Europe
Changes to International Tariffs Giving This Stock a Boost
By Sasha Cekerevac for Investment Contrarians | May 17, 2013
When it comes to buying stocks for long-term investing, the short-term gyrations can be difficult for investors. It’s important from a long-term investing viewpoint to look out onto the horizon over many years, and search for short-term pullbacks and opportunities that might allow attractive entry points.
We are all aware of the troubled situation economically in Europe; however, there are still potential opportunities for buying stocks that could benefit from significant market changes when it comes to long-term investing.
One example is the automobile industry. While no one would suggest that Europe is a strong sector for growth in automobiles, don’t discount the carmakers when considering buying stocks. Volkswagen AG (OTC/VLKAY) is continuing to set the foundation for growth globally over the next decade.
The company’s Audi division is continuing to make inroads in many markets, including India, China, and the U.S. Additionally, a decrease in tariffs for many countries is now opening the door for European automobile makers to gain market share.
South Korea recently dropped the import duty on European vehicles from eight percent to only 3.2%, which has resulted in an increase of foreign automobiles making up 41% of the South Korean market versus 28% just two years ago. (Source: Kim, R., “BMWs Cheaper Than Hyundais in Korea as Tariffs Crumble,” Bloomberg, May 15, 2013, accessed May 15, 2013.)
The U.S. has also cut tariffs for imported cars substantially and will completely eliminate them by 2016. This will open the door for competition, and vehicles such as Audis, which are of premium quality, have the potential to gain market share.
Volkswagen is continuing its expansion in emerging … Read More
Weak Global Economic Growth Hits McDonalds; What’s Next for Your Stocks?
By Sasha Cekerevac for Investment Contrarians | May 15, 2013
One of the biggest worries for investors is the anemic economic growth globally. This has made it extremely difficult to generate corporate earnings going forward. As investors, we are constantly looking for signs that a firm has the ability to increase corporate earnings substantially for the near future.
Ultimately, for corporate earnings to move upward, revenues need to increase as well. With the lack of economic growth internationally, this is becoming a serious problem.
As an example of the extent of weak economic growth internationally, McDonalds Corporation (NYSE/MCD) posted a drop of 0.6% for comparable same-store sales in April. (Source: “McDonald’s global comparable sales decreased 0.6% in April,” McDonalds Corporation web site, May 8 2013, accessed May 13, 2013.)
The company saw its comparable same-store sales in Europe decrease by 2.4%, and the Asia-Pacific, Middle East, and African (APMEA) regions reported a 2.9% drop in same-store sales. Most analysts were expecting a drop of only one percent in Europe and a 1.4% drop for the APMEA region.
A positive note showing the disparity in economic growth was that same-store sales for the U.S. increased 0.7%, versus expectations of a slight decline. As weak as the U.S. is regarding economic growth, much of the rest of the world is in worse shape.
One worry for investors looking at the potential for corporate earnings growth is that much of the sales push by McDonalds has been in lower-priced items. This means that, while revenues might be running at a similar pace, margins will drop.
The chart for McDonalds is featured below:
Chart courtesy of www.StockCharts.com
McDonalds’ stock has performed quite well over … Read More
Global Economy Still at Risk, Just Look at the Jobs Picture
By George Leong for Investment Contrarians | Apr 24, 2013
Consistent jobs growth remains an issue here in the U.S.
We also know that the lack of jobs is a worldwide problem that is only made worse by the world’s growing population and the stalling global economy.
The reasoning behind this worldwide jobs problem is simple.
Jobs are created when the economy expands, which drives the need for more workers. Of course, modern technology, industrial efficiencies, and the increased use of robots all combine to pressure jobs growth, and I expect this pressure to continue.
Just take a look at China. In that country’s vast manufacturing landscape, the key driver is the masses of unskilled workers who are required to toil at their workstations for 12 hours or more each day.
China’s companies can make use of robotics to help in many of the assembly areas, but it seems that these companies use human labor instead—perhaps because creating jobs for the masses is a goal of communist China.
According to the International Monetary Fund (IMF), China’s unemployment rate has managed to hold pretty steady at just over four percent since 2003. In 2012, the unemployment rate was 4.1%, the same as in 2010 and 2011, and the estimate for 2013. (Source: “China: Unemployment rate from 2003 to 2013,” Statista web site, last accessed April 23, 2013.)
But in the more industrialized countries, like the United States and countries in Europe, there has been a move toward modern industrial techniques and the use of robotics.
And while America struggles to create jobs growth, the situation is extremely dismal in Europe.
As I commented in these pages a few weeks back, the … Read More
Danger: Market Sentiment Too Bullish in This Sector?
