Investment Contrarians

Central Banks

Central banks are institutions that manage a nation’s currency, money supply, and interest rates. Central banks also oversee a nation’s banking system and are the lenders of last resort in a time of crisis. Central banks are normally a separate body from the political establishment. The goal of central banks is to create stability and low inflation in the system.


Can’t Afford a Picasso? Try Investing in This Stock Instead

By for Investment Contrarians | Dec 6, 2013

Investing in This StockThere’s one point that I cannot stress enough in this column, and longtime readers are sure to know it: consumer confidence is extremely important for economic growth here in America.

It’s simple logic. Because so much of our economy is built on domestic spending, without an increase in consumer confidence, consumer spending will languish and we won’t have higher levels of economic growth.

Recently, new information from the Conference Board was quite disappointing. The Consumer Confidence Index dropped to a seven-month low in November to 70.4, following a decline in October as well. (Source: “Consumer Confidence Declines Again in November,” The Conference Board web site, November 26, 2013.)

Over the short term, consumer confidence declined due to people stating their concerns regarding a weakening of economic conditions. What’s more concerning is that the expectations for the next six months worsened, as people stated they were increasingly worried about their job prospects and earnings, which isn’t a surprise considering the data hasn’t been all that positive lately, especially when it comes to wage growth.

If consumer confidence is turning pessimistic over the stability of jobs or paychecks, how can we really expect the average American to increase their spending or businesses to feel more confident in expanding?

This type of uncertainty leads to slower economic growth. If you are unsure of your financial health over the next few months, chances are you won’t increase your spending, and a lower level of consumer confidence leads to muted economic growth.

Clearly, one market sector I am worried about is that of companies catering to the average American.

Target Corp Chart

Chart courtesy of www.StockCharts.com

Target Corporation … Read More


Is This Digital “Gold Bullion” Investment Worth the Risk?

By for Investment Contrarians | Nov 26, 2013

Investment Worth the RiskThere has been a lot of coverage over the phenomenon that is Bitcoin.

I’m sure many of you are asking yourselves, is this online currency for real? What does it really say about our financial system?

But for those who are unaware, Bitcoin is essentially an online currency that is completely decentralized. Simply put, it is the exact opposite of the U.S. dollar, which is managed by the Federal Reserve.

While the value of one Bitcoin started off being only a few U.S. dollars, over the past couple of months, investor sentiment has become euphoric and the price of a Bitcoin has gone hyperbolic, from approximately US$13.00 in January for one Bitcoin to US$100.00 in July, recently hitting a high of US$900.00 for one Bitcoin in the past few weeks.

Why is investor sentiment so bullish on this online currency?

The best way to think of Bitcoin is as an online version of gold bullion. This digital “gold bullion” has exploded in popularity around the world. In fact, some of the strongest investor sentiment in Bitcoins comes from China. Not only are the Chinese heavily buying physical gold bullion, but they’re now accumulating the digital version of gold bullion: Bitcoins.

Many find the appeal of a decentralized currency attractive in this day and age. With central banks pumping money around the world, owning a piece of something that can’t be controlled by a central bank is very attractive to many people.

However, the spectacular rise of interest in investor sentiment for the digital gold bullion is extremely speculative.

Actual gold bullion has been around for centuries. To place one’s faith … Read More


What the New Record-Low ECB Interest Rate Means for U.S. Investors

By for Investment Contrarians | Nov 12, 2013

Record-Low ECB Interest RateOf all the central banks around the world, the European Central Bank (ECB) has rarely surprised markets by making monetary policy adjustments without some hints to the market first.

But this is exactly what happened last week when the ECB lowered its benchmark interest rate to a record-low 0.25% in hopes to spur economic growth. (Source: European Central Bank, November 7, 2013.)

This monetary policy change is a much bigger deal than many people realize.

First of all, as I just discussed last week, many investors have been expecting economic growth to finally emerge within the eurozone. This change in monetary policy by the ECB just validates what I’ve been saying for some time: that economic growth is nowhere in sight.

This is not news. How many years has it been since the Great Recession, and where can you find true, fundamentally strong economic growth?

All I see are central banks trying to outdo each other with easier and easier monetary policy (money printing).

With the ECB benchmark interest rate now at 0.25%, how much more ammunition does the bank have left? Does anyone really believe that a quarter-point drop in interest rates will revive economic growth for the region? I certainly don’t.

But this goes beyond just the eurozone. What the ECB is doing with monetary policy is more than simply printing money; it’s trying to lower the euro currency. And while the central bank isn’t explicitly stating that this is its plan, in my opinion, it is still a significant consideration.

Look at what the Japanese central bank has done. Japan has enacted one of the largest monetary … Read More


Global Gold Demand Shows Positive Trend Going Forward

By for Investment Contrarians | Sep 5, 2013

Global Gold DemandOne of the most difficult things to do as an investor is to buy when others are selling. This is the most common mistake investors—both the retail public and some professionals—make.

The recent move in gold shows the difference between short-term and long-term thinking. While many investors were hesitant to step in and start buying gold as the price was dropping, many central banks were doing just the opposite.

Recently, Russia continued buying gold; China and India followed suit, taking advantage of the significant pullback in gold prices. While exchange-traded funds (ETFs) were busy selling gold bullion, many of the emerging market nations were buying gold and in significant quantities.

It goes beyond central banks buying gold for reserves, which they continue to do, but even jewelry demand for gold continues to increase.

Jewelry demand for gold bullion worldwide increased to 576 tons in the second quarter of 2013, up 37% from the same period last year. Jewelry demand for gold bullion in China increased 54% during the second quarter of 2013. (Source: World Gold Council web site, August 15, 2013, last accessed September 3, 2013.)

We already know about the insatiable demand for gold in India, which saw an increase of 51% for gold bullion in jewelry in the second quarter of 2013 versus the same period in 2012.

As many of you know, buying gold in India has created such a currency problem that the government is trying to clamp down on imports of gold bullion by continuing to increase taxes. It seems that regardless of the price of gold, many of these emerging market nations continue buying … 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