Investment Contrarians

economic forecast

Market Decline Starts: The Stocks That Will Fall the Most

By for Investment Contrarians | Feb 26, 2013

Market Decline StartsOne of the most important criteria for getting the economy back to optimal speed is for consumer confidence to begin accelerating. Much of a developed nation’s economy is based on consumer spending.

When making an economic forecast for a developed nation, taking into account shifts in consumer spending is extremely important. With new information raising doubts that consumer confidence will rise anytime soon, a more cautious economic forecast is necessary.

According to the Bloomberg Consumer Comfort Index, in February, the difference between positive expectations and negative expectations by consumers remained at –7 from the previous month. While current conditions by consumers in the Comfort Index rose during the week of February 17 to –33.4 from –35.9 the previous week, clearly, there is still a substantial amount of negativity when it comes to consumer confidence. (Source: Smialek, J., “Consumers in the US hold negative economic Outlook as fuel climbs,” Bloomberg, February 21, 2013.)

The composite reading in the Comfort Index shows a weak yet stable belief in the underlying economy. Interestingly, men have turned slightly more optimistic, with 34% reporting an improvement in the economy for February, versus only 24% in January. However, women turned more pessimistic in their opinion, with only 26% stating the economy is improving in February, versus 32% in January. Overall, the data points to continued weakness in consumer confidence.

I believe that several factors are causing this reduced level of consumer confidence. The obvious factor is the two percent increase in the payroll tax for Social Security. My economic forecast has to incorporate the lower level of take-home pay, especially for the middle- and lower-income earners…. Read More

Are You Picking the Right Investment for Higher Oil Prices?

By for Investment Contrarians | Feb 12, 2013

Investment for Higher Oil PricesOne of the most difficult aspects of investing is adjusting one’s economic forecast to the dynamic and ever-changing global economic environment. An investor cannot be so dogmatic that they are unable to shift their economic forecast as new data come out.

For much of the second half of last year, there were many fears that China was going to encounter a significant slowdown, and many analysts had been lowering their economic forecast for that nation. Recent data, however, show that perhaps the Chinese economy might be able to rebound, at least in the short term.

China recently reported that exports grew a better-than-expected 25.0% and imports rose a substantial 28.8% from the year-ago period in January. This was in addition to much higher credit issuance, and an inflation rate that was quite subdued at only two percent. (Source: “China trade tops forecasts in holiday distorted month,” Bloomberg BusinessWeek, February 8, 2013.)

There are some issues with the data: the 2012 Chinese New Year began on January 23 and, in 2013, the Chinese New Year began on February 10; this shift in holidays, which result in business closures, needs to be taken into account when making year-over-year comparisons. However, analysts calculating their economic forecast did take this into consideration, predicting exports of 17.5% and imports of 23.5%, according to the median estimates taken by Bloomberg News. (Source: Ibid.)

If the Chinese economy continues to outperform, not only will analysts increase their economic forecast for the remainder of the year, but certain sectors will also benefit, including oil prices.

International oil prices are set based on Brent crude, as opposed to American-produced … Read More

Confusing Data from China; What’s Really Happening?

By for Investment Contrarians | Jan 21, 2013

210113_IC_cekerevacRecently, we have heard and seen some data stating that the Chinese economy is beginning to rebound. Many analysts have started to raise their economic forecast for the Chinese economy in 2013.

One of the difficult aspects when calculating an economic forecast for the Chinese economy is that much of the official data from China are questionable.

While recent data have shown that the Chinese economy has begun re-accelerating during the fourth quarter 2012, new information raises some questions.

The China Beige Book (CBB) International states that, in its analysis of the fourth quarter, it sees a significant decline in corporate loans. As the CBB states, its editors were “shocked” that new loans accounted for less than 20% of the total lending. (Source: Harjani, A., “The China Beige Book Has Some ‘Shocking’ Data,” CNBC, January 16, 2013.)

The CBB interviews over 2,000 business executives across the country to come up with its survey results. Another worrying sign in the report for the Chinese economy that will certainly cloud any economic forecast is that the percentage of surveyed companies borrowing money continues to decline, even though interest rates have been cut by the People’s Bank of China.

While the Chinese economy is trying to become more consumer-oriented and domestic, exports still play a very large role. With the buildup in their inventory, manufacturing firms appear to be anticipating growth worldwide for 2013.

If this doesn’t occur, the Chinese economy could be vulnerable to a significant pullback. The difficulty in all of this analysis when trying to calculate an economic forecast is that so many variables and so much questionable data make … Read More

Why the Fiscal Cliff Deal Is Pathetic

By for Investment Contrarians | Jan 3, 2013

Fiscal Cliff Deal Is PatheticWhen it comes to making an economic forecast for the U.S. economy in 2013, a huge stumbling block was the uncertainty prior to the deal to avert the fiscal cliff. The just-announced new deal to avert the fiscal cliff is absolutely pathetic and will not accomplish what many were hoping for; a comprehensive long-term deal to lower the U.S. budget deficit and create an environment that will foster long-term gross domestic product (GDP) growth.

The level of uncertainty has recently started to impact consumers. The impact on consumer confidence was noted during the latest Conference Board Index in which consumer confidence fell six percent to 65.1 in December from November, the lowest since August 2012. (Source: “The Conference Board Consumer Confidence Index® Declines,” The Conference Board, December 27, 2012.)

GDP growth is heavily dependent on consumer confidence. Since the majority of the U.S. GDP growth is based on consumer spending, any pullback in consumer confidence is a worrying sign, with its potential for lowering an economic forecast for 2013.

An interesting dynamic was that consumers assessed that current conditions improved in December from the previous month. Business conditions rose to 17.1% from 14.6% the previous month; however, expectations for business conditions over the next six months declined to 17.6% from 21.3%.

This might seem contradictory, but it really shows that while the current economy is somewhat improving, the political grandstanding and ineptitude to avert the fiscal cliff have been increasing concerns for the future GDP growth of the American economy. This type of uncertainty will certainly put a damper on any economic forecast.

This new compromised deal has plenty of … Read More

Are You Making More Money? Data Say Not Likely

By for Investment Contrarians | Nov 30, 2012

Economic ForecastWhen making an economic forecast, whether it is for the global economy or a specific nation, one of the most fundamental inputs is the growth of wages for the average citizen. Since consumer demand supports so much of the modern economy, especially in the U.S., a lack of wage growth will certainly filter into a weaker overall economy.

While we have seen some improvements in the number of jobs created this past year, clearly this is not enough, as we have not seen any improvement in wages. My economic forecast for America in 2013 will continue to be muted, as real wages are actually declining, in addition to the global economy being extremely weak.

I was looking at the data from the Bureau of Labor Statistics and it reports that real wages, which take inflation into account, have fallen every month since February 2011 except one, in which real wages were flat. Over this period, my economic forecast for America continued to be lower than consensus, because there was no sustained increase in income. Without real wages growing, the wealth of the average citizen continues to decline.

America certainly cannot look to the global economy to help pull us out of the trough. In fact, a recent economic forecast on the global economy by the Organization for Economic Cooperation and Development (OECD) has also shown that it, too, has reduced expectations for growth.

The OECD now has an economic forecast that the global economy will grow 2.9% this year, versus an earlier estimate of 3.4%. The OECD has also drastically reduced next year’s economic forecast for the global economy to … Read More