By Sasha Cekerevac for Investment Contrarians | Apr 11, 2013
One of the most dangerous periods for an investor is when they become too complacent. As the combined view of all investors, market sentiment ends up becoming overly bullish, running far ahead of the fundamentals. This has now occurred in several sectors, but one that investors should be aware of is in bank stocks, especially in Europe.
Bank stocks around the world have risen tremendously, pushed higher by a wave of positive market sentiment. The general consensus is that following the financial crisis over the last few years, the worst is over. I would caution investors that there are still significant hurdles for many global bank stocks.
Recently, the Bank of England stated that many investors are underestimating potential risks. As we all know, the global economy is still weak, yet share prices have soared, including bank stocks. Market sentiment has shifted from massively bearish to extremely positive over the past couple of years.
As the minutes of the Bank of England’s last meeting note, the committee recommended that bank stocks in the U.K. raise an additional $38.0 billion for potential pitfalls related to the euro area as well as their real estate exposure. (Source: Moshinsky, B., “BOE Says Investors May Be Taking ‘Too Rosy’ a View of Stresses,” Bloomberg, April 5, 2013.)
Investors have piled into bank stocks with positive market sentiment on the belief that the worst is over, especially in Europe. Many bank stocks within Europe are closely intertwined with other nations on that continent. As we’ve just seen from the recent Cyprus fiasco, there are still significant pitfalls ahead.
Market sentiment is clearly being pushed upward … Read More
Can America Restart the Engine of Growth and Prosperity?
By Sasha Cekerevac for Investment Contrarians | Mar 7, 2013
With the relative calm in the eurozone lately, one might be led to believe that the worst is over and economic growth is about to ignite. Nothing could be further from the truth.
The latest data on the eurozone show that unemployment increased in January to a record high of 11.9%. This is the highest unemployment rate since 1995, when the 17 nations within the eurozone started to keep record. (Source: Brittain, A., “Unemployment Worsens in Euro Zone,” Wall Street Journal, March 1, 2013.)
Recent elections in Italy revealed the growing anger from the eurozone’s citizens at the country’s lack of economic growth. Italy experienced one of the largest increases in unemployment within the eurozone for January, jumping to 11.7%, an increase of 0.4% from December.
While the European Central Bank (ECB) and politicians in every country have been trying to re-ignite economic growth, the fact is that the eurozone reported a decline in its gross domestic product (GDP) of 0.6% from the third quarter to the fourth quarter 2012.
This isn’t just far from economic growth; it’s a serious contraction. This should worry Americans, because our own economic growth is stalling. If the major industrialized nations have no economic growth, who’s going to pull us out of the quagmire our economy is in?
The ECB still has some ammunition left in its arsenal, since inflation is actually receding. The latest inflation numbers for the eurozone showed an annual rate of 1.8% in February, a decrease from the two-percent level in January. With the ECB holding its main interest rate at 0.75%, there is room for additional monetary easing.
The … Read More
Shocking Investment Idea No One’s Talking About—Yet
By Sasha Cekerevac for Investment Contrarians | Feb 6, 2013
One of the most important factors to consider and one of the most difficult to comprehend when it comes to the market is investor sentiment. Investor sentiment is usually far ahead of both the general public and the economic data.
A perfect example is how investor sentiment in the housing sector was clearly far ahead of the recent data showing strength for the homebuilder stocks and new home construction.
One stock that has performed quite well lately is Ford Motor Company (NYSE/F). Many times last year, when much of the public was negative on the economy and housing, Ford came out with extremely strong results. Of course, this is partially due to their pickup truck division, which is directly correlated with the boom in new home construction.
For the fourth quarter of 2012, Ford reported the highest pretax profit in over a decade, with $1.7 billion, a huge jump of $577 million from the fourth quarter of 2011. For the full year, Ford reported a pretax profit of $8.0 billion, and the firm ended 2012 with a gross cash level of $24.3 billion. (Source: “Ford Posts Highest Fourth Quarter Pre-Tax Profit in More Than a Decade,” Ford Motor Company web site, January 29, 2013, last accessed February 4, 2013.)
However, a big problem for Ford, along with many other automotive stocks, has been the eurozone. Ford’s revenues in the eurozone dropped from $33.8 billion for the full year 2011 to $26.6 billion in 2012. The company is making strategic revisions to its eurozone division.
We all know the eurozone has been in trouble for quite a long time. Recent data … Read More
Why You Need to Look to the Emerging Markets for Growth
By George Leong for Investment Contrarians | Jan 22, 2013
The key to the global economy is a rise in consumer spending. My view is that the emerging markets will continue to be an excellent place to invest some capital, whether it’s the BRIC countries (Brazil, Russia, India, and China) or the Southeast Asian “Little Tigers,” comprising Hong Kong, Singapore, South Korea, and Taiwan. I’m bullish on this area of the world. My reasoning is that the newfound wealth and growing middle class in these markets will drive consumer spending and economic growth.
