Daily Gains Letter

Economy


Six Ways to Profit from Russia’s Geopolitical Posturing

By for Daily Gains Letter | Apr 11, 2014

Profitable Investment Opportunities for American InvestorsThe situation in Crimea should be closely monitored as it pertains to Europe and the eurozone. Russia is a major trading partner with the eurozone as well, supplying about 40% of the energy requirements in the area. That is why an escalation in Crimea could devastate the region, especially at a time when the economy is finally growing in the eurozone.

I’m carefully watching the stand-off in Crimea and, more importantly, what Russia is doing. Whether it’s simply geopolitical posturing or a plan to enter into Crimea is unclear. The Russians really don’t want a conflict, as it would likely push the country into a recession.

And a recession in Russia would also impact Europe and could drive the region’s economies down. Now, Russia is currently setting up meetings with the United States and United Nations (UN), so there’s some optimism that a peaceful resolution could emerge from the crisis.

The reality is that a healthy Russia also means better times for Eastern Europe, including some of the area’s strongest economic regions, such as Poland.

I view Europe and the eurozone as a potential investment opportunity if the Russia-Ukraine situation is resolved.

The market in Europe and the eurozone is massive and includes more than 800 million people who demand goods and services.

The eurozone’s gross domestic product (GDP) expanded at a rate of 0.3% in the fourth quarter, according to Eurostat. The eurozone is estimated to report GDP growth of 1.2% this year and 1.5% in 2015, according to the International Monetary Fund (IMF). Of course, these numbers could decline if a conflict surfaces in Ukraine.

A look at … Read More


How to Protect Your Portfolio and Profit as Interest Rates Rise

By for Daily Gains Letter | Apr 9, 2014

Interest RatesAccording to data released by the U.S. Bureau of Labor Statistics (BLS) last Friday, the unemployment rate stood at 6.7% in March, which is similar to the unemployment rate in February. A total of 192,000 jobs were added, of which food and drinking places added more than 30,000 and “temporary” help services in the professional and business industry added more than 29,000 jobs. The labor market fell slightly short of expectations as analysts had forecasted the unemployment rate to be 6.6% for March. (Source: “The Employment Situation — March 2014,” Bureau of Labor Statistics web site, April 4, 2014.)

The Fed announced it would start to scale back its monetary stimulus last December, after jobs numbers started to show signs of a recovering economy. The unemployment rate initially dropped, only to settle at levels that have remained unchanged for the greater part of the winter season. Simultaneously, initial jobless claims increased by 5.16% during the week ended March 28, 2014, raising eyebrows toward the ability of the Fed’s policies to carry the string of economic recovery further. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 7, 2014.)

While most economic challenges faced by the Fed for the last four months have been blamed on cold weather, a rigid unemployment rate and increasing jobless claims point towards a weaker-than-expected recovery. Amidst this, the Fed chair, Janet Yellen, while speaking at a press conference on March 19, confirmed that the Fed plans to go ahead with the tapering program in its bid to elevate interest rates up from their near-zero levels. (Source: Risen, T., “Janet Yellen Continues Tapering … Read More


Consumer Spending Growth in February Bad Sign for Investors?

By for Daily Gains Letter | Apr 1, 2014

Consumer Spending GrowthThe United States Census Bureau reported consumer spending in the U.S. economy—adjusted for price fluctuation—increased by 0.2% in February from the previous month. In January, consumer spending increased by 0.1% after seeing a decline in December. (Source: “Personal Income and Outlays, February 2014,” United States Census Bureau web site, March 28, 2014.)

This sent a wave of optimism through the markets. We heard consumer spending is going higher; therefore, the U.S. economy will improve. Buy and buy some more, or you will miss out on future gains was what we were told.

However, I don’t think much thought was given to the increase in consumer spending compared to the previous years. Please look at the chart below. It shows the percentage change in the personal consumption expenditure each February over the last four years.

Year
Change from Previous Month

February 2011

0.2%

February 2012

0.5%

February 2013

0.3%

February 2014

0.2%

Data source: Federal Reserve Bank of St. Louis web site,
last accessed March 28, 2014.

There’s a clear trend. The percentage change in consumer spending this past February is the lowest since 2011. But if we were to extend this chart to include the change in consumer spending from December to February, this February saw the lowest percentage change since the same period in 2009 and 2010. This shouldn’t go unnoticed.

Going forward, it looks like consumer spending might even decline further. You have to understand that consumers have to be willing to spend; they have to be optimistic to buy. I look at consumer sentiment as one indicator of consumer spending, and it’s not looking very promising at … Read More


Global Middle-Class Growth Boosting These Stocks Worldwide

By for Daily Gains Letter | Mar 24, 2014

Growing Global IncomeThe current drama surrounding Malaysia Airlines Flight 370 has been riveting and indicative of how the superlative growth in travel in the airline sector has encompassed Asia along with the world.

For years now, since the recession hit in 2008, I have been increasingly bullish on the airline sector across the globe, but especially in the emerging markets like China, India, Eastern Europe, and Asia. Helping to drive up the demand for travel in the airline sector has been the upward push in wealth creation in many of these regions, which has given more people the ability to afford air travel.

The industry stats don’t lie. The airline sector is on target for its second straight year of higher profits, according to research by the International Air Transport Association (IATA).

According to the research, North America continues to be the biggest airline sector market with profits estimated at around $8.6 billion in 2014. Asia-Pacific airlines are entrenched in second place with an estimated $3.7 billion in profits, more than the $3.1 billion predicted for Europe. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)

Take a look at the Dow Jones U.S. Airlines Index in the chart below. Notice the beautiful uptrend since November 2012 and the bullish golden cross on the chart, based on my technical analysis.

Dow Jones US Airlines Index Chart

Chart courtesy of www.StockCharts.com

To play the airline sector in the United States, I like discount carrier JetBlue Airways Corporation (NASDAQ/JBLU). The company was formed in 1998 and currently serves markets in the … Read More


What’s Happening in the Copper Market Should Alarm You…

By for Daily Gains Letter | Mar 14, 2014

Plunge in Copper Is a Big Warning SignThere is something going on right now in the copper market that should alarm you. Over the past week, the price of copper has plunged, recently hitting a four-year low.

Why should this matter?

Most investors and analysts are placing bets that economic growth is about to re-accelerate globally. Never before has the world been so interlinked, so we must pay attention to what is occurring internationally.

Copper is an important part of the potential for economic growth, not just because it is used in building and construction, but because it is also a major factor in the Chinese lending market, which is now showing severe strain leading to a potential debt crisis.

Remember, the last financial emergency was led by a debt crisis brought on by a housing bubble that eventually popped. High levels of debt creating a bubble are always dangerous, as the hangover is quite severe.

How does this impact economic growth for us here in America?

To begin with, we all know that the U.S. is doing relatively better than other parts of the world, but we are not exactly running at full speed. Any slowdown in economic growth—especially with a country as large as China—that is brought on by a debt crisis in that nation could severely impact our economy.

