Investment Contrarians

housing sector

More Easy Money Signals Tougher Times Ahead for U.S. Economy

By for Investment Contrarians | Nov 4, 2013

Easy Money Signals Tougher Times Ahead for U.S. EconomyThe easy money will continue to be pumped into the economy by the Federal Reserve, but the difference, I think, will be that the soft tone will have less of an impact on the stock market than in the previous years. As was widely expected and to no one’s surprise, the Federal Reserve sat on its hands and did nothing with its current bond buying. So its status quo again as we move ahead and get ready to welcome in Janet Yellen as the next chairman of the Federal Reserve.

Based on the subsequent reaction by the stock market, the news was clearly discounted. The only thing was what the Federal Reserve would say about the economic renewal.

As I have said on numerous occasions, the Federal Reserve, in spite of adding over $3.0 trillion in debt to its balance sheet, continues to see America in flux and unable to shake its demons. By this I mean the economic renewal, while in place, remains at a tepid pace. Consumer spending is just not where you want to see it, and I think the advance reading for the third-quarter gross domestic product (GDP) growth on Thursday will point to this. Also, the jobs market continues to be caught in a vacuum.

“Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months,” said the Federal Reserve. Notice the comment on the housing market which I said was heading down.

Of course, for market participants, the cloudy forecast from the Federal Reserve will likely mean the tapering of the monthly … 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

Why Job Creation in America Is a Myth

By for Investment Contrarians | Apr 5, 2013

Job Creation in America Is a MythIn President Obama’s election debates and his State of the Union address, a key part of the talk focused on getting Americans back to work. Despite what you are sometimes hearing about the improving jobs market, the reality is that jobs remain somewhat scarce.

By the time you read this, you will know what the non-farm payrolls reading is and, by all accounts, it will not be that good for the jobs market. estimates the creation of 185,000 new jobs in March, which would be well below the 236,000 created in February. This is not what we want to see in the jobs market. The unemployment rate is predicted by to nudge up to 7.8%, from the current 7.7%. Again, not great.

In my estimate, the jobs market is moving along, but not at a rate that will lower the unemployment numbers anytime soon.

The private Automatic Data Processing (ADP) Employment Change reading reported on Wednesday foreshadowed America’s fragile jobs market, as a mere 158,000 new jobs were created in March, well below the estimate of 200,000 and the upward revised 237,000 new jobs in February. The interesting fact was that 74,000 of the new jobs were generated by small businesses with under 50 employees, while a mere 47,000 new jobs were created by large companies with over 500 employees, according to ADP. (Source: “National Employment Trends,” Automatic Data Processing, Inc. web site, last accessed April 4, 2013.)

The March ADP reading was the lowest since 148,000 in October 2012. In fact, since March 2012, there have only been three months with over 200,000 new jobs created. … Read More

America’s Auto Sector Says Thank You to Mr. Bernanke

By for Investment Contrarians | Apr 4, 2013

America’s Auto Sector Says Thank You to Mr. BernankeThe impact of the Federal Reserve’s low interest rates and easy monetary policy can be seen everywhere. The housing sector is seeing another boom thanks to the Federal Reserve. So is the retail sector and consumer spending, in spite of the fact that jobs growth is not at pre-recession levels. The Dow and the S&P 500 also achieved more records on Tuesday. Again, the stock market wealth and all of the 300,000 or so newly minted millionaires have the Federal Reserve to thank.

On Tuesday, the automobile sector joined in on the fun, as easy money and cheap financing rates for new vehicles helped to drive up sales to the highest levels since 2007.

At Ford Motor Company (NYSE/F), sales increased six percent to 236,160 vehicles sold in March, while at General Motors Company (NYSE/GM), sales jumped 6.4% to 245,950 in March.

You can get a 60-month financing term for a new vehicle for as little as 2.24% at the Bank of America Corporation (NYSE/BAC) and 2.69% at Capital One Financial Corporation (NYSE/COF). (Source: “Auto Loan Rates,” My Bank Tracker web site, last accessed April 2, 2013.) The average 60-month rate is around 4.12%, according to, down from 4.52% a year ago.

You can also thank President Obama for helping to save the auto sector, as the move is apparently paying dividends.

While the renewed spending across America is good for the economic recovery, you kind of have to wonder about the ramifications down the road, when interest rates begin to ratchet higher.

Some members of the Federal Reserve are already beginning to voice their opinion to start reducing … Read More

Why America’s Confidence Is Fragile

By for Investment Contrarians | Feb 13, 2013

America’s Confidence Is FragileThe recession is over, and the U.S. economy is showing some encouraging signs of economic renewal.

Shoppers are hitting the malls and stores, helping to drive up retail sales. I’d stick with the top department stores, like Macys, Inc. (NYSE/M), or discounters, such as Wal-Mart Stores, Inc. (NYSE/WMT), which will continue to rebound.

The housing sector has been sizzling since the recession, with a superlative rise in housing starts, building permits, and home prices. Homebuilder stocks, including the developers of residential real estate, are sizzling on the charts—Toll Brothers, Inc. (NYSE/TOL) and Hovnanian Enterprises, Inc. (NYSE/HOV), especially.

Since the recession, the jobs market is showing some growth, with the unemployment rate holding just below eight percent. As the jobs market recovers, look to some of the staffing companies, such as Robert Half International Inc. (NYSE/RHI), Manpower Inc. (NYSE/MAN), and Kelly Services, Inc. (NASDAQ/KELYA), to deliver.

So, America appears to be headed in the right direction since the recession hit; but underneath all of the economic jargon and positive media headlines about the “Great Recovery” in America’s economic engine, there’s still a sense that many people are still trapped in economic despair, feeling the impact of the recession.

After scanning through “Diminished Lives and Futures: A Portrait of America in the Great-Recession Era,” I can see that uneasiness and worry remains a real issue in the minds of Americans. (Source: Szeltner, S., et al., Worktrends February 2013, Rutgers, The State University of New Jersey web site, last accessed February 12, 2013.)

Some of the key findings of the research were as follows:

• About 90% of the respondents remained worried about … Read More