Famed technical analyst Louise Yamada is looking positively at the emerging markets and believes they can outperform the U.S. market. (Source: Macke, J., “Emerging Markets Set to Outperform the U.S. Says Yamada,” Yahoo! Finance web site, January 17, 2013.)
A good indicator of global consumer spending patterns is MasterCard Incorporated (NYSE/MA), since the company has a presence in over 210 countries. In a third-quarter press release, MasterCard reported that its worldwide purchase volume surged 12% in the third quarter on a local currency basis. In the press release, MasterCard President and CEO, Ajay Banga, also noted that emerging markets continue to provide opportunities for growth. (Source: “MasterCard Incorporated Reports Third-Quarter 2012 Financial Results,” MasterCard Incorporated web site, October 31, 2012, last accessed January 21, 2013.)
What is interesting is the emergence of credit in the emerging markets, where cash has long been king. In these growth regions, the per-capita income is rising, helping to drive consumer spending and economic growth.
Just take a look at the iShares MSCI Emerging Markets Index (NYSEArca/EEM) chart that shows the stock market rally since mid-November 2012.
Chart courtesy of www.StockCharts.com
The … Read More
What’s Needed for Higher Wages?
By Sasha Cekerevac for Investment Contrarians | Jan 14, 2013
Sometimes it is interesting to get a different perspective by looking at other nations around the world and how they are dealing with their economies.
The U.S. economy is certainly not booming, although the latest data have shown some contradictory indications. On the one hand, job creation is not occurring at an extremely fast pace; however, there are signs of an economic recovery in certain sectors, including housing, vehicle sales, and energy.
Germany, on the other hand, has had a lot of success, even though its neighbors have been embroiled in a large amount of economic stress due to their financial crisis. The economic recovery of Germany goes back many years, with structural reforms, made over a decade ago, that have prepared its economy to be extremely competitive internationally. The decrease in the euro has only helped the country’s economic recovery.
According to the German Federal Statistics Office, exports for the first 11 months during 2012 grew 4.3% to $1.3 trillion. This includes a 10.4% increase in exports to non-European Union (EU) countries. In another report, conducted by the Federation of German Wholesale, Foreign Trade and Services, export growth is expected to increase by five percent in 2013. (Source: “Booming Sales Beyond Europe German Exports Seen Hitting New Record in 2012,” Der Spiegel, January 8 2013.)
These are record levels of exports for Germany. Clearly, that nation has been able to engineer a decent economic recovery in spite of its weaker European partners. Job creation throughout the financial crisis has been quite strong, as Germany currently employees over 41 million citizens, the highest level ever recorded.
Much of the problem … Read More
Why Gold’s Worth a Look on Dips
By George Leong for Investment Contrarians | Jan 10, 2013
Gold is currently in a holding pattern at below $1,700 an ounce, but one thing is for sure: in spite of what some pundits are saying, it’s not time to sell yet. In an interview on CNBC, Marc Faber, also known as “Dr. Doom,” suggested that gold could correct 10% or more to as low as $1,550 or $1,600. (Source: “‘Dr. Doom’ Faber Sees Possible 10% Gold Correction,” Yahoo! Finance via CNBC, January 8, 2012.) While I’m not as negative, I do believe gold could retest support between $1,600 and $1,625 in the near term. Failure to hold could see a sub-$1,600 price.
In my view, gold continues to be a place to park some capital, and for this reason, I feel the metal will likely continue to hold above $1,500 after 11 straight up years.
For instance, if we assume the global economy will weaken, especially in the eurozone, the impact on global gross domestic product (GDP) growth would be negative. Stock values would fall, so you would need a safe haven to park your capital, which many of you know is in gold.
There’s been plenty of talk around here regarding whether the precious metal is heading for $2,000. In my view, the current global risk will support and drive gold higher.
The chart shows sideways trading around the 50-day moving average (MA) with weakening technical indicators, based on my technical analysis. I view downside moves as an opportunity to accumulate the precious metal, given the current macro situation.
Chart courtesy of www.StockCharts.com
I continue to like gold going forward, given the massive financial distress and recession in … Read More
Why Printing Money Is So Easy for the Fed
By George Leong for Investment Contrarians | Dec 12, 2012
The Federal Reserve is busy looking at what to do next to try to keep the economic renewal on track, as the central bank meets for the last time this year. The Fed also understands its impact will be hindered by the ongoing battle in Congress regarding the pending fiscal cliff.
The Federal Reserve is speculated to continue its third quantitative easing (QE3) program of buying mortgage bonds each month. The effect will see the Fed increase its holdings of mortgage bonds to nearly $4.0 trillion, according to a Bloomberg survey. (Source: “Fed Seen Pumping Up Assets to $4 Trillion in New Buying,” Yahoo! Finance via Bloomberg, December 11, 2012.)
