Investment Contrarians

Jobs Growth

As an economy expands, the increased sales and production create demand for more potential sales and this drives businesses to create new jobs. The U.S. Bureau of Labor Statistics compiles a monthly report on the number of jobs created and the unemployment rate. The unemployment rate does not always move in unison with jobs created, as population growth means that jobs must be created to maintain the unemployment rate at current levels. Also, if more citizens join the workforce in looking for work, this can increase the unemployment rate even though jobs have been created. The key to jobs growth is a strong economy. When a business is able to see that its future sales targets could be higher if it had more employees, this will drive job trends for the near future.

My Favorite Retail Stocks This Holiday Season

By for Investment Contrarians | Nov 13, 2013

Retail Stocks This Holiday SeasonIn my past two commentaries, I discussed the third-quarter gross domestic product (GDP) growth and October jobs growth. Both metrics looked good on the surface, but after closer inspection, there were clear gaps.

Both of the reports suggest that consumers may not be in the spirit to spend cash this holiday shopping season. With Black Friday just around the corner, for the retail sector, this one day of the year is critical and can generate a key portion of the year’s total sales.

We are already seeing a mad dash by the retailers to open earlier on Black Friday and extend the shopping day. Some are opening at midnight, others before midnight.

At stake in the retail sector are the consumer dollars and the intense competition I expect to see, especially among the larger department stores. We may see J. C. Penney Company, Inc. (NYSE/.JCP) take one of its final gasps, as the company fights to survive with declining sales and dwindling cash.

In the retail sector department store area, I would stick with Macy’s, Inc. (NYSE/M) and Nordstrom, Inc. (NYSE/JWN). Macy’s and Nordstrom, along with Wal-Mart Stores, Inc. (NYSE/WMT) and Kohls Corporation (NYSE/KSS) will report quarterly results this week. The key to listen for in these companies’ reports is what each has to say about the upcoming holiday shopping season.

The reality is that based on the soft personal spending component of the GDP along with the lower quality of jobs in the nonfarm payrolls report, I expect the retail sector will struggle through the holiday season.

I expect heavy discounting in the retail sector to attract shoppers and … Read More

Why a Closer Look at October Jobs Numbers Paints Anything but a Rosy Picture

By for Investment Contrarians | Nov 12, 2013

2013 October Jobs NumbersIn my previous commentary, I discussed the third-quarter gross domestic product (GDP) growth and how it was really weaker than it appeared. The Federal Reserve should realize the underlying weakness in personal spending, business investment, and export sales.

The nonfarm payrolls reading released on Friday was also suspect. On the surface, the creation of 204,000 new jobs in the jobs market in October seemed spectacular, given the U.S. government shutdown during that period. Apparently, the impasse didn’t impact the October jobs market, according to the U.S. Bureau of Labor Statistics. (Source: “Employment Situation Summary,” Bureau of Labor Statistics, November 8, 2013.)

But then there are other numbers that shed some light on October’s count. Given the estimate of 120,000 new jobs, the October jobs market reading appears to be spectacular. An average of 190,000 new jobs have been created each month over the past 12 months. The stock market appears to be scared by the numbers (fearing a drop in quantitative easing), but the reality is the economy needs to see about 400,000 to 500,000 new jobs created each year to maintain a healthy jobs market. The average jobs growth is supported by the weak revenue growth by corporate America. It’s clearly time to take some money off the table on stocks now.

There also continues to be 11.3 million unemployed in the jobs market, and that figure is likely much higher if you count the workers who have dropped out from the workforce and those who are employed full-time but working at jobs that are well below their experience level and skill set. About 8.1 million were working … Read More

Two Ways to Profit from Lagging Jobs Growth

By for Investment Contrarians | Oct 30, 2013

Lagging Jobs GrowthWith the slew of economic data being released this week, we’re obviously starting to get a better sense of where stocks could be heading over the next few weeks.