In China, the lending market is quite different than in North America, and firms have to rely on what’s called shadow banking.

Many firms in China have trouble borrowing, so they buy copper and use it as collateral. We are not talking about a small amount of money, as a shadow banking system in China … Read More


Three Stocks for Celebrating the Bull Market’s Fifth Anniversary

By for Daily Gains Letter | Mar 12, 2014

Bull Market’s Fifth AnniversaryNormally, an anniversary is worth celebrating. But with the S&P 500 having recently celebrated the fifth anniversary of its bull market run, there are many economic reasons to question its longevity. Considering the economic data of the last five years, it may make more sense to question how the bull market ever got to this point.

On March 9, 2009, the S&P 500 hit bottom, closing at 676.53 and capping a 16-month sell-off that saw the S&P 500 shed more than half of its value. Over the last five years, the S&P 500 has more than made up for the loss, climbing almost 180%. The average American has not fared quite as well.

For starters, the S&P 500 is only as strong as the stocks that make up the index. And because those stocks are a reflection of the U.S. economy, they should (one would think) run in step with the economic data. But this hasn’t been the case.

Over the last five years, the U.S. has been saddled with high unemployment, stagnant wages, high consumer debt levels, weak durable goods numbers, a temperamental housing market, waning consumer confidence levels, and a growing disparity between the rich and the poor.

In an effort to appease shareholders, businesses implemented a form of financial engineering, masking weak earnings and revenues with cost-cutting measures and unprecedented share repurchase programs. In fact, in 2013, share buybacks amounted to $460 billion—the highest level since 2007.

More recently, in 2013, the S&P 500 notched up 45 record closes—climbing roughly 30% year-over-year. Yet despite a year full of all-time highs, each quarter, a larger percentage of companies … Read More


How Global Debt of More Than $100 Trillion Is Threatening Your Portfolio

By for Daily Gains Letter | Mar 12, 2014

Global DebtThere is a recent statistic that is quite shocking: the total amount of debt globally is now over $100 trillion, a jump of 40% over the last six years.

According to the Bank for International Settlements, which is run by 60 central banks, since the financial crisis, the majority of the $100 trillion in debt has been issued by governments and nonfinancial corporations. (Source: “March 2014 quarterly review,” Bank for International Settlements web site, March 9, 2014.)

You would think that with such a huge amount being issued, it would drive interest rates higher amid a debt crisis. But as we all know, the exact opposite has occurred with interest rates still near historic lows.

What’s really shocking is that governments and corporations have borrowed and pumped out a massive amount of money, yet the global economy is barely moving. We know why corporations have issued the debt; with interest rates low, it does make sense to take advantage of the environment, borrow money, and fund share buybacks and dividends.

Of course, it makes one ask the question—if high levels of debt fueled the previous debt crisis, can we fundamentally solve this problem with even more debt? Not likely.

The real question for investors who are allocating capital to these markets is: are they suitable for long-term investors, or should we consider if a debt crisis is possible?

With the situation in Ukraine deteriorating along with other parts of the world, such as Venezuela, this is creating a flight to the perceived quality of the bond market in the developed world. However, long-term, I’m not so sure.

With the U.S. … Read More


An ETF to Boost Your Portfolio Whatever the Weather

By for Daily Gains Letter | Mar 7, 2014

Debt IncreasesDespite stagnant wages and increased borrowing, Americans ramped up their consumer spending in January. The United States Department of Commerce said earlier this week that consumer spending rose 0.4% in January versus a forecast of 0.2%. (Source: “Real Consumer Spending Rises in January,” Bureau of Economic Analysis web site, March 3, 2014.)

Unfortunately, January’s boost in consumer spending wasn’t as broadly based as many were hoping. Spending on durable goods, which include cars, fell 0.3%, while spending on non-durable goods, such as clothing and food, fell 0.7%.

Consumer spending on services increased 0.8%—the biggest jump in services since October 2001. The increase in services spending can be attributed to higher heating bills and more and more people signing up for Obamacare. In fact, without the 11.3% jump in utility bills, consumer spending would have essentially been flat.

For an economy that gets roughly 70% of its growth from wide-based consumer spending, these results are not spectacular.

The increase in consumer spending comes on the heels of a report from the Bureau of Economic Analysis that personal income levels climbed 0.3% month-over-month in January after remaining flat in December. (Source: “Personal Income and Outlays, January 2014,” Bureau of Economic Analysis web site, March 3, 2014.)

This is pretty much in step with consumer spending. But there is an economic disconnect happening. While consumer spending fuels economic growth in this country—if left unchecked, consumer spending can also help throw the economy off a cliff.

According to the Federal Reserve Bank of New York, at $11.52 trillion, overall consumer debt levels (including mortgages, auto loans, student loans, and credit cards) are at their … Read More


This One Factor Could Make or Break Your Portfolio

By for Daily Gains Letter | Mar 3, 2014

U.S. economyIncome inequality plays an important role in whether or not an economy experiences economic growth. If a small number of people earn the majority of the wages in a country, that sets the country up for a disastrous situation. What this essentially does is create a significant disparity. You can expect to see certain businesses do really well while others struggle severely, which is the result of those who are earning fewer wages spending less and those who are earning a significant portion spending more.

Sadly, this is what we see in the U.S. economy. Income inequality is increasing. It suggests economic growth is a farfetched idea.

According to a study by the Paris School of Economics, in the U.S. economy, the richest 0.1% earns nine percent of the national income. The bottom 90% of Americans—the majority of the population—only earn 50% of the national income. (Source: Arends, B., “Inequality worse now than on ‘Downton Abbey,’” MarketWatch, February 27, 2014.)

Former Federal Reserve chairman Allan Greenspan said, “I consider income inequality the most dangerous part of what’s going on in the United States.” (Source: Well, D., “Greenspan: Income Inequality ‘Most Dangerous’ Trend in US,” Moneynews, February 25, 2014.)

Income inequality in the U.S. economy is very evident, no matter where you look.

As I mentioned earlier, when there is income inequality in a country, you can expect certain businesses to do poorly. For example, consider Wal-Mart Stores, Inc. (NYSE/WMT)—one of the biggest retailers in the U.S. economy known for its low prices. Due to the U.S. government pulling back on its food stamp programs, the company is worried. The executive … Read More


Following the Weak Durable Goods Data, These Three Plays Look Good

By for Daily Gains Letter | Mar 3, 2014

Weak Durable Goods DataIf the stock market is only as strong as the companies that go into making up the index and their earnings are contingent upon consumer spending, then the durable goods numbers don’t really look all that great.

New orders for manufactured durable goods slipped by one percent, or $2.2 billion, to $225.0 billion—the third decrease in the last four months. Analysts had forecasted a January drop of 0.7%. The one-percent drop in January comes on the heels of a 5.3% decrease in December. (Source: “Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders January 2014,” United States Census Bureau web site, February 27, 2014.)