The bond buying has helped to ease financing rates and drive the housing market higher.
The Fed has spent $40.0 billion a month to buy mortgage-backed securities and, in theory, lower the financing rates. The yield on the 10-year Treasury stands at 1.6% versus 1.8% prior to the establishment of QE3—so it’s working.
For the Fed, as the QE3 works its way through the system, job creation is expected to be a major benefactor.
The Federal Reserve recognizes that the jobs market continues to be problematic and needs to be addressed, despite the unemployment rate falling to 7.7% in November. There are still over 21 million Americans looking for work.
To date, the super-low interest rates at between zero and a quarter of a percent have helped to prevent the country from falling into the abyss. If not for the low rates, the carrying cost of the $16.0 trillion in national debt would be suffocating and making the situation worse, … Read More
Time’s Running Out; Fiscal Cliff Needs a Resolution
By George Leong for Investment Contrarians | Dec 6, 2012
America is fast approaching the $16.4-trillion limit in national debt that is legally allowed under the current debt ceiling. With the current debt at $16.24 trillion, time is running out, which is why we need to either resolve the fiscal cliff or, as the President wants, hike up the national debt ceiling in order to allow the government more flexibility in its spending. Failure to raise the national debt limit would mean that the government would need to access emergency funds to avoid a default and initiate the fiscal cliff cuts and tax increases in some form.
So far, the talks between House Speaker John Boehner and President Obama have resolved little. Just last week, Boehner offered up a new 10-year, $2.2-trillion strategy that entailed adjustments to Medicare and Social Security benefits but also avoided a return to higher taxes for the nation’s top income earners. In response, the President is willing to look at reviewing the highest tax rate for the rich, but at the same time, he wants to cut loopholes.
With just over three weeks left in the year, something will need to be done. In the event that a resolution is not achieved, the government will have to access emergency funds until a deal is agreed upon. This is the dilemma that we are at now; but something has to be done, or America could be leaving a much worse financial mess for the generations ahead, including a possible recession and massive national debt.
Moody’s Investors Service warned it may cut the U.S. triple-A debt rating for a second time in 2013, should the government not … Read More
What U.S. Politicians Can Learn from France’s Crazy Policy Initiatives
By Sasha Cekerevac for Investment Contrarians | Nov 29, 2012
Since the Great Recession, the U.S. has been struggling in its ability to generate job creation and sustain an economic recovery. There are numerous reasons for the lack of job creation; some are theories, and some are based on actual experiences. I like to look at other countries that are also struggling with a weak economic recovery and learn from their mistakes, as well as their policies and initiatives that are preventing job creation.
One country from which America can learn a great deal about how not to create an economic recovery is France, due to its completely clueless policy initiatives. I have heard a lot of strange and ridiculous ideas about what’s best for an economic recovery, but the rhetoric emanating from France’s political leaders takes the cake.
To begin with, France is encountering an extremely weak economic recovery, with no chance of job creation anytime soon. In fact, the latest data for job creation in October reported that the number of people unemployed in France is the highest in over 14 years. This is the 18th consecutive monthly increase in France’s unemployment rate. (Source: “French Jobless Total Hits 14-Year High,” CNBC, November 28, 2012.)
Not only is the economic recovery failing to ignite, but France is also moving away from any possibility of job creation in the near future. The newly elected French President, Francois Hollande, a hard socialist, has enacted policies that will only make job creation that much more difficult, since he and his party have a strong anti-business sentiment.
So with the French economic recovery being extremely weak, one would think that the government would … Read More
For the 50th Time, the Eurozone’s Digging Its Own Grave
By George Leong for Investment Contrarians | Nov 28, 2012
Greece finally received approval for its austerity measures and, in the process, will get another $70.0 billion or so in loans. The money is not earmarked for growing the Greek economy out of its deep recession; rather, it will be used to keep the lenders away as the country tries to get out of its financial crisis. What is happening in Greece and the eurozone is absolutely an economic farce that will likely take years to rectify. For Greece, the country will be stuck in its own economic abyss for years, even decades. The problem for Greece is that the deep budget cuts are occurring at a time of fiscal confusion, massive unemployment, and negative gross domestic product (GDP) growth. The deep cuts will hurt the country more in the short term, but they are needed to help Greece become a contributing member of the eurozone. As I said, it could take decades. Don’t believe me? Just take a look at the two-decade drought in Japan.
The Organisation for Economic Co-operation and Development (OECD) just suggested the global economy was on shaky ground again, with weakness in 31 of 34 member countries. (Source: Matt Nesto, “The Five-Year Funk: OECD Slashes Global Growth Estimates,” Yahoo! Finance, Breakout, November 27, 2012.) The report “Global Economy Facing Hesitant and Uneven Recovery” called for the eurozone to experience another two years of mild recession. GDP growth in the U.S. is estimated at a mere two percent for 2013, which is not unexpected, given the current conditions in America. Failure to resolve the fiscal cliff will make the growth worse.
