Investment Contrarians

U.S. economy


Can’t Afford a Picasso? Try Investing in This Stock Instead

By for Investment Contrarians | Dec 6, 2013

Investing in This StockThere’s one point that I cannot stress enough in this column, and longtime readers are sure to know it: consumer confidence is extremely important for economic growth here in America.

It’s simple logic. Because so much of our economy is built on domestic spending, without an increase in consumer confidence, consumer spending will languish and we won’t have higher levels of economic growth.

Recently, new information from the Conference Board was quite disappointing. The Consumer Confidence Index dropped to a seven-month low in November to 70.4, following a decline in October as well. (Source: “Consumer Confidence Declines Again in November,” The Conference Board web site, November 26, 2013.)

Over the short term, consumer confidence declined due to people stating their concerns regarding a weakening of economic conditions. What’s more concerning is that the expectations for the next six months worsened, as people stated they were increasingly worried about their job prospects and earnings, which isn’t a surprise considering the data hasn’t been all that positive lately, especially when it comes to wage growth.

If consumer confidence is turning pessimistic over the stability of jobs or paychecks, how can we really expect the average American to increase their spending or businesses to feel more confident in expanding?

This type of uncertainty leads to slower economic growth. If you are unsure of your financial health over the next few months, chances are you won’t increase your spending, and a lower level of consumer confidence leads to muted economic growth.

Clearly, one market sector I am worried about is that of companies catering to the average American.

Target Corp Chart

Chart courtesy of www.StockCharts.com

Target Corporation … Read More


How to Insure Your Portfolio as Fed Second Guesses Its Monetary Policy

By for Investment Contrarians | Dec 5, 2013

Fed Second Guesses Its Monetary PolicyOne of the most interesting ideas that came out of the last Federal Reserve meeting at the end of October is a serious issue for everyone, including the Federal Reserve and the eventual impact of monetary policy. And that idea is that slow productivity growth might actually be the new norm. (Source: “Minutes of the Federal Open Market Committee,” FederalReserve.gov, November 20, 2013.)

Since the Great Recession, worker productivity has been running at roughly half the rate that the U.S. experienced over the 25 years prior. The problem is that potential gross domestic product (GDP) growth comes from a combination of productivity and the labor force.

If productivity stalls and the Federal Reserve continues with its monetary policy, at some point, this excess cash will begin to seep into the economy and cause inflation.

The reason we aren’t seeing inflation in the official data despite record levels of monetary policy is that the velocity of money has been low. This basically means that money is sitting in bank reserves or is being funneled into assets, such as stocks, instead of being channeled into the actual U.S. economy. There is asset inflation, but the official measures don’t track items like the stock market.

However, at some point, this begins to shift, especially when worker productivity remains low. The last time productivity hit such low levels was during the 1970s, and we all know what happened to the U.S. economy during that time.

Clearly, the monetary policy program run by the Federal Reserve is not having a positive impact on the real economy, as unemployment remains stubbornly high.

While the Federal Reserve … Read More


Why Sitting and Waiting Makes More Investment Sense Today Than Chasing Gains

By for Investment Contrarians | Nov 25, 2013

More Investment Sense TodayThe more I view this stock market, the more nervous I get. While Wall Street gets set for some terrific year-end bonuses and investors take some amazing gains off the table, I’m sensing some euphoric buying in numerous areas of the stock market.

We saw what happened to hydrogen-cell car maker Tesla Motors, Inc. (NASDAQ/TSLA), as the high-momentum stock rocketed to $194.50 on September 30. The euphoric buying was clearly overdone and set for a nasty decline as short-sellers jumped in. Fast-forward nearly two months, and the stock has plummeted 38%, sitting at the $120.00 level as of Friday. And while some are blaming multiple engine fires in several Tesla cars, the reality was the stock simply accelerated much too fast on the chart to levels that were clearly unsustainable. Even now, trading at 80 times (X) its estimated 2014 earnings and with a price-to-earnings growth (PEG) of 11, the valuation is obscene.

Areas that I view as having some excessive run-ups and valuation in the stock market include the Internet services and social media sectors, which include such stocks as Facebook, Inc. (NASDAQ/FB), Twitter, Inc. (NYSE/TWTR), and Netflix, Inc. (NASDAQ/NFLX). These high-momentum stocks are excessively priced by the stock market, so investors should be wary of chasing them higher. As an alternative investment strategy, wait for the stock to come to you; in other words, wait for weakness in the stock market and for prices to decline before jumping into these investment areas.

The cloud services area in the tech sector has also seen some massive advances to the point where there is so much hype built into the … Read More


Economic Recovery Doubtful as New Survey Shows Downturn in Manufacturing

By for Investment Contrarians | Nov 22, 2013

Economic Recovery DoubtfulAfter so many years following the Great Recession, it’s still quite astounding that job creation remains so slow. This obviously indicates the lack of economic growth, even after trillions of dollars have been pumped into the U.S. economy.

While there has been a lot of optimistic talk in the mainstream media, there have been an increasing number of data points indicating America’s economic growth is still very fragile.

Recently, the Federal Reserve Bank of New York released the results of its November 2013 “Empire State Manufacturing Survey,” and they didn’t support the economic growth theory.

This report is an indication of the state of manufacturing in New York. The net result is that overall business conditions fell to their first negative reading since May. New orders also fell 13 points into negative territory at -5.5. Labor conditions worsened, indicating a decline in the average number of hours worked per week. (Source: “Empire State Manufacturing Survey,” Federal Reserve Bank of New York web site, November 15, 2013.)

It’s no wonder that job creation is still lagging: the manufacturing industry is still experiencing a lack of economic growth. In fact, these results indicate that manufacturing is beginning to weaken once again.

We can’t have economic growth if large sectors of the U.S. economy are experiencing a decline in business activity.

On top of the decline in manufacturing, the level of prices paid is beginning to increase to a level above what firms are able to charge clients.

In 2013, prices paid by manufacturing firms increased 3.4% on average, and they are expected to increase four percent in 2014. Manufacturing firms estimate that … Read More


BlackRock CEO Reports QE Causing Bubbles in Markets

By for Investment Contrarians | Nov 1, 2013

Bubbles Forming in MarketsAs most readers know, I have been calling for a reduction in the Federal Reserve’s quantitative easing (QE) program for some time. My worry has been that the current level of quantitative easing is not doing much to help Main Street, and it is building potentially dangerous risks to our economy over the long term.

I’m worried about the future of this country, and yes, even my investments. I don’t want my hard-earned wealth to disappear due to mistakes made by the Federal Reserve in continuing to pump quantitative easing.

And I’m obviously not alone in this sentiment, as recently the CEO of BlackRock, Inc. (NYSE/BLK), Laurence Fink, stated that the Federal Reserve’s current quantitative easing policy is creating bubbles in various markets. (Source: Bloomberg, October 29, 2013.)

Fink’s opinion that the Federal Reserve should begin tapering quantitative easing immediately comes from the long-term viewpoint of the overall economy and the damage that is being done. Even though money managers like Fink might benefit from quantitative easing over the short term from the boost in asset prices, if bubbles get bigger, the damage over the long term could be extremely serious.

This has been my viewpoint for some time. Sure, it’s great that the market has gone up recently, but if it’s not sustainable, what’s the point?

Much like real estate a decade ago, we all enjoyed the party on the way up, but the hangover has taken years to work off.

Because the Federal Reserve has been so aggressive in its quantitative easing policy, it’s not just the stock market that is going up. Investors who are desperate for … Read More