Of course, the focus will be on the Federal Reserve meeting today, where it’s really a no-brainer that Federal Reserve Chairman Ben Bernanke will leave his bond buying in place. Now some may argue that it may have been a different outcome if the government impasse didn’t occur, but I doubt that.

The talking points at today’s Federal Reserve meeting? The Federal Reserve will likely talk about how the economy is showing signs of growth, but that it remains fragile and will need to strengthen. The Federal Reserve will also talk about the soft results from the jobs market, and how it also needs to pick up.

The end outcome? A non-response from the Federal Reserve as far as tapering its bond purchases. In fact, based on what is happening, it doesn’t look like any tapering will occur until at least December, but most likely not until Bernanke leaves his post as head of the Federal Reserve in January.

Traders realize the Federal Reserve will keep the flow of money going, which has helped to add support to the stock market. Yet I’m still debating how high stocks can run. The key will be what consumers do during the holiday shopping season that begins in about a month with the critical Black Friday on November 29.

I’m not that optimistic, based on what the retailers said in their September reports. Also, jobs growth continues to be marginal at best, and this … Read More

What Fed’s Monetary Policy Could Look Like Under New Leadership

By for Investment Contrarians | Oct 11, 2013

Monetary PolicyWith news that President Obama will nominate Janet Yellen as the next chair of the Federal Reserve (to replace Ben Bernanke when he steps down on January 31, 2014), I think it’s important to take a look at how monetary policy could change under her leadership.

Yellen has been part of the Federal Reserve system for quite a long time. In one sense, the market will see her as a continuation of the current monetary policy initiatives, as she has been quite close with Bernanke, helping shape the viewpoint of the current Federal Reserve on monetary policy.

Generally speaking, Yellen is considered more dovish (willing to extend low interest rates) than other potential Federal Reserve candidates. In this respect, it’s expected that many sectors of the economy and markets that have benefited from the current monetary policy may continue to benefit for a longer time frame than if another person were elected as leader of the Federal Reserve.

While we all know that at some point the Federal Reserve will begin to reduce its aggressive monetary policy stance, the timeline could be extended. Obviously, this is all just speculation, but Yellen has been vocal in the past about maintaining an aggressive monetary policy stance until the economy really begins to accelerate.

But as dovish as her reputation is, many people don’t know that she was actually one of the first Federal Reserve members to speak up about her concerns regarding the bubble in the housing market back in 2007.

This dichotomy is interesting: on the one hand, she is one of the most aggressive Federal Reserve members currently pushing for … Read More

S&P 500 Companies Issuing Negative Guidance Hits Record High

By for Investment Contrarians | Oct 4, 2013

S&P 500 CompaniesOne of the themes that I’ve been reiterating over the past few months has been my concern over the potential for growth in corporate earnings. While companies in the S&P 500 have reported extremely strong corporate earnings over the past few years, we might be reaching a peak in the cycle.

As you know, businesses and the economy move through a cycle, from the trough to the peak and back down. Following the depths of the recession in this cycle, companies in the S&P 500 instituted significant cost-cutting and share buyback strategies, which have helped boost corporate earnings significantly, sending the economy up toward the peak.

But at some point, you can’t cut costs any further and revenues need to accelerate. This is my worry for many S&P 500 companies; if revenues aren’t growing, at some point, corporate earnings will begin to disappoint expectations, and the cycle will head back downward.

New data reported by FactSet Research Systems Inc. (NYSE/FDS) indicates that a record number of S&P 500 companies are issuing negative guidance for corporate earnings since the company began tracking this data in 2006. (Source: FactSet Research Systems Inc. web site, last accessed October 2, 2013.)

So far, 89 companies out of the S&P 500 have issued negative guidance for corporate earnings, while only 19 have issued positive earnings guidance. The previous high for companies in the S&P 500 issuing negative guidance was 88 firms during the second quarter of 2013.

It’s interesting to note that as the S&P 500 made new all-time highs this year, earnings guidance is continually being revised downward. The 19 firms so far issuing … Read More