The way I view it … Read More
When the Fiscal Cliff’s Averted, the U.S. Will Finally See the Real Troubles That Lie Ahead
By John Whitefoot for Investment Contrarians | Nov 26, 2012
The only people crying “Y2K” back in 1999 were information technology (IT) professionals looking for job security. Even without their help, disaster was averted, the rising sun greeted the world on January 1, 2000, and life was good.
Fast-forward to 2012, and the doomsayers are at it again. Except this time, it’s the members of the U.S. government wailing about an “economic Armageddon” if the fiscal cliff isn’t averted come January 1, 2013. Unlike Y2K, the fiscal cliff is a real issue that needs to be addressed; but the end result will be the same: at the last second, disaster will be averted.
Unfortunately, as we make our way to the end of the calendar year, indecisiveness and political jockeying are spooking the global investing community and wreaking havoc on the markets. At a time when the international community needs the U.S., the world’s largest economy, to show confidence, it’s the political infighting capturing the spotlight.
In spite of all the wailing and gnashing of teeth, the fiscal cliff will be avoided and life as we know it will continue. And that’s when the real problems begin. With the centric fiscal cliff stealing all the limelight, it’s been tough for investors to focus on the fact that America’s economic rebound is contingent on a financially strong international community. Domestic economic growth cannot be stimulated in isolation.
In January 2013, investors will see that the real underlying factor affecting the stock market is the global economy and its impact on corporate earnings.
On November 15, it was announced that the collective economies of the eurozone fell by 0.1% between July and … Read More
How to Protect Your Portfolio from a Slumping Dollar in 2013
By John Whitefoot for Investment Contrarians | Nov 21, 2012
No one said austerity measures would be an easy pill to swallow. But, after decades of overspending, they’re become an unwanted necessity. And the fed-up workers of Europe are uniting!
Protests broke out Wednesday across Europe in a coordinated day of action over ongoing austerity policies. While some of the largest and most violent protests took place in Spain, Portugal, Greece and Italy also took to the streets.
Over the last three years, Spain, Portugal and Greece have all slashed spending on pensions, public sector wages, hospitals, and schools in an effort to get public finances back on track.
It hasn’t kicked in yet. In Portugal and Greece—both rescued with European funds and under strict austerity programs—the economic downturn increased in the third quarter. Portuguese unemployment jumped to a record 15.8%. In Spain and Greece, one in four of the workforce is jobless. (Source: Tisera, F., and Alvarena, D., “Anti-austerity marches turn violent across southern Europe,” Reuters, November 14, 2012.)
Sound familiar?
In an effort to stem the economic slide of the U.S. housing collapse that first surfaced in 2005, the Federal Reserve initiated quantitative easing in November 2008. To date, the Federal Reserve has printed off close to $3.0 trillion. That number climbs by an additional $85.0 billion each month. It was supposed to increase lending, create more jobs, kick start housing, and lower the unemployment rate.
What has really happened? After three rounds of austerity measures, unemployment is rising, company profits are falling, financial markets are fragile, and the housing sector is still in disarray. What has it done? It’s created a weak dollar and an anemic economy…. Read More
Who’s to Blame for the Weak Global Economy?
By Sasha Cekerevac for Investment Contrarians | Nov 13, 2012
One of the most important things for all investors to remember is that the global economy is tightly tied together. Gone are the days when one country could, in isolation, remain immune to the effects of the global economy. With the problems that America has endured following the Great Recession, we certainly can’t look to the rest of the world to help our economy accelerate.
In addition to weak organic economic growth, the stimulus plans implemented by nations around the world have created massive levels of government debt. This government debt is pervasive throughout the global economy. While I’ve commented many times about U.S. government debt and the problems we will incur in the future, America is not alone. From Europe to Asia, the global economy is awash in huge levels of government debt.
The real trouble is that in spite of trillions of dollars of government debt, the global economy can’t accelerate. New data regarding the Japanese economy is quite clear in this matter. Japan’s economy decreased during the September quarter by 0.9%, which is an annualized rate of decline of 3.5%. (Source: “Japan’s economy shrinks, recession looms,” Reuters, November 12, 2012.)
The Bank of Japan has a policy meeting next week and another on December 19–20. Considering the trillions of dollars Japan spent over the last 20 years trying to revive its economy, the only result has been a massive increase in government debt. According to the International Monetary Fund (IMF), Japan’s government debt as a percentage of gross domestic product (GDP) is estimated for 2012 to be approximately 230%. This compares to the government debt as a … Read More
Could These Sneaky Taxes Bring Down the U.S. Debt?