In January, shipments of manufactured durable goods, which have been down for two consecutive months, decreased $0.9 billion, or 0.4%, to $232.3 billion. This followed a 1.8% decrease in December.

Inventories—the number of products sitting on a shelf—increased by 0.3% ($1.0 billion) in January to $389.1 billion. This represents the highest level ever recorded and follows a 0.9% increase in December.

Non-defense orders for capital goods in January slipped by 3.9% ($3.2 billion) to $78.3 billion. Shipments decreased by one percent, or $0.8 billion, to $75.1 billion, while unfilled orders increased by 0.5%, or $3.2 billion, to $644.7 billion. Inventories increased $0.5 billion, or 0.3%, to $177.5 billion.

Even the less volatile core durable goods numbers fail to really impress. Orders for long-lasting U.S. durable manufactured goods, minus the more volatile transportation industry, climbed 1.1% in January, the biggest jump since May. This sort of balances out the higher-than-expected 1.9% drop in December. Analysts had forecasted a 0.1% decline in January core durable goods.

Still, … Read More


Limit Losses, Boost Gains with These Staple ETFs

By for Daily Gains Letter | Feb 27, 2014

Consumer Confidence DeterioratesConsumer spending is highly correlated with consumer sentiment. It makes sense that when consumers believe their jobs are in trouble or they won’t have enough money going forward, they pull back on their spending and only buy what they need. On the contrary, if they believe all is well—they expect a raise at work and have savings—they will go out and buy things they want. This phenomenon increases consumer spending.

As it stands, consumer confidence in the U.S. economy is decreasing, which suggests consumer spending will be in trouble.

Let me explain…

The Conference Board Consumer Confidence Index tracks how consumers are feeling in the U.S. economy. The Board asks individuals how they currently feel about the current state of the U.S. economy, their jobs, and so on and if they believe things will change in the next little while.

In February, we found that the index declined 1.6% from the previous month. The Consumer Confidence Index sits at 78.1 this month compared to 79.4 in January. (Source: “The Conference Board Consumer Confidence Index Declines Moderately,” The Conference Board web site, February 25, 2014.)

The Conference Board Expectations Index, which tracks what consumers think will happen in the next six months, also dropped significantly. This index stood at 75.7 this month, down 6.3% from 80.8 in January.

These aren’t the only indicators that suggest consumer confidence in the U.S. economy is declining. The Bloomberg Consumer Comfort Index suggests the same. This weekly index is based on how consumers feel about the U.S. economy, their personal finances, and their buying plans.

In its latest results, the Bloomberg Consumer Comfort Index stood … Read More


More Economic Indicators Show Next to Nothing Has Changed for U.S. Investors

By for Daily Gains Letter | Feb 24, 2014

More Economic Indicators Show Next to Nothing Has ChangedTwo things have been consistent this winter: bad weather and bad economic news. And both just keep on rolling. With spring just around the corner, the weather will clear up; the U.S. economic news, on the other hand, might not be so lucky.

Over the course of the last week or so, a raft of weak economic news and earnings has welcomed the markets.

For starters, a higher number of Americans filed applications for unemployment benefits for the week ended February 8. Jobless claims climbed by 8,000 to 339,000; the four-week moving average for new claims increased to 336,750 from 333,250.

For the week ended February 15, applications improved—though barely—by 3,000 to 336,000, which was less than what was forecast. The four-week moving average (which is considered a less volatile figure), increased by 1,750 to 338,500.

And then there’s more bad economic news on the home front. Last week, the National Association of Home Builders (NAHB) said that its monthly housing sentiment index tanked from 56 in January to 46 in February, the largest monthly drop in history. The negative sentiment goes hand in hand with the two-percent drop in applications for U.S. home mortgages for the first week of February. Mortgage application activity continued its nascent drop in the second week of February, falling 4.1% to 380.9.

Further weakness is being felt in U.S. manufacturing. Economic news from both the New York and Philadelphia indices disappointed. The New York manufacturing gauge slowed in February after hitting a 20-month high in January. Manufacturing conditions slipped to 4.48 in February from 12.51 a month before. Analysts had forecast a much more … Read More


Top Two ETFs for When Interest Rates Increase, Investor Sentiment Plummets

By for Daily Gains Letter | Feb 21, 2014

Top Two ETFsThis past weekend, a friend of mine made a statement that there must be a large amount of economic growth coming shortly because of the booming stock market, driven by investor sentiment.

As I told him, the two are not necessarily tied together.

Over the past few months, we have heard about how economic growth is about to accelerate here in America, and this has helped drive investor sentiment in the stock market higher. However, I think there are many questions that need to be answered before we can assume economic growth will reach escape velocity, and investor sentiment is heavily contaminated with a large addiction to monetary policy.

Some of the data has improved; however, many other reports only lead to murkier water.

For example, we all know that economic growth requires the consumer to be active, since consumption is approximately 3/4 of the U.S. economy. But for the holiday season, many retail companies issued disappointing results, even though there were signs that consumer spending was beginning to pick up. This is an interesting data point: during the fourth quarter of 2013, consumer debt increased by $241 billion from the third quarter, the biggest jump in debt since 2007. (Source: “Quarterly report on household debt and credit,” Federal Reserve Bank of New York web site, last accessed February 19, 2014.)

Should investor sentiment view this increase in consumer debt as a positive or negative for economic growth?

A large amount of the debt increase came from the automobile industry, but what really worries me that could impact future economic growth is the combination of higher debt with weaker retail … Read More


What Retailers Are Saying That Makes Me Believe Economic Growth Is Slowing

By for Daily Gains Letter | Feb 20, 2014

Economic Growth Is SlowingConditions in the U.S. economy are deteriorating fairly quickly. The economic data suggests it’s slowing down. We already saw the U.S. economy decelerate in 2013 compared to 2012; now, investors are asking if this is going to be the case in 2014 as well.

All sorts of businesses in the U.S. economy are worried. This is not a good sign when you are hoping for robust growth.

Homebuilders in the U.S. economy have become very skeptical. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) witnessed a massive drop in February. The index, which looks at the confidence of homebuilders in the U.S. economy, plunged from 56 in the previous month to 46. Any reading below 50 on the HMI means homebuilders expect market conditions to be poor. (Source: “Poor Weather Puts a Damper on Builder Confidence in February,” National Association of Home Builders web site, February 18, 2014.)

Unfortunately, homebuilders aren’t the only ones who are worried and suggesting the U.S. economy isn’t going in the desired direction.

Retailers with major operations in the U.S. economy are feeling the same. Wal-Mart Stores, Inc. (NYSE/WMT)—one of the largest retailers—lowered its profit guidance for the fiscal fourth quarter, ended on January 31, 2014. The CEO of the company, Charles Holley, said, “We now anticipate that our underlying EPS [earnings per share] for the fourth quarter of fiscal 2014 will be at or slightly below the low end of our range of $1.60 to $1.70.” He added, “For the full year, we expect underlying EPS to be at or slightly below the low end of our range of $5.11 to … Read More


Weak Retail Environment an Investment Opportunity in Cash-Based Businesses?

