Recession
An economic slowdown is a contraction in the economy. This can be viewed by using several indicators, including lower gross domestic product (GDP), higher unemployment, lower industrial production, lower business investment, a decline in retail sales, and a decrease in corporate profits. Not all of these factors need to be declining for an economic slowdown, but these are some of the main indications to watch for regarding the overall health of the economy. Some consider a recession to be occurring when there are two consecutive down quarters of gross domestic product (GDP). According to the National Bureau of Economic Research, a recession is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real money, employment, industrial production and wholesale retail sales.”
Small Business Loans Drop: Does This Foreshadow a Slowing?
By George Leong for Investment Contrarians | May 3, 2013
Small business is the backbone of America’s economy. While large multinational companies tend to get all of the attention, it’s the small companies that are critical to the country’s economy.
From your local “mom and pop” shop to the independent watering hole around the corner to the small manufacturing company making widgets, small companies are critical to the economy.
These are the companies that tend to fare better than other companies when coming out of a recession or a slowdown, due to their ability to make quick decisions in response to rapidly changing business variables.
While large companies could take months to adapt to a changing business environment, small companies could take only days or weeks to adjust, which is why their activity should be monitored.
An interesting measure on how well small companies may be doing can be linked to the amount of loans taken out. The thinking is: the higher the loans, the more the business is growing.
The Small Business Lending Index (SBLI), developed by Thomson Reuters and PayNet, is a good benchmark on small business lending. The SBLI is based on the volume of new commercial loan and lease originations from the major lenders in the U.S. given to small companies.
In March, the index fell to 98.5 from 105.4 in February.
The SBLI chart shows the pattern of the loans from 2005. You will notice the dip in loans when the recession surfaced, followed by the steady rise in loans to small companies up until the present time. Also note the recent big dip in loans to small companies.
This recent decline may prove to … Read More
Why the Eurozone Recession Is Important for America
By George Leong for Investment Contrarians | May 1, 2013
George Soros knows a thing or two about making money from big bets. In 1992, Soros made a $10.00 short wager on the British pound and walked away with a billion dollars in profits.
Soros is now convinced Germany needs to rethink its strategy toward the sustainability of the eurozone and, in a draconian manner, believes the country should leave the euro.
Of course, should this happen, the 17-country eurozone would collapse, triggering a massive economic Armageddon and financial crisis in Europe that would ultimately generate chaos for the global economy.
Now, I doubt Germany or France—the two pillars integral to the eurozone—will exit the euro, but the reality is that the situation in the economic zone remains in a financial crisis with little hope of revival.
The problem is that the eurozone is firmly in a financial crisis and recession, trying to find its way out.
Greece, Portugal, Spain, and Italy are a drag on the ability of the eurozone to get out of its financial crisis. The unemployment rate in Greece and Spain is over 25% and worsening.
Italy just formed a new government, but there’s tons of work left for that debt-ridden country before it can exit its own financial crisis that has been building for years.
With all of this bad news, it’s not surprising to see people in the eurozone feeling the despair. According to the European Commission, economic morale in the eurozone remains weak after declining in March and April. (Source: Emmot, R., “Economic mood in euro zone sours again in April,” Reuters, April 29, 2013.)
And it appears that the solution will again … Read More
Eurozone Could Collapse Sooner Than Many Think
By George Leong for Investment Contrarians | Apr 12, 2013
The eurozone and the euro are still around, but the more I see what is happening in that region, the more I think something must be done, given the financial crisis.
You have the eurozone in a recession and a financial crisis specifically driven by turmoil in Spain, Italy, Portugal, Greece, Cyprus, and Ireland.
Greece is broke, and it could take decades to recover from its financial crisis. Heck, Greece may have to go and ask for another round of bailout money if the financial crisis in the eurozone holds.
The financial crisis in Cyprus is a red flag that needs to be watched. And despite the small size of Cyprus’ economy, the country is a mess, with no recourse but to seek more bailout funds or risk a default and exit the euro.
The two pillars of the eurozone, Germany and France, are stalling. Germany contracted 0.6% in the fourth quarter and is another negative quarter away from a recession. France is in a similar predicament and will need to wrench its way out of its potential financial crisis.
Even big-time investor George Soros, who knows a thing or two about economies in trouble having made a billion dollars shorting the pound decades ago, is pretty convinced that Germany needs to rethink its strategy and consider leaving the euro to avoid its own financial crisis.
The problem that arises is that Germany is the major reason why the eurozone is still intact, when it maybe should have looked at kicking out Greece and Cyprus.
But as long as Germany is staying in the eurozone, the probability of survival, in … Read More
What Reading Between the Lines Reveals About This Aluminum Stock
By George Leong for Investment Contrarians | Apr 11, 2013
Aluminum maker Alcoa Inc. (NYSE/AA) reported its earnings results on Monday, officially kicking off the first-quarter earnings season. While some in the media touted the fact that Alcoa beat earnings estimates, in reality, it’s nothing to get excited about. The stock market looks to be agreeing with me, as Alcoa was under some selling pressure after it reported.
Alcoa remains a key global company, but it probably doesn’t carry the weight it used to have on the market. However, the company does still offer some insight into the global economy.
The company only managed to narrowly beat earnings-per-share (EPS) estimates, reporting adjusted earnings of $0.11 per diluted share, above the Thomson Financial consensus estimate of $0.08.
It was a decent reading, but as I have said in the past, what I want to see is revenue growth to drive earnings—not cost control or some other variable.
Let’s take a closer look at Alcoa.
Revenues came in at $5.8 billion in the first quarter, down three percent year-over-year, which the company blamed on lower prices on the London Metal Exchange and some issues with its production in Europe.
That’s fair, but I want to see revenues grow in the global economy. Companies that expand revenues to drive earnings are what you want to see. In my view, those companies that are reporting solid revenue growth are important, especially given the somewhat stagnant state of the global economy. My thinking is that once the global economy begins to take off, especially in Europe and the emerging markets in Latin America and Asia, these same companies will likely be ready to deliver much … Read More
How Central Banks’ Easy Solution Could Devastate the Global Economy
By Sasha Cekerevac for Investment Contrarians | Apr 10, 2013
Central banks around the world have opened the floodgates with massive levels of quantitative easing in an effort to try to stimulate their respective economies. Turning on the quantitative easing tap is easy; putting the genie back in the bottle will be extremely difficult for central banks globally.
I am not alone in sharing this opinion, as the governor of Denmark’s central bank, Lars Rohde, has voiced similar concerns. In a recent interview, Rohde stated, “The risk is we stay in this climate too long and that the carpet bombing of liquidity spurs inflation… How do we exit this without killing whatever nascent recovery there might be at that time?” (Source: Levring, P. and Schwartzkopff, F., “Liquidity Carpet Bombs Fueling Asset Bubbles, Rohde Says,” Bloomberg, April 8, 2013.)
While central banks around the world are using quantitative easing in an effort to revive the global economy, the long-term consequences, as I’ve mentioned before, could prove to be extremely costly. I certainly welcome the honesty that Denmark’s central bank’s governor is displaying in voicing his concerns about how all of this quantitative easing might have serious long-term risks.
With Japan just now unveiling a massive new quantitative easing program in addition to the Federal Reserve’s asset purchase program, the floodgates continue to be wide open. However, central banks around the world have embarked on an aggressive quantitative easing policy since the great recession began, yet little has changed in terms of global unemployment.
Many nations around the world still suffer from extremely high levels of unemployment. It appears that quantitative easing did have an impact in certain asset prices, namely stocks … Read More
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