By John Whitefoot for Investment Contrarians | Nov 1, 2012
Nothing motivates like fear. Barack Obama won the U.S. presidential election on November 4, 2008, and gun sales surged. For the week of November 3, 2008, the Federal Bureau of Investigation (FBI) received more than 374,000 requests for background checks on gun purchasers, a 49.0% increase over the same period in 2007. (Source: “Gun sales surge after Obama’s election,” CNN, November 11, 2008.)
The surge was attributed to fears that a Democratic president and Democratic-controlled Congress would restrict firearm ownership. Similar surges accompanied the election of Bill Clinton, the last Democratic president.
Fast-forward to 2012 and it’s déjà vu. In August, firearm sales checks were up 27.8% year-over-year to 1.04 million. (Source: “August sees 27.8% increase in firearms sales checks,” Buckeye Firearms Association, September 6, 2012.) In September, they were up 14.7% to 1.07 million. This marks the 28th straight month that the National Instant Criminal Background Check System (NICS) figures have increased year-over-year. (Source: “September 2012 NSSF-Adjusted NICS Background Checks Up 14.7 Percent,” National Shooting Sports Foundation, last accessed October 26, 2012.)
In fact, gun ownership is near a 20-year high, generating $4.0 billion in commercial gun and ammunition sales. With an estimated 300 million guns, America is the most heavily armed nation in the world. (Source: “Behind America’s Gun Boom: Inside the Comeback At Sturm, Ruger,” Forbes October 17, 2012.)
Is there any truth to support a Second-Amendment crisis under Obama?
Since 2008, the few times Obama has done anything related to guns, it has been to expand the rights of gun owners. He signed a law that allows people to bring their guns into national parks (source: … Read More
Mr. Bernanke: When Is QE3 Going to Work?
By George Leong for Investment Contrarians | Oct 25, 2012
Three strikes and you’re out! Too bad the Federal Reserve doesn’t follow this; otherwise, Chairman Ben Bernanke would be on the phone with Wall Street looking for another job.
The key stock indices surged to their highest levels in years after the Federal Reserve launched a third round of quantitative easing (QE3) at the September meeting; yet the follow-through has been non-existent, as stocks are back where they were prior to the announcement.
All quotations and figures in this article are from a Federal Reserve press release regarding the Federal Open Market Committee meeting in September 2012, dated September 13, 2012 (http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm).
At that meeting, the Fed said, “Information received since the Federal Open Market Committee (FOMC) met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated.”
The Fed is spending $40.0 billion a month to buy mortgage-backed securities and, in theory, to lower the financing rates. This is the theory, but the yield on the 10-year Treasury stands at 1.76% versus 1.84% prior to the establishment of QE3. Something isn’t working.
But maybe it’s still too early to judge the success of QE3. Give it a few months to filter through the system and we’ll see. Jobs creation is expected to be a major benefactor of QE3.
The Federal Reserve recognizes that the jobs market continues to be problematic and needs to be addressed despite the unemployment rate falling to 7.8% in September. We still have over 22 million Americans looking for work.
“The Committee seeks to foster maximum … Read More
Shocking Numbers from China; What Do They Mean for You?
By Sasha Cekerevac for Investment Contrarians | Oct 17, 2012
Have you read or heard the recent economic data from China? Chinese exports for September grew 9.9% from the same period last year, almost double what the investment community expected.
The Chinese economy is extremely dependent on exports while it’s slowly developing its domestic economy. To get a better gauge of global economic growth, if China’s exports are indeed improving, then some economies around the world also must be improving, as the Chinese economy has grown to become a significant part of the global economy over the past decade. China makes up a large portion of many industries, and supplies numerous products to many parts of the world. Regardless of what one thinks about the Chinese economy, there is no question that it has a large influence on worldwide economic growth.
The European Union (EU) is a disproportionately large and important destination for the Chinese economy. With economic growth anemic within the EU, it was no surprise that exports to the Union fell 10.7% in September. This makes the overall increase of 9.9% that much more startling. It means that economic growth outside of the EU appears to be far stronger than anyone thought it would be so far.
Exports to America were up 5.5% for the September period as compared to year-ago levels. Neighboring South East Asian countries saw the biggest jump in exports at 25.5% for the month. This included Taiwan, up 19.9%, and South Korea, up nine percent. (Source: “China Sept. Exports Jump 9.9%, Imports up 2.4%,” The China Post, October 14, 2012.)
We will hear shortly from government officials regarding gross domestic product (GDP) numbers for … Read More
Europe Remains the Wildcard in the Global Economy
By George Leong for Investment Contrarians | Aug 30, 2012
The muted growth in Europe is far-reaching and negatively impacting the global economy…and the evidence for this is mounting.