By for Daily Gains Letter | Feb 18, 2014

Investment Opportunity in Cash-Based BusinessesFor an economy that relies on consumer spending to fuel the vast majority of its economic growth, ongoing weak retail sector sales and increased jobless claims cannot be part of the equation. But they are. And have been.

In January, U.S. retail sector sales fell by 0.4%—the most since June 2012. Economists had predicted that January’s retail sector sales would be unchanged in January after falling by a revised 0.1% in December. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” U.S. Census Bureau, web site, February 13, 2014.)

January retail sector sales, excluding automobiles, gasoline stations, and restaurants, showed the worst year-over-year growth since 2009. And with the harsh winter weather, January’s sales reflect the sometimes unpredictable, cyclical nature of our spending, from discretionary (e.g., cars) to non-discretionary (e.g., heating).

At the same time, more Americans filed applications for unemployment benefits for the week ended February 8. Jobless claims climbed by 8,000 to 339,000; the four-week moving average for new claims increased to 336,750 from 333,250. Many economists continue to blame the cold weather for both weak retail sector sales and increased jobless claims. (Source: “Unemployment Insurance Weekly Claims Report,” United States Department of Labor web site, February 13, 2014.)

Fortunately, there is a silver lining to all of this. They suggest we’ll start to see an acceleration in hiring and retail sector sales in the spring and summer seasons—meaning they have written off the entire first quarter of the year, a quarter most economists initially predicted would be bullish. Myself and the financial editors here at Daily Gains Letter, on the other hand, have been warning … Read More


How to Profit When Consumer Spending Is in Jeopardy

By for Daily Gains Letter | Feb 18, 2014

Consumer Spending Is in JeopardyConsumer spending is critical when it comes to growth of the U.S. economy. It makes up a significant portion of the U.S. gross domestic product (GDP)—about 70%. So, if consumer spending declines even by a little, it can really impact the trajectory of the U.S. economy.

Since late last year, there’s growing evidence that suggests consumer spending is in jeopardy. The economic data that tells the level of enthusiasm among American consumers is flashing warning signs. Investors who own retail stocks need to be very careful.

For example, retail sales in the U.S. economy declined 0.4% in January from the previous month. But this isn’t the only troubling news. The previous reported number—the change in retail sales from November to December—was revised lower from 0.2% to negative 0.1%. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” U.S. Census Bureau web site, February 13, 2014.)

The U.S. Census Bureau looks at retail sales of about 13 different kinds of businesses. In January, nine of those kinds of businesses—including furniture stores, health care and personal care stores, clothing stores, and sporting goods stores—reported a decline in their sales from the previous month.

Sadly, retail sales aren’t the only indicator that suggests consumer spending in the U.S. economy is grim. Other indicators like the U.S. manufacturer and trade inventories say the very same; they increased to $1.7 trillion in December, up 0.5% from November 2013 and 4.4% from the same period a year ago. (Source: “Manufacturing and Trade Inventories and Sales December 2013,” U.S. Census Bureau web site, February 13, 2014.)

When inventories increase, it means consumers aren’t buying as … Read More


Where Investors Can Find Stability in These Economically Unstable Times

By for Daily Gains Letter | Feb 11, 2014

Stable Investment for Economically Unstable TimesWhile most astute investors would point to a weak U.S. economy as the reason for the recent lackluster U.S. employment data, economists, in their infinite wisdom, point to Mother Nature. She seems to shoulder a lot of the economic blame in this country.

In January, the U.S. economy added just 113,000 new jobs, far fewer than the expected 180,000 jobs. Freezing winter weather is being blamed for the weak U.S. unemployment data. This is the second straight month of disappointing jobs data from the U.S. Department of Labor.

Last month, the U.S. economy added just 74,000 jobs—far, far below the forecasted 200,000 jobs. The back-to-back weak employment numbers continue to fuel fears that the so-called U.S. economic recovery might be stalling…if one could ever really say the U.S. economy took off.

The new unemployment data shows that 10.2 million Americans in the U.S. economy have work. While the number of people who have been out of work for more than 27 weeks declined by more than 200,000, the number was probably impacted by the 1.7 million Americans who lost their extended federal unemployment benefits at the end of December.

Last Thursday, attempts to revive a program aimed at extending unemployment benefits by three months for the long-term unemployed failed, being supported by just 59 of the 60 senators needed to pass the motion. At the end of the day, in this U.S. economy, 3.6 million Americans, or 35.8% of the unemployed, are stuck in long-term unemployment limbo.

And they might be stuck there for a long time. A recent experiment conducted by a visiting scholar at the Boston Fed found … Read More


The Stocks That Are Most Attractive After January’s Sell-Off

By for Daily Gains Letter | Feb 11, 2014

U.S. EconomyThe theme since 2010 has been very simple: the U.S. economy is witnessing economic growth. As a result of this, the stock market increased and broke above its previous highs made in 2007. Investor optimism soared, and those who were bearish saw their stock portfolio disappear.

As the new year, 2014, began, the theme became a little more complex: the U.S. economy is going through a period of economic growth, but it’s becoming questionable. The question asked by investors these days: is the U.S. economy headed for economic slowdown, and is the stock market—which has provided investors with great returns—about to see another downturn?

The economic data that suggested the U.S. economy is growing has started to suggest this may not be the case anymore. For example, after the financial crisis, the unemployment rate in the U.S. economy declined. It meant more people were getting jobs and they had money to spend—the kind of jobs created and if they made any impact is still up for debate. In December, we heard that only 75,000 jobs were added to the U.S. economy, and in January, this number was only 113,000. (Source: “The Employment Situation,” Bureau of Labor Statistics, February 7, 2014.) The number of jobs added to the U.S. economy has missed the market estimate by a huge margin for two months in a row, and the growth compared to the early part of 2013 isn’t very impressive.

The gross domestic product (GDP) growth rate of the U.S. economy doesn’t look so impressive, either. We have created a table to show how it has been declining. Look below:… Read More

Year
Real GDP


Why January Auto Sales Point to Bleak Future for U.S. Economy

By for Daily Gains Letter | Feb 5, 2014

U.S. EconomyDespite assurances from analysts, economists, and central bankers, the U.S. economy isn’t faring so well—and the markets are finally beginning to see what we’ve been warning about in these pages all last year.

For sustainable growth, the U.S. economy needs to be reporting consistently strong fiscals. But it isn’t. For starters, the key stock indices, a reflection of the U.S. economy, have extended their sharp January losses. The S&P 500 is down 5.6% year-to-date, the Dow Jones Industrial Average has lost more than seven percent of its value so far this year, the NYSE is down roughly six percent, and the NASDAQ is in the red by four percent.

Every quarter since the beginning of 2013, an increasingly larger number of S&P 500-listed companies have revised their quarterly earnings lower. During the first quarter of 2013, the number stood at 78%. This time around, 81% of S&P 500 companies have revised their first-quarter earnings lower.

