Investment Contrarians

Retail Stocks

Companies that cater to the public selling various goods are called retail stocks. This encompasses both large and small stores. Investors look at fashion trends, sales per square feet, the potential to open more stores, inventory levels, and same-store sales data. as well as the ability of retailers to generate loyalty among their customers.

Advance 3Q GDP Growth Reading Doesn’t Tell the Whole Story

By for Investment Contrarians | Nov 11, 2013

3Q GDP Growth ReadingThe market was impressed with the advance reading for the third-quarter gross domestic product (GDP) growth last Thursday. The fact is that with the Q3 GDP growth at 2.8%, the news was a relief, as it was much better than the consensus estimates of 1.9% and the 2.5% final reading for the second-quarter GDP growth.

The U.S. Department of Commerce said it was the fastest rate of growth since the third quarter in 2012. But while the market appears to be applauding the result, I’m not.

Yes, the GDP growth was better than if we had a soft reading, which many were expecting.

The Federal Reserve, at first glance, may look at the number and decide it’s time to rein in its quantitative easing at its December meeting.

But hold on… A closer look at the components of the GDP growth report would show some fragility that makes me concerned about the country’s economic renewal.

Spending by the businesses stalled in the third quarter, based on early indications. This is a red flag, as companies will generally spend more if they are growing and the economy is healthy and in an upturn. This lack of spending by businesses may indicate continued weak revenue growth.

Another warning in the report is that real personal consumption, which accounts for about two-thirds of America’s GDP growth, rose 1.5% in the third quarter—that’s not that good. Actually, it’s a decline from the 1.8% GDP growth in the second quarter. Given this, the retail sector could continue to struggle, so I would be careful when buying. I would continue to stick with the discounters, such … 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

Tune Out Wall Street Bulls: Nothing Left for S&P 500 to Rally On

By for Investment Contrarians | Oct 17, 2013

Tune Out Wall Street BullsThe S&P 500 moved to within 18 points of another record on Monday, and there was chatter on Wall Street of a breakout being in the works that could reward bulls. And in spite of Tuesday’s pullback, the bulls continue to believe the index will soon rally above its record high set in mid-September.

Well, the idea of a sustained upward move in the fourth quarter doesn’t resonate with me. The S&P 500 is up nearly 20% this year, and my view is that there’s not much fuel left in the tank to take the index higher, except for maybe a few percentage points. I see more downside risk ahead, based on what will likely be a sluggish fourth quarter driven by continued bickering in Washington (the government may have agreed on extending the debt ceiling deadline, but there’s still the budget to debate), a soft jobs market, and fragile consumer confidence.

Gross domestic product (GDP) growth will clearly be affected. Confidence is eroding. Consumers will likely be hesitant to spend, especially on big ticket items, and this will impact GDP.

Wal-Mart Stores, Inc. (NYSE/WMT) is already predicting tepid growth in its key same store sales. Other retailers are also beginning to feel the hurt of an economy that is too in flux. The retail sector could likely see heavy discounting throughout the holiday shopping season to attract consumers.

The key to buying stocks in this environment is to look at areas that can benefit from the continued sluggishness in the economy and the move of consumers to look for deals and control their spending. The middle class continues to … Read More

New Poll Exposes Real Disconnect Between Investors and Average Americans

By for Investment Contrarians | Oct 2, 2013

Real Disconnect Between Investors and Average AmericansWith the stock market near all-time highs, investor sentiment clearly remains in the bullish camp. Does this mean the economic recovery is accelerating? Not necessarily.

Experienced investors already know that there can be a large disconnect between the market and the economy, but at some point, they have to converge. The market is a leading indicator on the economy; theoretically, investor sentiment looks into the future with expectations of how an economic recovery is shaping up, which can tell us where the economy is headed.

But expectations don’t always come to fruition.

Currently, the situation appears as though investor sentiment has continued accelerating; meanwhile, recent data are showing that the average American’s sentiment toward the economic recovery is decelerating.

A recent poll by Bloomberg showed that over the past few months Americans have become less optimistic about the potential of the economic recovery.

The poll conducted on September 20-23 indicated that only 27% of respondents believe that the economic recovery will be more robust over the next year, down significantly from the 39% of respondents who believed that the economic recovery would improve during the last survey in June. (Source: “Americans in Poll Doubt Economy Rebound,” Bloomberg, September 25, 2013.)

This is a large disconnect from the current level of investor sentiment. The average American is beginning to lose faith in the strength of the economic recovery, yet investors continue piling into stocks. As I’ve stated many times before, much of the recent increase in the market is primarily due to monetary stimulus, not the underlying strength of the economy.

The problem is that even more Americans are becoming pessimistic … Read More

As an Investor, What You Can Do About Rising Interest Rates

By for Investment Contrarians | Sep 18, 2013

Interest RatesAs my long-time readers are fully aware, one of the concerns I have brought up over this past year has been the reaction in the economy to what I believed would occur—higher interest rates.

As we are now seeing interest rates increase, the result of this action is beginning to seep through into the economy.

One of the pillars of economic growth at any level is consumer confidence. Consumer confidence drives our economy, especially since consumer spending accounts for approximately three-quarters of the total gross domestic product (GDP). While some readers might have disagreed with my forecast earlier in the year, there is no argument at this point—interest rates are rising.

The real question is: what happens to consumer confidence going forward? Answer that, and you will answer the next logical question: what happens to economic growth?

New data are beginning to come out that show consumer confidence is beginning to weaken. According to the Thomson Reuters/University of Michigan’s preliminary U.S. consumer sentiment data results, it appears that consumer sentiment in September will drop to a five-month low.

Consumer sentiment data for September is at 76.8, down substantially from the 82.0 that analysts had expected. In the report, it clearly states that Americans are increasingly concerned about higher interest rates and how they will affect them. (Source: “U.S. Consumer Sentiment Sinks in September on Interest-Rate Fears,” Reuters, September 13, 2013.) And this is what has been my exact fear over the past six months—that economic growth could be curtailed by a drop in consumer confidence as interest rates rise.

Much of the economic growth we’ve seen over the past couple … Read More