Investment Contrarians

Job Creation

The actions of businesses and governments to increase the employment rate, to increase the number of jobs in the economy, are referred to as “job creation.” In times of recession or economic contraction, job creation becomes a priority of government. Since the primary goal of corporation is profit, job creation on the private level often occurs only when economic conditions warrant the risk for businesses to grow and when successful marketing and goods/services development requires businesses to expand.


Economic Recovery Doubtful as New Survey Shows Downturn in Manufacturing

By for Investment Contrarians | Nov 22, 2013

Economic Recovery DoubtfulAfter so many years following the Great Recession, it’s still quite astounding that job creation remains so slow. This obviously indicates the lack of economic growth, even after trillions of dollars have been pumped into the U.S. economy.

While there has been a lot of optimistic talk in the mainstream media, there have been an increasing number of data points indicating America’s economic growth is still very fragile.

Recently, the Federal Reserve Bank of New York released the results of its November 2013 “Empire State Manufacturing Survey,” and they didn’t support the economic growth theory.

This report is an indication of the state of manufacturing in New York. The net result is that overall business conditions fell to their first negative reading since May. New orders also fell 13 points into negative territory at -5.5. Labor conditions worsened, indicating a decline in the average number of hours worked per week. (Source: “Empire State Manufacturing Survey,” Federal Reserve Bank of New York web site, November 15, 2013.)

It’s no wonder that job creation is still lagging: the manufacturing industry is still experiencing a lack of economic growth. In fact, these results indicate that manufacturing is beginning to weaken once again.

We can’t have economic growth if large sectors of the U.S. economy are experiencing a decline in business activity.

On top of the decline in manufacturing, the level of prices paid is beginning to increase to a level above what firms are able to charge clients.

In 2013, prices paid by manufacturing firms increased 3.4% on average, and they are expected to increase four percent in 2014. Manufacturing firms estimate that … 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


How to Profit from a Potential Housing Market Downdraft

By for Investment Contrarians | Nov 1, 2013

Potential Housing Market DowndraftThe housing market has had a nice run up over the past several years, but the party is beginning to fade.

Home prices continue to edge higher with a 12.8% jump in August, according to the S&P/Case-Shiller 20-City Home Price Index. While this seems positive, you also have to wonder if the housing market is headed for a bubble down the road as mortgage rates rise—and they will.

The chart of the S&P/Case-Shiller 20-City Home Price Index below shows the current recovery in home prices. The index is still far below the peak in 2006 and 2007, prior to the subprime blow-up. These were unrealistic levels. We saw downward moves in 2009 and 2012, but it has been clear sailing. Yet the problem is that much of the buying in the housing market was driven by institutional buying. Once this begins to fade as home prices rise, we could see a relapse in the housing market.

S&P Case-Shiller Home Price Chart

Chart courtesy of www.StockCharts.com

We saw a 5.6% decline in pending home sales in September. This metric is not considered as critical as the housing starts and building permits readings, but in my view, it’s a good indicator. In August, pending home sales slid 1.6%. We may be seeing a trend of lower demand for homes, which suggests there could be some issues on the horizon if pending home sales continue to be negative.

Existing home sales were also flat at 5.29 million units in September, down from 5.39 million units in August. Less people are buying homes, and this cannot be good for the homebuilder stocks.

What makes the situation in the housing … Read More


How to Invest in This Fundamentally Broken Economy

By for Investment Contrarians | Oct 25, 2013

Broken EconomyWell, the latest numbers related to job creation were recently released and to no one’s surprise, they were worse than expected.

For the month of September, job creation totaled 148,000, down from expectations of 180,000. (Source: Bureau of Labor Statistics, October 22, 2013.) While most people are simply writing off the latest data by saying that the U.S. government shutdown was the primary reason for the lack of job creation, I think there’s much more going on behind the scenes than simply a couple of weeks of not going to work.

This lack of job creation extends beyond simply the past few weeks; the trend over the past couple of years has remained far below potential. Even with the Federal Reserve throwing literally trillions of dollars into the U.S. economy for the past few years, there are no signs of life.

However, looking at the total level of job creation is not enough. Two other key figures you should pay attention to in addition to the total level of job creation are wages and hours worked. The Federal Reserve takes these additional metrics into account when trying to develop a picture of the economy.

The average hourly earnings increased by 0.1% in September, slightly below expectations of 0.2% from the previous month. The average hourly workweek did not change at 34.5 hours.

I don’t know about you, but seeing a mere 0.1% increase in my pay would not cause me to run out and spend more money or feel more secure about my financial future.

Before job creation takes place, you will usually notice hours increasing as employers use existing … Read More


Five-Year Bull Market Run Showing Signs of Fading?

By for Investment Contrarians | Oct 25, 2013

Five-Year Bull MarketA soft jobs reading came out last Tuesday, and the stock market…soared? That’s right. Initially, I was a bit taken aback by the surge, but then again, the buying was driven by the optimism surrounding soft economic growth—because that means the Federal Reserve can justify its continuance of cheap money and the stock market stays at its highs. (You’d be a fool to think the buying was driven by sound economic and corporate growth—even if that is the first lesson in Economics 101.)

My sense is the Federal Reserve will most likely refrain from any tapering of its bond buying until early 2014, when the new Fed chairman, Janet Yellen, takes over. She’s also accommodative towards the printing of cheap money.

And that’s exactly what the stock market wants. Without all of this so-called monetary “cocaine,” I doubt the stock market would have moved this high.

But investors need to be wary. The stock market is warped now in its thinking and the continued dependence on cheap money is ridiculous. The stock market needs a stronger economic recovery, more job creation, and much better revenue growth from companies, which remains problematic.

However, in spite of the absence of these fundamental factors, the stock market will likely continue to edge higher, partly due to the continued lack of alternative investments. With the 10-year bond yield down at 2.49%, the bond market is a cesspool for your capital. Heck, you can make that in a day on the stock market at the rate it’s moving! Investors realize this and will likely continue driving cheap money into stocks and pushing equities higher.

Again, … Read More