Why the big losses? That depends on whom you talk to. The Bank of America, without even a hint of a smirk, blames the much colder-than-expected weather for the weak U.S. economy, meaning the U.S. economy and global markets are performing poorly because of a snow storm…

I suggest the U.S. economy is doing poorly and the U.S. markets are tanking for entirely different reasons. For starters, the U.S. economy needs steady jobs and earnings growth. Instead, the U.S. economy is facing high unemployment and stagnant wages. For the week ended January 25, jobless claims jumped more than forecast to a seasonally adjusted 348,000.

And a record number of Americans rely on food stamps. Interestingly, … Read More


First Step to a Winning Investment Strategy

By for Daily Gains Letter | Jan 31, 2014

How to Create a Winning Investment StrategyOne of the more common themes that I keep reading about these days is the strength of U.S. economic growth. It’s important to get at least some understanding of the potential for economic growth, as this will impact your investment strategy.

Recent data is definitely making me ask the question: just how strong is the level of economic growth in America?

We all know that this holiday season was much weaker than expected for retail companies. Considering that consumer spending fuels the majority of economic growth in America, this is certainly not a positive environment for that sector—but that shouldn’t be a real surprise to my readers, as I have recommended an investment strategy that has avoided retail stocks for months.

If economic growth is weak in retailing, are there any bright spots for larger goods?

According to the U.S. Department of Commerce, the latest advance report on durable goods was quite disappointing. New orders for durable goods during the month of December dropped 4.3%, core durable goods orders during December dropped 1.6%, and excluding defense, new orders were down 3.7%. (Source: U.S. Department of Commerce, January 28, 2014.)

Another worrisome data point in the report showed that the inventory level of manufactured goods in December was up 0.8%, the highest total amount since this data series was published and also the eighth monthly increase over the last nine months.

How should you formulate an investment strategy with this information in mind?

Economic growth depends on a continued increase in consumption and production. We saw consumers pull back over the holiday season, which is clearly not a positive sign for … Read More


How to Profit from the Collapse in Emerging Markets

By for Daily Gains Letter | Jan 30, 2014

Emerging MarketsAfter years of easy money and a failure to secure a well-executed exit plan, it looks as though the emerging markets are getting a taste of the Federal Reserve’s economic tapering. Over the last five years, the emerging markets have benefited from low interest rates and listless growth in developed countries.

But, with the U.S., Japan, and Europe—the three biggest economies globally—all expanding for the first time in four years, the tables are turning and the sheen is beginning to wear on the emerging markets.

In an effort to help kick start the U.S. economy after the financial crisis in 2008, the Federal Reserve enacted it’s overly generous bond buying program (quantitative easing). All told, the Federal Reserve dumped more than $3.0 trillion (and counting) into the markets and has kept interest rates artificially low.

The ultra-low interest rates might have been great for home buyers, but income-starved investors had to look elsewhere to pad their retirement portfolio. Many retail and institutional investors went to the emerging markets, where the interest rates were higher and there was a real opportunity for growth.

In December, the Federal Reserve said it was going to begin tapering its $85.0-billion-per-month quantitative easing strategy to $75.0 billion a month in January. Just yesterday, the Fed announced it will be reducing that number to $65.0 billion a month in February. While the amount is negligible, it signals the eventual end of artificially low interest rates. The cheap money that propped up asset prices in emerging markets, like India, China, and Indonesia, is beginning to crumble.

The Argentinean peso, Indian rupee, South African rand, and Turkish lira … Read More


Top Investor Safe Havens for Protection Against Collapsing Economic Growth

By for Daily Gains Letter | Jan 29, 2014

Economic GrowthTroubles in the global economy look to be strengthening, suggesting an economic slowdown may be following. Not only are the major economic hubs of the global economy showing signs of stress—something I have mentioned in these pages many times before—but we see demand slowing down as well.

The Baltic Dry Index (BDI) gives us a general idea about how the demand in the global economy looks. At the very core, this index tracks the shipping price of raw materials. If the shipping prices increase, it suggests there’s increased demand in the global economy. If they decline, it’s not really a good sign. Please look at the chart of the BDI below.

Baltic Dry Index Chart

Chart courtesy of www.StockCharts.com

The BDI is outright collapsing. Since the beginning of the year, the BDI has declined more than 42%. This shouldn’t be taken lightly because it suggests demand in the global economy is slowing down very quickly. Looking at the average change in the BDI in January since 2003, this decline in 2014 is the second-biggest on record—in 2012, the BDI collapsed 58% in January.

Another indicator of demand in the global economy I look at is the Chinese economy. It has been known as the manufacturing hub of the world, and the country exports a significant amount of its goods to the world. If we see manufacturing activity in that country slow down, it gives us a hint that a global economic slowdown may be following.

Consider this: In January, the HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI)—an indicator of manufacturing activity in China—plunged to a six-month low. It was registered at 49.6 in … Read More


Why Global Economic Growth Is Falling Apart Again

By for Daily Gains Letter | Jan 22, 2014

Global Economic GrowthIt seems the global economy is taking a wrong turn. If it continues on the path it’s on now, it will not be a surprise to see a pullback in its growth. As a result of this, U.S.-based global companies may see their revenues and profits fall, which eventually leads to lower stock prices. You have to keep in mind that the U.S. economy is highly correlated with the global economy.

First, it seems that the demand in the global economy is slowing down as we enter into 2014. One of the indicators of demand in the global economy I look at is the Baltic Dry Index (BDI). The BDI is an index that tracks the shipping price of raw materials. If the index declines, it means demand in the global economy is slowing. If the BDI increases, it suggests the global economy may see an influx in demand. Below is the chart of the BDI. Note that since the beginning of this year, the index has collapsed more than 32% (as indicated by the circled area in the chart below).

Baltic Dry Index Chart

Chart courtesy of www.StockCharts.com

But that isn’t all. We continue to see dismal economic data out of the major economic hubs of the global economy, too.

China, the second-biggest economic hub in the global economy, is showing signs of slowing down. The Chinese economy in the fourth quarter of 2013 grew at an annual pace of 7.7%. In the third quarter, this growth rate was 7.8%. (Source: “China’s Expansion Loses Momentum in Fourth Quarter,” Bloomberg, January 20, 2014.) Although this growth rate may sound very impressive when compared to … Read More


As Consumer Confidence Wavers, Gold Bugs Come Back from the Sidelines

By for Daily Gains Letter | Jan 21, 2014

Consumer Confidence Declines, Gold Prices Back from the DeadIf you listen to the Wall Street analysts, January consumer confidence numbers weren’t really all that bad. The preliminary University of Michigan Consumer Confidence index came in at 80.4 versus a forecast of 83.4—and down from 82.5 in December. (Source: “Tale of two consumers continues as US consumer sentiment slips,” CNBC, January 17, 2014.)

