oct 17, 2013

Tune Out Wall Street BullsThe S&P 500 moved to within 18 points of another record on Monday, and there was chatter on Wall Street of a breakout being in the works that could reward bulls. And in spite of Tuesday’s pullback, the bulls continue to believe the index will soon rally above its record high set in mid-September.

Well, the idea of a sustained upward move in the fourth quarter doesn’t resonate with me. The S&P 500 is up nearly 20% this year, and my view is that there’s not much fuel left in the tank to take the index higher, except for maybe a few percentage points. I see more downside risk ahead, based on what will likely be a sluggish fourth quarter driven by continued bickering in Washington (the government may have agreed on extending the debt ceiling deadline, but there’s still the budget to debate), a soft jobs market, and fragile consumer confidence.

Gross domestic product (GDP) growth will clearly be affected. Confidence is eroding. Consumers will likely be hesitant to spend, especially on big ticket items, and this will impact GDP.

Wal-Mart Stores, Inc. (NYSE/WMT) is already predicting tepid growth in its key same store sales. Other retailers are also beginning to feel the hurt of an economy that is too in flux. The retail sector could likely see heavy discounting throughout the holiday shopping season to attract consumers.

The key to buying stocks in this environment is to look at areas that can benefit from the continued sluggishness in the economy and the move of consumers to look for deals and control their spending. The middle class continues to … Read More

How to Benefit from the Bernanke Bounce

By for Investment Contrarians | Jul 16, 2013

How to Benefit from the Bernanke Bounce “Impressive” is the only word I can think of to describe the moves of the S&P 500 and Dow Jones Industrial Average to new record highs last Thursday.

Call it the “Bernanke bounce” if you want, but if you didn’t believe the Federal Reserve’s easy monetary policy was behind the bull market before, then you must by now.

In June, when the Fed announced its exit plan for its stimulus, the stock market sold off. Then there were a slew of muted economic reports along with the Federal Open Market Committee (FOMC) meeting minutes that suggested the bond tapering by the Fed might not happen as soon as many had thought—the response was a rally that drove the stock market to a record.

Some are arguing that earnings by Alcoa Inc. (NYSE/AA) helped, but it was only one reading. Of course, both JPMorgan Chase & Co. (NYSE/JPM) and Wells Fargo & Company (NYSE/WFC) also beat on revenues and earnings on Friday. We could see another upside push as the leadership from the big banks has helped to drive the stock market this year.

The earnings season will likely be good due to the reduced expectations. Corporate America is not exactly expanding quickly, but it is growing fast enough to satisfy the lower sights of Wall Street.

The easy money will continue to be made as long as the Fed holds back, so enjoy the ride.

The stock market is bullish. Investor sentiment continues to be extremely bullish with the ratio of new highs to new lows above 90%. On Thursday, there were 347 new highs on the New York Stock … Read More

Time’s Ticking Down for America’s Top Banker

By for Investment Contrarians | Jun 12, 2013

Time’s Ticking Down for America’s Top BankerFederal Reserve Chairman Ben Bernanke may be getting ready to sail off into the sunset as his reign as the top banker in the world is likely coming to an end.

The speculation is that it is doubtful Bernanke will decide to extend his stay as head of the Federal Reserve for a third term at the time his current term finishes at the end of the year.

While Bernanke has helped to save the economy from a deeper recession, he has also created a climate of easy money and massive debt loads that pose their own risks.

What we know is that the economy has recovered under Bernanke’s easy monetary policy.

He has helped to save the big banks, and he will be rewarded by Wall Street, which I will discuss later.

The availability of record-low interest rates by the Federal Reserve has helped to drive up the demand for mortgages and loans. The result has been a marked recovery in the housing market and consumer spending.

Of course, the problem is that the personal debt loads have surged. Recall what happened when the 30-year mortgage rates edged higher in recent weeks on speculation that the Federal Reserve would cut its bond buying at its June meeting: the stock market took a beating as capital shifted into gold and cash.

Loans to companies have been surging. There were $1.53 trillion in commercial and industrial loans in the first quarter by U.S. banks, up 12% year-over-year. (Source: McLaughlin, T., “Surge in U.S. commercial lending raises bubble worries,” Reuters, June 10, 2013.) The amount of lending is a concern given the … Read More

Stock Market and Economy: What We Can Expect in 2013

By for Investment Contrarians | Jan 3, 2013

Stock Market and EconomyHappy New Year to all of our Investment Contrarians readers!

In 2012, small-cap stocks were the second-best performing group, following the technology sector. The Russell 2000 was the top performer in December and has been since the end of the first quarter. How the small-caps fare this year will, again, depend on the global economy.

My stock analysis tells me that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.

As we move into 2013, the focus will be on any remaining fiscal cliff fallout and the impact of the deal, along with the eurozone mess, the U.S. national debt, and jobs growth.

For 2013, my stock analysis is cautious to start the year, based on the high global risk.

The fact that the economy is triggering some jobs growth is encouraging. My analysis is that this will likely continue in 2013, although the unemployment rate is expected to remain relatively high at over seven percent.

My stock analysis shows that we need to see leadership from such areas as the financial and technology sectors. The big banks were strong in 2012, but we also need to see technology take a leadership role.

It definitely will be a tricky year, given the global and domestic issues, along with suspect earnings and revenue growth to start the first quarter.

Again, as I … Read More

Why the Next U.S. President Is Facing a Mess

By for Investment Contrarians | Nov 5, 2012

Why the Next U.S. President Is Facing a MessThe election is finally here. We are all excited to see who will be the 45th President of the United States.

President Obama wants to stay at the White House, while challenger Mitt Romney wants to evict him. Whoever is the winner, there will be a slew of challenges for him to deal with. It may not be as bad as four years ago when the newly minted President Obama faced a massive subprime financial crisis, government bailouts of the big banks and auto sector, and a great recession, but there are still major obstacles to deal with.

If Obama holds on, you can expect a push to remedy the healthcare system and make it more efficient and cost-effective under the program coined “Obamacare.”  Healthcare cost control is important as a means to control the mounting national debt and avoid a financial crisis. Over $752.0 billion is spent annually on Medicare/Medicaid, which is the second-biggest area of spending for the government following Social Security. (Source: U.S. Debt Clock, last accessed November 2, 2012.) Failure to rein in costs could create a financial crisis.

The $16.0-trillion national debt could grow to a whopping $22.7 trillion by the end of the next President’s term in 2016 if nothing is done, based on the current pace. (Source: U.S. Debt Clock, last accessed November 2, 2012.) This could lead to a financial crisis. By 2016, annual spending on Medicare/Medicaid could reach over $940.0 trillion if costs continue to rise and drive a financial crisis in health care. Social security in 2016 could surpass $1.1 trillion annually, and this is not sustainable. Those who are … Read More