Investment Contrarians

Consumer Spending

When consumers receive an income, those funds can go into savings or spending. Consumer spending is the measurement of funds dispersed (not in savings) and that can go into goods and services that consumers deem warranted. This can include durable goods, such as washing machines, and non-durable goods, such as food. As the U.S. economy is comprised of over 70% consumer spending, this is a very important piece of economic data.


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


A Safe Way to Profit from China’s 700 IPOs to List in 2014

By for Investment Contrarians | Dec 5, 2013

China’s 700 IPOs to List in 2014I pushed the “go” button on China a long time ago now, and I’m certainly not set to press “stop” yet, as I continue to feel the country is one of the top growth areas for investors worldwide. My contentions are contrary to those of many other analysts in the stock market, but I’m holding onto my bullish views.

The Goldman Sachs Group, Inc. (NYSE/GS) is now telling the market that next year (2014) will not only be the “Year of the Horse” in the Chinese Zodiac, but it will also be a buying opportunity in Chinese stocks. Goldman Sachs is predicting that the Hong Kong-based Hang Seng China Enterprises Index, which is available for investment by foreign investors, will surge 19% in 2014. (Source: He, L., “Goldman Sachs sees 19% gain for Chinese stocks in Hong Kong during 2014,” MarketWatch, December 3, 2013.) The index tracks the performance of Hong Kong-listed Chinese companies.

Goldman Sachs also predicts that the Chinese economy will advance by 7.8% in 2014, while the Organization for Economic Co-operation and Development (OECD) is even more optimistic, estimating 8.2% growth next year. (Source: Organization for Economic Co-operation and Development web site, last accessed December 3, 2013.) The OECD’s optimism is based on the rise in domestic consumer spending in China, which remains a clear focus in the mandate of the Chinese government.

Of course, there will continue to be some hesitancy due to the numerous frauds found in Chinese reporting in U.S.-listed companies a few years back. However, many of these issues have already been, or are currently being, dealt with by the U.S. Securities Exchange … Read More


What the Really Bad Black Friday Numbers This Year Mean

By for Investment Contrarians | Dec 4, 2013

Bad Black Friday NumbersBlack Friday was an afterthought, to me at least. Yes, I bought a few items from the MLB store, but that’s it. But according to newly released data for this key shopping day, it appears as though I wasn’t alone.

A few weeks ago, we saw many of the key retailers reporting some results and warning that sales in the retail sector could be sluggish during the holiday shopping season. Bellwether Wal-Mart Stores, Inc. (NYSE/WMT) was nervous about sales and said the climate in the retail sector could be tough. We heard similar stories from the likes of Macy’s, Inc. (NYSE/M), Nordstrom, Inc. (NYSE/JWN), and Target Corporation (NYSE/TGT), so we knew the retail sector was in for some difficult times.

Well, it appears the retailers may have been right in their assessments, as results from Black Friday point to some disappointing sales with a retail sector in search of consumers and margins. The problem is consumers are looking for deals and discounts; they’re not opening up their wallets in a mad dash to the register.

So despite earlier store openings, extended store hours, and heavy advertising leading up to Black Friday, the big day that many retailers depend on, the early estimates show Thanksgiving weekend retail sales declined 2.7% year-over-year to $57.4 billion, based on a report by the National Retail Federation (NRF). Even so, the NRF still estimates retail sales will edge up 3.9% during the holiday shopping season.

I can’t say I’m surprised. The reality is consumer confidence remains shaky, and with the jobs market being as soft as it is, consumers are clearly reluctant to spend. The … Read More


What’s Making Me Nervous About My Favorite Retail Stocks

By for Investment Contrarians | Nov 26, 2013

Favorite Retail StocksRetailers are likely sitting on the edge as we head into the Thanksgiving weekend on Thursday, which means Black Friday is nearly here. The three days from Friday to Sunday are the most critical period in the shopping calendar for the retail sector, followed by “Cyber Monday” (the Monday after Black Friday when many retailers offer steep discounts online), which has historically been the biggest one-day online shopping event of the year.

So these four days are make-or-break for some retailers. What happens during these days could also help dictate what happens in December and 2014. And of course, what happens with consumer spending and the retail sector will dictate the gross domestic product (GDP) growth.

Yet while I was previously more positive towards the retail sector, I’m beginning to have some doubts. Not only am I worried about the weak jobs market, but confidence levels aren’t exactly high now, either. Currently, I expect the retail sector will face greater headwinds in December and early into 2014.

The reality is that the average consumer is uneasy about their economic situation, so they are nervous and hesitant to spend. This will impact the fourth-quarter GDP and make it much more difficult for investors to play the retail sector.

Retail sales advanced for the second straight month in October; albeit, at a muted pace, but it was still nonetheless better than what the market watchers expected. Sales on an ex-auto basis increased 0.5% in October, above the 0.4% Breifing.com estimate and in line with September’s reading. It was also the second straight up month for the retail sector.

But despite these advances, … Read More


Even with Discounts Flooding Retail Sector, These Stocks Prospering

By for Investment Contrarians | Nov 25, 2013

Flooding Retail SectorAs my regular readers know, over the past couple of months, I’ve repeatedly raised my concerns that the stock market is increasingly becoming out of touch with the underlying reality of our economy. Now, the latest batch of reports from companies is showing just how inflated the stock market really is.

One market segment that I have warned readers about is the retail sector. In my opinion, the retail sector has become far overvalued in terms of potential corporate earnings growth.

Now that we’re coming into the holiday season, I believe this year is going to be one of the worst for the retail sector in generating any corporate earnings at all.

It really boils down to two things: the consumer and the companies within the retail sector.

The average American, as we all know, is still getting the same wages, getting hit with a higher payroll tax this year, and is still uncertain about their future due to high unemployment levels.

Considering the situation of the average American, companies within the retail sector are literally doing everything possible to convince consumers to spend in order to increase revenues and, hopefully, generate some corporate earnings.

Unfortunately, this heavy amount of competition for fewer dollars means disappointing corporate earnings.

Target Corporation (NYSE/TGT) just recently reported its third-quarter results, with corporate earnings falling 46% year-over-year. While part of the decrease was due to a disappointing launch in Canada, much of the decline in corporate earnings was due to consumers’ unwillingness to spend. (Source: “Target Reports Third Quarter 2013 Earnings,” Target Corporation, November 21, 2013.)

You don’t have to believe me when I … Read More