Some attributed the blip to the polar vortex that swept through most of North America earlier in the month. The warmer winds of February are expected to pick up the disappointing slack in U.S. consumer confidence levels next month.

But I’m not so sure. Friday’s consumer confidence numbers missed expectations by the widest margin in eight years. It also marks the seventh miss in the last eight months. Throughout 2013, consumer confidence numbers only beat projected forecasts three times, which (surprise!) means Wall Street doesn’t really have its finger on the pulse of Main Street America.

What isn’t surprising is that upper-income households have increased consumer confidence, having benefited the most from strong gains in income levels, the stock market, and housing values. On the other hand, low- and middle-income households that are not heavily invested in the stock market are being weighed down by stagnant wages and embarrassingly high unemployment.

And, since there are more middle- and low-income earners than high-income earners in the U.S., and 70% of our gross domestic product (GDP) comes from consumer spending, it’s fair to say that both consumer confidence levels and the economic outlook for the majority of Americans is bleak.

It’s not as if the disappointing consumer confidence levels have come out of a vacuum. A raft of … Read More


Where the Fed Went Wrong When It Decided to Taper

By for Daily Gains Letter | Jan 14, 2014

What Wall Street Celebrated Too EarlyThe merriment, mirth, and cheer on Wall Street over the holiday season may have been a bit premature; in fact, the optimism about the U.S. economy that ushered in the New Year may have already come to a screeching halt.

In mid-December, the Federal Reserve surprised investors when it announced it was going to start tapering it’s generous $85.0-billion-per-month easy money policy in January to just $75.0 billion per month. The pullback was a surprise, because the Federal Reserve initially hinted it wouldn’t ease its monetary policy until the U.S. unemployment rate fell to 6.5% and inflation rose to 2.5%. At the time of the announcement, U.S. unemployment stood at seven percent and inflation was hovering around historic lows below one percent.

The Federal Reserve moved sooner than expected with its tapering because of a (so-called) stronger U.S. economy and jobs growth. And, going forward, it said that U.S. unemployment figures will improve faster than expected. But, a raft of new economic numbers is calling that optimistic forward guidance into question.

In December, the U.S. economy created just 74,000 jobs, the slowest pace in three years, with the majority of the jobs (55,000) coming from the retail industry. Despite the weak jobs growth, the U.S. unemployment rate managed to fall from seven percent to 6.7%—the lowest rate since October 2008. But numbers are deceiving—the big drop in the unemployment rate was primarily a result of 347,000 people dropping out of the labor force.

Throughout 2013, the U.S. economy created 2.18 million jobs; in 2012, the U.S. economy created 2.19 million jobs. Looking at this from another angle, in 2013, the … Read More


What Really Bothers Me About the So-Called U.S. Economic Growth

By for Daily Gains Letter | Jan 10, 2014

U.S. Economic GrowthOn the surface, the data suggest there’s economic growth in the U.S. economy. We hear that the unemployment rate is declining. Incomes in the U.S. economy are increasing. Consumers are buying more and more goods—as a result, we are going to see higher U.S. gross domestic product (GDP). Growth is intact…right?

Sadly, when I examine the details, I really question if this is all a mirage. Is there really economic growth in the U.S. economy?

You see, economic growth is when the general standard of living improves. It’s just that simple. If people are getting jobs that pay them well, you have economic growth. If average Joe American is able to buy the goods he wants, you have economic growth.

There are troubling developments in the U.S. economy that can derail all the talks of economic growth. Unfortunately, they are not very often mentioned in the mainstream media.

First of all, I see a disparity happening between the rich and those who are not so fortunate in the U.S. economy. This is something to be mindful of, because it can have massive side effects. An example of this I witnessed was in the 2013 auto sales for the U.S. economy. The sales of automakers that make affordable and family-oriented cars like General Motors Company (NYSE/GM) and Ford Motor Company (NYSE/F) witnessed subdued growth. On the other hand, luxury car makers saw massive increases. For example, sales of the “Maserati” increased by 74.7%. On the other end of the spectrum, sales of cars and light vehicles at General Motors only increased by 7.3%. (Source: Motor Intelligence, “U.S. Market Light Vehicle Deliveries … Read More


Why Fed’s Change of Plans Doesn’t Mean a Change in the Stock Market

By for Daily Gains Letter | Dec 20, 2013

Change in the Stock MarketIs it an early Christmas present or a really early April Fools’ Day trick?

In a somewhat surprise move, the Federal Reserve decided the U.S. economy was doing well enough that it could start to cut back on its generous $85.0-billion-per-month quantitative easing (QE) strategy.

I say “surprise” because the Federal Reserve initially said it wouldn’t consider tapering until the U.S. economy was on solid, sustainable economic ground, which meant an unemployment rate of 6.5% and inflation of 2.5%. Today, unemployment sits at seven percent and inflation is near historic lows at below one percent.

Against a weak economic backdrop, the Federal Reserve made a brave and daring decision to slash its monthly QE policy by a paltry $10.0 billion. That means that instead of pumping more than $1.0 trillion into the U.S. economy next year, it is only going to inject $900 billion. In other words, the U.S. national debt is going to increase by $900 billion. (Source: Press release, Board of Governors of the Federal Reserve System web site, December 18, 2013.)

If the U.S. economy really was on solid footing, Fed Chairman Ben Bernanke would have made a bigger dent in his monthly bond-buying program. Instead, he made a token gesture as he gets ready to hand the baton to Janet Yellen early next year.

Yup, after injecting $4.0 trillion into the U.S. economy, the country is little (or no) better off than it was before the Fed initiated quantitative easing. U.S. unemployment is down from its Great Recession high of 10% in October 2009, but it has yet to break the seven-percent level. Meanwhile, the underemployment … Read More


The Mirage Called a “U.S. Economic Recovery”

By for Daily Gains Letter | Dec 17, 2013

U.S. Economic Recovery“Just give up being so negative; there’s economic growth in the U.S. economy.”

These were the exact words of my good old friend, Mr. Speculator. Over the weekend, when I received a call from him, he added, “You see the average American is better off than before. There are jobs; and no matter where you look, you won’t find much negativity. Look at the stock markets; they probably will show a 30% increase for 2013.”

Sadly, Mr. Speculator has become a victim of the false assumptions that seem to prevail in the markets these days. He’s basing his conclusion on just a few indicators that he looked at from just the surface, not looking much into the details. For example, the stock market doesn’t really portray the real image of the U.S. economy, but it’s used as one of the indicators.

Here’s what is really happening in the U.S. economy that keeps me skeptical.

