Investment Contrarians

Earnings Season

Public companies, firms that have their shares trade on an exchange, must make their financial reports available for investors to research every quarter, or four times a year. In an earnings report, a firm must supply revenue, expenses, net income, earnings per share, and all of the details in an income statement, cash flow, and balance sheet. Usually the months following the quarter-end are busiest, as this is when most companies will report their earnings.

How a Struggling Jobs Market Will Reward Investors in 2014

By for Investment Contrarians | Oct 24, 2013

Jobs Market Will Reward Investors in 2014Wow! Considering all of the money spent by the government on stimulus and the quantitative easing by the Federal Reserve, it really is quite discouraging to see the jobs market stuck in neutral.

In September, only 148,000 new jobs were created, according to the U.S. Bureau of Labor Statistics. The result was subpar and well below the consensus estimate of 183,000.

The unemployment rate edged lower to 7.2%. That doesn’t mean the jobs market is improving, though; instead, it indicates that more workers who are unable to find work have pulled out of the workforce.

Folks, there is a lack of jobs out there, and the jobs market is not getting better. Case in point: the economy produced an average of 143,000 monthly jobs in the July-September period, well below the average 182,000 from April to June. The trend in the jobs market is down, and with what we are seeing with the lack of third-quarter earnings season revenue growth, I don’t expect things to improve much in the jobs market.

There are some three million jobs out there, but there are over 21 million workers looking. The official number for those searching is around 11 million, but trust me—this is understated.

In addition, there are many workers with jobs that are way below their experience or skill set. I just watched a documentary on the high unemployment among college graduates and the mismatched low-paying jobs they’re forced into due to a lack of jobs matching their education and skill levels. In restaurants, for example, the majority of the servers were college grads. What’s worse is that these workers also … Read More

Price Action of the Bank Stocks Indicates Changing U.S. Economic Landscape

By for Investment Contrarians | Oct 16, 2013

U.S. Economic LandscapeOne of the most eagerly anticipated sectors to watch during this earnings season is bank stocks and how they are dealing with the shift in interest rates and the impact on the housing market.

Obviously, it’s crucial to watch bank stocks since they can give us information about the health or direction of the economy in general. Take Wells Fargo & Company (NYSE/WFC), for example; the company is the largest lender in the housing market, and its latest third-quarter financial results are quite interesting.

As I have been saying for most of this year, higher interest rates will be coming, and this will lower expected revenue in the housing market division. Wells Fargo has just validated this forecast by reporting significantly lower levels of mortgage origination, which includes both home purchases and refinancing.

Wells Fargo reported a 43% year-over-year decline in mortgage banking income, at $1.61 billion for the quarter. Total mortgage originations, which include refinancing, dropped 42% year-over-year to $80.0 billion for the latest quarter. (Source: “Wells Fargo Reports Record Quarterly Net Income,” Wells Fargo & Company web site, October 11, 2013.)

With higher interest rates, the housing market is indeed feeling the pinch, and bank stocks need to dramatically shift their business structure into higher growth areas. Wells Fargo is one of the leading bank stocks in America, and it’s trying to move away from the housing market-related business into both the retail side of banking, as well as business loans.

In these sectors, things are certainly better for bank stocks than the housing market. Net income from the retail banking division was $3.34 billion, up 22% from … Read More

U.S. Debt Default a Buying Opportunity for Bond Investors?

By for Investment Contrarians | Oct 10, 2013

Buying Opportunity for Bond InvestorsI wasn’t going to talk about the government impasse and the upcoming debt ceiling deadline today, but it’s really the only thing people seem to want to discuss.

Even with the third-quarter earnings season flowing in, the headlines continue to want to key in the mess in Congress. Hey, I don’t blame them; America’s future is at stake in this critical showdown, which is why both parties want to make the best debt ceiling deal possible.

Could you imagine lending a substantial sum of money to a friend, and then you start hearing talk that your friend may not be able to pay you back?

Well, there’s some uneasiness developing in the world financial markets, as China and Japan are wondering—sometimes out loud—whether their more than $2.0 trillion in U.S. Treasuries are at risk. China held about $1.28 trillion in U.S. Treasury bonds as of July 31, according to the Department of the Treasury. Japan holds about $1.14 trillion in U.S. debt.

The problem is that unless the U.S. can resolve its debt ceiling crisis and move ahead; I expect there will be some hesitancy from the Asian powerhouses when deciding whether or not to buy U.S. bonds in the future; and this could have an impact on yields and what the Treasury has to pay. Without strong buying from China and/or Japan, the U.S. Treasury could be in trouble, since there would simply be no money left in the coffers. Luckily for now, investing in U.S. bonds for foreign reserves is still a better option than the alternatives, such as the euro or gold, but that could change.

The … Read More

Why Moving Assets Out of Stocks and Into Treasuries Might Be the Right Move for Now

By for Investment Contrarians | Oct 4, 2013

Assets Out of StocksDue to the recent government shutdown, the easy money from the Federal Reserve will likely continue until at least the final Federal Open Market Committee (FOMC) meeting of the year in December.

The United States Department of Labor has said it’s no longer collecting data on the labor market as the majority of its workers have been told to go home during the shutdown. Without the non-farm payroll jobs report, I doubt the Federal Reserve will have the information it needs to make a decision regarding the tapering of its economic policy at the FOMC meeting at the end of October—and this will surely add to the stock market risk.

Having said that, while the tapering will likely not start until at least December, I doubt it means more gains by the stock market considering the slew of market uncertainties that need to be addressed.

First off, the House must resolve its differences toward the enactment of Obamacare. While there are debates on its delivery, the House simply needs to come to a conclusion. In my opinion, while the debates around Obamacare may represent some important concerns, this is just a distraction from the real issue. Once the debate on Obamacare is resolved, the country can then focus on the need to deal with the more critical and difficult topic of raising the debt ceiling.

The problem here is that there really is no other choice but to increase the debt ceiling; otherwise, the country could default on its debt, which would drive the stock market lower.

As an investor, these are tricky times, and I haven’t even talked about … Read More

What to Watch for This Earnings Season

By for Investment Contrarians | Sep 30, 2013

Earnings SeasonYes, we are getting close to that time again; the next earnings season is almost upon us. Many investors will be focusing on the level of earnings growth, not only for the past quarter, but also for the guidance issued by firms for the future.

The stock market is up significantly this year, so any disappointment in guidance regarding corporate earnings could cause a significant market correction.

A recent example of the type of market correction that’s possible is Hertz Global Holdings, Inc. (NYSE/HTZ). The company lowered its guidance for revenues and corporate earnings for the full year, which caused its shares to sell off significantly.

Whenever you have stocks pricing in extremely strong levels of corporate earnings, any marginal disappointment will lead to a market correction. In this instance, Hertz adjusted its corporate earnings range for the full year from $830–$875 million down to $780–$830 million. (Source: Hertz Global Holdings, Inc. web site, last accessed September 27, 2013.)

Hertz Global Holdings Chart

Chart courtesy of

The company cited weaker-than-expected volume at U.S. airports. The stock did sell off significantly, which goes to show you how vulnerable stocks are to a market correction.

Having said that, we have to put things in perspective. Hertz will still report a record amount of corporate earnings for fiscal 2013, so this isn’t a case of a company losing money; it’s simply making less than what the market expects. Price is always relative, and stocks fluctuate between optimism and pessimism.

When people are too optimistic about corporate earnings growth, it drives valuations extremely high. This also leaves stocks vulnerable to a market correction if corporate earnings even … Read More