Six eurozone countries are in a recession, and Germany and France could join in next year.
China, the world’s second largest economy, may still be heading for a hard landing, albeit, the government will likely do whatever it can to prop up its economic growth and make sure the growth is given help. The country’s 2012 gross domestic product (GDP) is estimated at a 7.5% GDP growth rate, according to Premier Wen Jiabao. This would be the lowest economic growth since 1990. Other pundits feel that China could still expand at over eight percent this year; however, much of the growth will be dictated by what happens with the debt crisis and muted economic growth in Europe and the eurozone, which has lessened the demand for Chinese-made goods.Japan, the world’s third largest economy, is also in an economic stalemate that is negatively impacted by the lack of economic growth in Europe.
But while the world’s top industrialized countries are at risk, the higher risk from the eurozone crisis will be on the emerging regions in Eastern Europe, much more than Asia and the United States. These emerging economies tend to be more driven by export demand.
Russia, the largest economy in Eastern Europe, is expected to see GDP growth of 3.5% for 2012, down from the previous 3.7% estimate, and 4.3% in 2011, according to internal government estimates. Inflation is also a mounting problem in Russia.
The second largest economy in Eastern Europe, Poland, reported GDP growth of 4.3% in 2011, … Read More
Latest Japanese Numbers Show Global Economy Extremely Weak
By Sasha Cekerevac for Investment Contrarians | Aug 24, 2012
More evidence surfaced as to the extent of the global economy when Japan reported that its exports plunged, especially those to Europe and China. As if we haven’t seen enough evidence of a double-dip recession that’s coming, this is yet another indicator that the global economy continues to struggle.
The annual decline in export was 8.1%, far larger than what analysts were expecting at 2.9%, according to a report by Reuters. The report also noted that shipments to Europe dropped a massive 25.1%. With Europe already in a double-dip recession, in my opinion, I don’t think it will take much more negative influence to keep the global economy barely struggling to avoid a double-dip recession as well.
These types of drops are not normal, but are rather indicative of a panicked market, similar to the 2009 period during which the global economy took a massive hit. While many have been aware of the double-dip recession in Europe, investors have been hoping that China might rebound and kick-start the global economy. These recent statistics show that China itself is showing signs of economic turmoil.
Japan’s exports to China dropped 11.9%. The shocking part of this number is not that it’s the largest decrease in five months, but that this follows several rates cuts and adjustments to the banking sector in China that were designed to spur growth. This means that the latest initiatives are failing to have an effect. This is certainly a negative for the global economy. If central bank policies are becoming ineffective, the probability of preventing a double-dip recession certainly declines as well.
While the Japanese yen has … Read More
Rising Bad Loans Indicate Impending Crisis for China
By Sasha Cekerevac for Investment Contrarians | Aug 17, 2012
With the global economy teetering on the brink of decline, many investors are looking to a resurgence of China’s growth rate. While that nation has recently slowed sharply, many economists point to China’s growth, which still exceeds that of most countries in the global economy. I would warn investors that there are many signs that China’s growth will not be as robust as it has been over the past few years. There are increasingly troublesome signs that the Chinese are being dragged down by the slowdown in the global economy, and I think it is more likely that they will lose further steam rather than resurrect China’s growth rates of the past.
One common element to the financial crisis in the global economy is when bad debts stack up on the books of lenders. This was and continues to be a problem for Japan, after the crash of the late 1980s, and we see bad debts piled up in Europe and even the U.S.
New reports are surfacing that may endanger China’s growth rate and impact the global economy, as bad loans held at Chinese banks have risen for the third consecutive quarter, according to the China Banking Regulatory Commission. This is the longest stretch of bad loan increases in eight years.
Banks in that nation are having trouble dealing with problems that are common in the current global economy: weak loan demand and higher defaults. This follows on the heels of a drop of 41% for local currency loans in July from the previous month.
With the global economy as weak as it is, there are no economic signs … Read More
How a Paul Ryan and Mitt Romney Win Will Impact Your Investments
By Sasha Cekerevac for Investment Contrarians | Aug 16, 2012
With the recent move by Mitt Romney to choose Paul Ryan as his running mate for the upcoming election, I believe this sends a strong message to the American people and the rest of the world that the U.S. is finally going back to its roots by getting on the path to reducing the budget deficit and preventing a financial crisis.
A financial crisis usually stems from a lack of confidence. If the lenders feel that a borrower can’t pay, they sell their securities and refuse to lend unless the rates are extremely high. This is how the financial crisis in Europe is unfolding, as the budget deficit for many nations remains high. They are continuing to spend more money than they earn. Running a budget deficit for a short period of time might be okay, if a surplus is eventually generated to reduce the overall debt. This has not occurred for many years in dozens of nations, including the U.S.