First of all, jobs growth in the U.S. economy has been center stage for some time. I agree that the unemployment rate has gone down, but I ask where the jobs were created. In November, for example, we saw the unemployment rate in the U.S. economy reach seven percent, and it sent a wave of optimism across the mainstream. Sadly, a major portion of the jobs created for that month were in the low-wage-paying industries. Mind you; this has been the trend for some time now. (Source: “Employment Situation Summary,” Bureau of Labor Statistics web site, December 6, 2013.) In periods of real economic growth, you want equal jobs creation, which we are clearly missing in … Read More


If It Looks Like a Bubble and Acts Like a Bubble…

By for Daily Gains Letter | Nov 19, 2013

Looks Like a BubbleMaybe I’m reading into the economy too much, but the current state of the U.S. economy and Wall Street isn’t adding up. The vast majority of people don’t think we’re in a bubble, including Federal Reserve chair nominee Janet Yellen. Granted, you can only really point to a bubble in retrospect, but still, it certainly looks and feels like we are in one.

Talking before the Senate Banking Committee during her first public appearance as Federal Reserve chair nominee, Janet Yellen said she plans to keep printing $85.0 billion a month and set no timetable for when the Fed will begin to taper.

Truth be told, the Federal Reserve has been, for the most part, pretty straightforward about when it will taper its quantitative easing policy: when the U.S. economy improves. For most, that means an unemployment rate of 6.5% and inflation at 2.5%.

At the same time, other scenarios have been floated about, including no tapering until the unemployment rate hits 5.5%, or better yet, the Federal Reserve begins to taper in early 2014, but continues to keep interest rates artificially low until, by some estimates, 2020. Really, what’s the rush?

And why should they? Since early 2009, the S&P 500 has climbed more than 160% and is up more than 25% year-to-date. The Dow Jones Industrial Average, on the other hand, is up 132% since early 2009 and is up 21.5% year-to-date. And it looks like the good times are going to continue to roll, because, in the words of Janet Yellen, “It could be costly to fail to provide accommodation [to the market].”

Take a few steps … Read More


Why Consumer Confidence is Falling at an Alarming Rate

By for Daily Gains Letter | Nov 1, 2013

Consumer Confidence PlummetsConsumer spending is very critical to the U.S. economy, as it makes up a significant portion of the gross domestic product (GDP). If consumer spending declines, then U.S. GDP growth becomes very questionable; when it increases, it can provide an idea about where the U.S. economy is heading.

I look at consumer confidence as one of the indicators of consumer spending. The logic behind this is that if consumers are confident, they will most likely spend more, compared to when they are pessimistic.

Sadly, the consumer confidence in the U.S. economy seems to be deteriorating these days. This is definitely not a good sign if we want the U.S. economy to improve going forward.

Look at the Conference Board Consumer Confidence Index, for example; in October, it witnessed a slide of more than 11%, having stood at 71.2 in October from 80.2 in September. The Consumer Expectations Index declined 15.5% in the same period. (Source: “Consumer Confidence Decreases Sharply in October,” The Conference Board web site, October 29, 2013.)

Some will blame the decline in consumer confidence on the U.S. government shutdown. This may not be completely true, however, as we have been seeing continuous deterioration in consumer confidence. Please look at the chart of the University of Michigan Consumer Sentiment Index below.

University of Michigan Consumer Sentiment Chart

Chart courtesy of www.StockCharts.com

The University of Michigan Consumer Sentiment Index stands at the lowest level of 2013 in October. It has been declining since July.

Currently, we are seeing too much attention being paid to the key stock indices making new highs each day, but not to the underlying factors that affect them.

Consumer confidence declining … Read More


Is Following Irrationality the New Trade Strategy?

By for Daily Gains Letter | Oct 28, 2013

New Trade StrategyAs the U.S. government shutdown was prolonged, not only was there noise about getting away from the U.S. dollar, but also about what happens to the U.S. economy next. On one hand, there was a consensus that the U.S. government shutdown was actually a good thing, serving as a cost-cutting measure that allowed the government to save money. On the other hand, there were those who said it was impacting the U.S. economy’s recovery process and would wipe a certain percentage off the U.S. economy’s gross domestic product (GDP).

Both sides had a solid argument to prove their point about the impact of the U.S. government shutdown on the U.S. economy, but my stance differs from that of both groups. Before going into the details, be aware that we don’t know the exact impact of the shutdown just yet, because the economic data has not been released, but time will eventually draw a better picture.

So what’s my take on the U.S. government shutdown that happened for 16 days? Forget the shutdown; it didn’t matter. What I am concerned about is the other dismal trends that continue to remain in the U.S. economy. If they are not fixed or their direction doesn’t change, then economic growth in the U.S. economy becomes very doubtful.

One of the trends I have been closely following is the unemployment in the U.S. economy. I agree that the number on the surface, the unemployment rate, looks much better than what it was during the financial crisis. However, when I assess and analyze the details, it’s not looking very good.

What you want to see are … Read More


What an 81% Increase in Food Stamp Use Really Means for the U.S. Economy

By for Daily Gains Letter | Oct 24, 2013

Increase in Food StampEach day, there’s growing evidence that suggests the American economy isn’t experiencing any economic growth. Unequal job creation is just one of the main topics discussed in the mainstream, but sadly, there are many other facts and figures that show a gruesome image of the U.S. economy as well.

Consider this: since the financial crisis struck in the U.S. economy, the number of people using food stamps has been increasing. In 2007, there were 26.3 million Americans who were using food stamps; fast-forward to July 2013, and that number had enlarged to 47.6 million, an increase of almost 81% at the rate of roughly 13.5% per year. (Source: “Program Data,” United States Department of Agriculture web site, last accessed October 21, 2013.)

Food stamp use in the U.S. economy is a key indicator of economic growth, showing how Americans are relying on the government to help them with even food, the most basic of needs. This is very contradictory to economic growth; if there was growth in the U.S. economy, then we would see this number decline.

Unfortunately, the horror story that is the U.S. economy just doesn’t end there.

Consumers in the U.S. economy aren’t happy. According to the Thomson Reuters/University of Michigan’s consumer sentiment index preliminary results, consumer confidence in the U.S. economy declined to a nine-month low in October. The index, which gauges how consumers feel in the U.S. economy, collapsed to 75.2 in October, from 77.5 in September. (Source: Leong, R., “Washington drives U.S. consumer sentiment to nine-month low,” Reuters web site, October 11, 2013.)

Consumer confidence is another key indicator of economic growth in the … Read More


Wall Street Cheers 13.6% Unemployment Rate; S&P 500 Soars!

By for Daily Gains Letter | Oct 24, 2013

Unemployment RateBad news on Main Street is good news for Wall Street. Illogical heads prevailed on Tuesday after the U.S. government announced that the unemployment rate dipped to an ever-so-modest 7.2% in September, from 7.3% in August. The U.S. added just 148,000 new jobs in September—far short of the forecasted gain of 180,000 jobs for the month. (Source: “The Employment Situation – September 2013,” Bureau of Labor Statistics web site, October 22, 2013.)

The number of long-term unemployed (those without a job for at least 27 weeks) remains stubbornly high at 4.1 million, and the underemployment rate is at an eye-watering 13.6%, up a sliver from 13.4% in August.

