Investment Contrarians

Economic Recovery

Following a period of protracted decline in economic activity, a recovery occurs when business activity is increasing. This is viewed primarily with increases in Gross Domestic Product (GDP) and employment levels. As businesses increase their sales and are more confident about future activity, they hire more people. The new hires are more confident about their future and spend a portion of their income on business, and the cycle continues. The stock market usually leads an economic recovery, because stock investors look to the future. If investors see an economic recovery 12 months from now, they will start to accumulate shares in companies that will benefit.


How This One Chart Proves Economic Recovery Is Fake

By for Investment Contrarians | Nov 19, 2013

Proves Economic RecoveryYou know, it’s funny; with the stock market hitting all-time highs and market sentiment becoming ever more bullish, you would think that the economic recovery both here in America and globally was right on track.

But you’d be wrong. The economic recovery is not accelerating globally, and here in America, we just witnessed a minor bump up in growth primarily led by a build-up in inventory.

Ask the average person on the street: do they feel as if the economic recovery is running full speed ahead? Do most Americans feel better today than they did last year?

I’m willing to bet that most people don’t feel that much different about the economic situation than they did a year ago. Yet stock market sentiment has gone from highly pessimistic to overly optimistic. After all, we are at all-time highs; doesn’t that mean that the economic recovery is close at hand?

Not necessarily. I believe much of the upward move in the stock market (and market sentiment) this year has been primarily fueled by the Federal Reserve’s easy money.

Look, most people have a short-term memory. They don’t tend to remember the longer historical picture. Instead, they see what has worked over the past couple of months and continue doing the same thing over and over again until they get burned.

Market sentiment began building up in the middle of 2012, and once investors realized that the Federal Reserve had its foot on the accelerator, people piled into the market. This has kept pushing market sentiment ever higher, regardless of whether or not the economic recovery was accelerating.

This one chart is … Read More


Why Having Cash Sitting Idle May Be Your Best Investment Strategy Right Now

By for Investment Contrarians | Nov 4, 2013

Investment StrategyAnother day and another record-high stock market is what it seems like these days. That must mean that the economic recovery in America is close at hand, right?

Not so fast; the data on job creation appears to show that the situation is actually worsening.

Job creation is crucial to this economic recovery. While it is true that job creation is a lagging indicator, we do need to see an increase to verify whether or not the economic recovery is actually accelerating.

While the stock market might be cheering the Federal Reserve’s decision to continue pumping out money, I worry that all of this excess cash is losing its effectiveness. We are not seeing any positive impact of this monetary policy on Main Street, and things are beginning to deteriorate.

The latest monthly release of the ADP National Employment Report, produced by Automatic Data Processing, Inc. (NASDAQ/ADP), showed that job creation from September to October amounted to just 130,000 new positions, worse than the expected 151,000. (Source: Automated Data Processing, Inc. web site, October 30, 2013.)

I know what you’re going to say: this decline in job creation is not a sign of a poor economic recovery, but rather a result of the U.S. government shutdown.

If that’s true, then why has job creation been decelerating for the past few months? Take a look at the job creation table below, and tell me whether our economic recovery is accelerating or decelerating:

Month
Nonfarm Private Employment

Jun-13
190,000

Jul-13
161,000

Aug-13
151,000

Sep-13
145,000

Oct-13
130,000

While I would agree that the government shutdown did impact the economic recovery, that’s just … Read More


What’s Really Behind China’s Economic Growth and Why It Won’t Last

By for Investment Contrarians | Oct 24, 2013

Behind Chinas Economic GrowthWhen I read some of the headlines by other news organizations, sometimes I can’t help but chuckle at their oversimplification. Other media outlets take a kernel of truth, and ignore the rest of the picture, only to blow that tiny piece of truth out of proportion.

As an example, there was a recent release by the National Bureau of Statistics of China that reported the Chinese economy grew 7.8% year-over-year for the three months of July to September. (Source: National Bureau of Statistics of China, October 18, 2013.)

That headline number for the Chinese economy does look impressive at first glance. Of course, the mainstream media has used that one data point to extrapolate that the economic recovery we are all expecting is close at hand.

However, the Chinese economy is far more complex than simply looking at the headline data point of year-over-year gross domestic product (GDP) growth.

While nothing would make me happier than to finally hear of a real economic recovery occurring somewhere in the world, I’m afraid that the Chinese economy is simply being pushed higher by a government injection of stimulus that will only be temporary.

While America is suffering from a lack of economic recovery, China is also seeing problems. Inflation is pushing a seven-month high and the government is trying to shift the Chinese economy from being export dependent to domestically oriented.

So while the headline number looks nice, if the Chinese economy hits its target of 7.5% for the full year, it will still be the worst growth level in 23 years. Is that the economic recovery we should be celebrating—the worst … Read More


Why Consumer Confidence Will Remain Weak for Months to Come

By for Investment Contrarians | Oct 22, 2013

Consumer ConfidenceAs most of you know, the consumer represents the largest part of our economy. The key to getting our economic recovery moving forward is to ensure that consumer confidence continues rising. The only problem: consumer confidence isn’t rising—in fact, it’s dropping sharply.

One of the few reports available on recent consumer confidence (due to the government shutdown) is the Bloomberg Consumer Comfort Index, which showed a significant drop from -9 in September to -31 in October. This latest reading is now the lowest level of consumer confidence since November of 2011. (Source: “Consumers’ Outlook for U.S. Economy Plunges to Two-Year Low,” Bloomberg, October 17, 2013.)

Now, I know what you’re thinking: consumer confidence naturally took a hit when all of the shenanigans in Washington began, culminating in the U.S. government shutdown.

That is true. A big part of the drop in consumer confidence was directly due to the ridiculous position that Washington imposed on all of us. And I’m sure when we begin to see the economic releases flowing out of government agencies again, the news will be that the economic recovery has stalled due to the impact of the shutdown.

However, there are two points that still bother me.

The first is that prior to the government shutdown, the level of consumer confidence, at least from the Bloomberg Consumer Comfort Index, was still very low. It’s not as if consumer confidence and the economic recovery were barreling full steam ahead, and then all of a sudden the government shutdown let down the anchor.

The truth is that both the economic recovery and consumer confidence were far below optimal levels … Read More


Why the Sidelines May Be the Best Place for Investors Right Now

By for Investment Contrarians | Oct 15, 2013

Best Place for InvestorsThe last Federal Reserve meeting on September 17 and 18 was one of the most shocking in recent memory. It wasn’t shocking what the Fed did; rather, it was what the Fed didn’t do that was shocking.

After such a long period of quantitative easing, the market was expecting the Federal Reserve to begin reducing its bond purchases totaling $85.0 billion per month.

However, the Federal Reserve stated that it believed the U.S. economy was not strong enough, so the central bank kept the quantitative easing policy in place for the time being.

The minutes from this Federal Reserve meeting were released recently, and it’s interesting to note that it held off on tapering, even though there was a lot of debate over the economy and the status of the quantitative easing program.

It appears that the majority of the members do believe that the Federal Reserve will begin reducing its asset purchase program shortly, with this particular part of the quantitative easing program coming to completion by mid-2014.

Remember: this inaction happened before the government shutdown. Now, with uncertainty rising and the politicians still fighting, it appears that the Federal Reserve was right in thinking that uncertainty would increase on the federal level and in keeping the quantitative easing program in place.

With a new leader soon to take the helm of the Federal Reserve, the question is: how will the Fed reduce quantitative easing going forward and what does this mean for your investments?

Already we’ve seen interest rates rise just on the discussion of the beginning phase of quantitative easing reduction. Imagine what will happen when the … Read More