Investment Contrarians

retail sales

What the Really Bad Black Friday Numbers This Year Mean

By for Investment Contrarians | Dec 4, 2013

Bad Black Friday NumbersBlack Friday was an afterthought, to me at least. Yes, I bought a few items from the MLB store, but that’s it. But according to newly released data for this key shopping day, it appears as though I wasn’t alone.

A few weeks ago, we saw many of the key retailers reporting some results and warning that sales in the retail sector could be sluggish during the holiday shopping season. Bellwether Wal-Mart Stores, Inc. (NYSE/WMT) was nervous about sales and said the climate in the retail sector could be tough. We heard similar stories from the likes of Macy’s, Inc. (NYSE/M), Nordstrom, Inc. (NYSE/JWN), and Target Corporation (NYSE/TGT), so we knew the retail sector was in for some difficult times.

Well, it appears the retailers may have been right in their assessments, as results from Black Friday point to some disappointing sales with a retail sector in search of consumers and margins. The problem is consumers are looking for deals and discounts; they’re not opening up their wallets in a mad dash to the register.

So despite earlier store openings, extended store hours, and heavy advertising leading up to Black Friday, the big day that many retailers depend on, the early estimates show Thanksgiving weekend retail sales declined 2.7% year-over-year to $57.4 billion, based on a report by the National Retail Federation (NRF). Even so, the NRF still estimates retail sales will edge up 3.9% during the holiday shopping season.

I can’t say I’m surprised. The reality is consumer confidence remains shaky, and with the jobs market being as soft as it is, consumers are clearly reluctant to spend. The … Read More

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

Rising Number of Americans See China as Dominant World Power in 2020

By for Investment Contrarians | Nov 7, 2013

China as Dominant World Power in 2020Over the past year, I have heard a lot about how the Chinese real estate market was in a bubble and ready to collapse, similar to the state of the U.S. real estate market in 2008.

Anti-Chinese real estate pundits were saying to sell. “Chinese companies are crooks,” was a common theme and the communist regime there was not to be trusted by anyone, especially Americans, according to these talking heads.

While I do believe China has its issues and faults (heck, we all do!), the opportunity there for growth investors cannot be ignored; the country will continue to become a bigger influence in the global economy. I’m not saying the renminbi will become the go-to currency, but the economic influence of the country will only grow, especially in Africa and other emerging markets where capital is needed—we all know China isn’t hurting for cash.

The country’s real estate and financial sectors have yet to crash. The Chinese government does know a thing or two about wealth creation and financial risk. Trust me when I say it’s not the bunch of communist cronies running around with no sense of what to do that the anti-China pundits might have you believe.

China’s new leadership under Xi Jinping has a strategy in place to drive domestic consumption and reduce its reliance on foreign demand. Consumers in the country account for less than half of the country’s gross domestic product (GDP), so it’s an area that is in focus, with plenty of room for improvement. With 1.1 billion people and over 300 million people in the burgeoning middle class, the potential is enormous. … Read More

The Simple Truth About the U.S. Economy

By for Investment Contrarians | Sep 27, 2013

U.S. EconomyConsumers need to spend to get the economy going—it’s that simple. In the U.S., consumer spending accounts for about two-thirds of gross domestic product (GDP) growth, so clearly, it’s critical. In comparison, consumer spending in China accounted for about 37.71% of GDP growth in 2011, according to the World Bank.

In China, the government is sitting on trillions of dollars in foreign reserves and cash, which the country can use to spend on its economy to boost its GDP growth.

America is sitting on nearly $1.7 trillion in national debt, which limits what the federal government can do, especially as the second deadline to extend the debt ceiling materializes on October 1. With little ability to act, this means President Obama must count on consumer spending.

There was another bad sign as the durable goods reading showed 0.1% growth in August, which was above the estimate of -1.5% and the -8.1% in July. But there is no way you can convince me that the number is encouraging. If September picks up, then maybe I will turn positive.

In my view, the reading continues to point to the hesitancy in spending on nonessential goods. This is the area that consumers will spend in if they feel confident in their financial situation. Based on what we have seen, I doubt consumer spending on stuff such as furniture, appliances, and other bigger-ticket items will pick up.

Retail sales excluding automotives edged up 0.1% in August, well below the estimate of 0.5% and the 0.6% growth in July.

We are also seeing some warnings from Wal-Mart Stores, Inc. (NYSE/WMT), along with department … Read More

Why the Roaring S&P 500 Is Really Showing Signs of Weakness

By for Investment Contrarians | Sep 17, 2013

Weakness in S&P 500Looking back over the past year, it’s quite amazing to see the shift in market sentiment. Last year, many investors were quite skeptical of the market, best represented by the S&P 500, and this led to cautious market sentiment.

This year, with the S&P 500 hitting new all-time highs, market sentiment has certainly improved substantially. But the question is: can the move continue?

Obviously, nothing moves up in a straight line. However, much of the market sentiment has been built on the belief that the economy will rebound strongly next year. Now, there are some signs emerging that suggest this might not be the case.

While the economy has improved substantially since its depths during the Great Recession, there’s much more work to be done.

Consumer spending is a large part of the economy, and many companies within the S&P 500 are impacted by it. The latest data by the U.S. Department of Commerce indicates that retail sales for the month of August increased by only 0.2%—a disappointment versus expectations of an increase of 0.5%. (Source: U.S. Department of Commerce web site, last accessed September 13, 2013.)

So now we have a situation where the largest part of the U.S. economy—consumer spending—appears to be slowing. If this continues, this could be a dangerous scenario, as market sentiment is clearly in the camp that both revenues and earnings will reaccelerate.

For the S&P 500 to continue moving upward, we need to see revenue growth in addition to earnings growth. Much of the increase in earnings that has helped propel the S&P 500 upward was due to cost-cutting measures. In general, revenues … Read More