Ryan understands that the real victims are the American people if a budget deficit is continually generated. This puts the country at greater risk of a financial crisis, as investors begin to lose credibility in the nation as a whole. The U.S. is fortunate that so many other nations are also poorly managed, running up a huge budget deficit and cresting on the edge of a financial crisis.
One of Ryan’s ideas is reducing government spending by 2015 to 20% of gross domestic product (GDP) and a long-term target of 15% of GDP. Reducing government expenditures is a needed step in reducing the budget deficit. Such a move will … Read More
If Europe Is Imploding, Why Are European Stocks Up?
By Sasha Cekerevac for Investment Contrarians | Aug 14, 2012
With economic data coming out of Europe continuing to show that the financial crisis is not ending anytime soon, why are stocks in Europe moving up? There are several reasons that you should be aware, as investor sentiment can change quite quickly.
If we look at the yields for bonds in troubled nations, such as Spain, Portugal, and, of course, Greece, the market-based evidence shows us that the financial crisis is still as present as ever. No new initiatives or solutions have been formed and implemented, but the investor sentiment for the equities market has changed since the end of June, partially because of anticipation of additional stimulus by the financial authorities in Europe to try and prevent the spread of the financial crisis.
As spring moved into summer, investor sentiment turned negative, as institutions betting on a downfall of European equities increased, as seen by the number of funds that went short. Selling short occurs when investor sentiment is negative, and an investor then borrows shares and sells them first, hoping that the price will decline, at which point, they can then buy the shares back and profit from the decreased price. If the share price increases, then short sellers would incur a loss.
According to research firm Markit, the number of shares loaned out from the STOXX Europe 600 Index decreased from 3.4% in May to 2.9% at last count. This reduction in short sellers can be seen by the higher price, as investor sentiment has shifted away from being completely bearish. In the middle of the current financial crisis, millions of shares sold short were bought back … Read More
McDonalds in for a Fight in China
By George Leong for Investment Contrarians | Aug 9, 2012
When spending on fast food slows, you have to take note. This is the case with McDonalds Corporation (NYSE/MCD), a bellwether for the fast food industry, after the maker of the “Big Mac” reported a 0.1% decline in July in its key same-store revenues for stores opened at least 13 months. It was the first decline in years and well below the 9.6% reading in December. In my stock analysis, this shows a global cutback in spending, even on fast foods.
The company is feeling the impact from Europe, where it derives about 40.0% of its system-wide revenues. Revenues in Asia-Pacific, the Middle East, and Africa are also down.
My stock analysis is that McDonalds has been the top performer in the restaurant sector over the past decade after the company made a dramatic shift in its menu, offering to include healthy meals and broadening its target market. While there are clearly healthier foods on the menu, the demand continues to be largely for burgers, “McNuggets,” fries, and soda.
However, this strategy shift worked, as McDonalds is at the top of the fast-food chain at this juncture, leaving Burger King Worldwide, Inc. (NYSE/BKW) and The Wendys Company (NASDAQ/WEN) behind, according to my stock analysis.
Yet, based on my stock analysis, the current stalling in revenues has been impacted by a growing list of rivals that all have targeted McDonalds as the company to emulate and, hence, try to take market share from.
In the key and growing China fast-food market, McDonalds operates about 1,500 stores (aiming for 2,000 by 2013), but, in my stock analysis, the company faces tough competition … Read More
Is the S&P 500 Heading for a Third Peak?
By George Leong for Investment Contrarians | Aug 8, 2012
The S&P 500 topped 1,400 on Tuesday for the first time since May 3. The upward move was also the fourth top above 1,400 since 2008. In January, my stock analysis estimated the S&P 500 could test 1,400 this year, so the upward move has come a bit early.
Some in the media are even whispering about 1,500, but the last time the index was at this level was in October 2007 at the historical high.
The word “overextended” comes to mind at this juncture, based on my stock analysis. The fact is that since the amazing climb of the S&P 500 from 1995 to 2000, the index peaked on two separate occasions in 2000 and 2007, at above 1,400 and 1,500. And my stock analysis is looking at whether the current run-up from 2009 is sustainable and whether the index is heading for its third peak since 2000. You cannot tell at this moment, but, as the S&P 500 edges towards 1,561 (last achieved on October 8, 2007), it should become clearer, based on my stock analysis.
That high point may be tested in 2013 if the S&P 500 can rally another 11.5% from the 1,400 level. Again, it will be interesting to see if the index can break higher to a record high.
I’m not even convinced 1,400 will hold by the year-end, based on my stock analysis.
Following the break at 1,400 in March, the S&P 500 retrenched and failed to hold on two subsequent attempts at 1,400 in late April and early May.
The reality is the market is betting on a resolution and calm returning … Read More
National Debt
Follow Us
Search
Recent Articles