Weak jobs numbers means the Federal Reserve will continue its $85.0-billion-per-month quantitative easing policy into 2014. Those who do not read these pages were apparently surprised last month when the Federal Reserve did what it said it was going to do—namely, keep its stimulus package intact until the economy improves to a 6.5% unemployment rate and a 2.5% inflation rate.

It clearly hasn’t, isn’t, and won’t for the foreseeable future.

Those bad jobs numbers sent the S&P 500 into record intra-day territory. In the week since Congress ended the U.S. government shutdown, raised the debt ceiling, and reported stubbornly high unemployment, the S&P 500 climbed more than three percent. Year-to-date, the S&P 500 is up more than 22%.

That increase is in sharp contrast to anything approaching reality on Wall Street. During the first quarter of 2013, 78% of S&P 500 companies issued negative earnings-per-share (EPS) guidance, 81% during the second quarter, and a record 83% for the third quarter. (Source: “Earnings … Read More


Over 80% of Americans to Work During Retirement to Make Ends Meet

By for Daily Gains Letter | Oct 17, 2013

Americans to Work During RetirementEconomic growth in a country occurs when the general standard of living increases. This means that individuals are able to get jobs, have some disposable income, have savings, and go out and spend. In turn, this causes businesses to produce more, create more jobs, and so on—in other words, the wheels of economic growth continue to turn.

Sadly, the U.S. economy appears to be far from that. Many get the impression that key stock indices increasing means economic growth, but this is certainly not the case.

If the U.S. economy was experiencing economic growth, one would assume that Americans are living well and spending on goods they want. However, according to a Gallup survey conducted in August, 20% of Americans experienced times during the past year when they couldn’t afford food; in June, this number stood at 17.7%. This was the first time in the last 68 months when 20% of Americans had troubles affording food. (Source: Brown, A., “More Americans Struggle to Afford Food,” Gallup web site, September 12, 2013.)

The misery in the U.S. economy doesn’t end there. There are more trends showing economic growth just isn’t there.

According to a poll by the Associated Press-NORC Center for Public Affairs Research, 82% of Americans aged 50 and older say they will likely work during their retirement, while 47% of Americans expect to retire later than their anticipated time of retirement. (Source: Sedensky, M., “Poll: Half of older workers delay retirement plans,” Yahoo! News, October 15, 2013.)

If Americans being unable to afford food and soon-to-be retirees rethinking their options are what count as economic growth, then what would … Read More


Retail Stocks a Good Buy This Holiday Shopping Season?

By for Daily Gains Letter | Oct 14, 2013

Retail Stocks a Good BuyOver the weekend, I had a chance to meet with my friend Mr. Speculator. We talked about portfolio management, the overall market condition, and what may be next for the U.S. economy. During our conversation, what was interesting to find was that Mr. Speculator has turned bullish on retail stocks. I asked him why, and he said it’s because shopping season is coming up. His argument was that retail stocks are going to see some buying and their prices will increase. “Just think of it this way,” he said. “The more people buying their goods, the higher their profits are going to be.”

Like always, Mr. Speculator has the general theory right, but he is missing a few details that could derail his theory of retail stocks being hot in the next few months.

Why? Because consumers in the U.S. economy are becoming cost-savvy, meaning they are looking for deals and deep discounts. When retailers put on a sale, their profit margin isn’t as high.

For example, during the back-to-school season, consumers in the U.S. economy weren’t as enthusiastic and the demand was not as robust, so retailers had to provide deep discounts.

“They seem to be above the norm,” said Ken Perkins, president of Retail Metrics, a retail industry research firm. “That was emblematic of just the lack of demand for back-to-school.” (Source: Skariachan, D., “U.S. retailers rely on deep discounts to win back-to-school shoppers,” Reuters, September 5, 2013.)

But to be fair, we know that back-to-school shopping season is over.

So what’s next?

To put it mildly, the holiday shopping season isn’t looking great, either. Consumers in the … Read More


A Global Issue That Could Damage American Stocks

By for Daily Gains Letter | Oct 11, 2013

Damage American StocksThe global economy looks to be in trouble, with the problems brewing quickly. Major economic hubs in the global economy are struggling for growth, but are failing—a fact that is largely ignored by the mainstream.

Long-term investors need to know that an economic slowdown in the global economy can deeply affect the key stock indices here in the U.S. economy. The reason for this is very simple: American-based companies operate throughout the global economy. As a matter of fact, in 2012, for the S&P 500 companies that provide data about sales in the global economy, 46.6% of all sales came from outside of the U.S. (Source: “S&P 500 2012: Global Sales – Year In Review,” S&P Dow Jones Indices web site, August 2013.)

Clearly, if there is an economic slowdown, the demand will decrease and the U.S.-based companies will sell less and earn less profit. As a result, their stock prices will decline.

So what is really happening?

In the beginning of the year, there was a significant amount of noise about how the global economy will experience growth. This did not happen.

The International Monetary Fund (IMF) expects the global economy to grow by 2.9% this year after seeing growth of 3.9% in 2011 and 3.2% in 2012. In 2014, the IMF expects the global economy to increase by 3.6%. (Source: Duttagupta, R. and Helbling, T., “Global Growth Patterns Shifting, Says IMF WEO,” International Monetary Fund web site, October 8, 2013.) Mind you, these estimates were much higher in July, but they have since been revised lower.

We all know how anemic the rate of growth of the U.S. … Read More


How to Protect Your Portfolio Entering QE Year Five

By for Daily Gains Letter | Oct 7, 2013

Portfolio Entering QEFor the last five years, the U.S. has relied on quantitative easing, one of the most unconventional monetary policies, to kick-start its economy. By printing off trillions of dollars and increasing the money supply on the back of artificially low interest rates, the government is hoping financial institutions will increase lending and liquidity.

Will it work? Not if history is any indication.

On December 29, 1989, during the heyday of the Japanese asset price bubble, the Nikkei Index hit an intraday high of 38,957.44, capping off a decade in which the index soared more than 500%. Despite those dizzying heights, no one could see what the next 25-plus years would bring.

Over the ensuing decade, the Nikkei continued to slide. To shore up the economy, the Bank of Japan held interest rates near zero and had, for many years, claimed quantitative easing was an ineffective measure.

In March 2001, the Bank of Japan unveiled its first round of quantitative easing. It didn’t take, and since then, Japan has initiated 11 rounds of quantitative easing, dumping trillions of dollars into the markets. Instead of stimulating the economy, it has been saddled with a negative real gross domestic product (GDP) growth rate and record-low interest rates.

By late October 2008, the Nikkei hit an intraday low of 7,141—an 80% loss from its 1989 highs. While it rebounded in 2013 and is currently sitting near 14,170, it’s still down more than 63% since the halcyon days of the late 1980s.

After a quarter century, quantitative easing and record-low interest rates are a regular part of Japan’s economic diet. Thanks to uncertainty in the … Read More


Forget the Debt Ceiling and Government Shutdown; This Is the Issue Investors Should Focus On

By for Daily Gains Letter | Oct 7, 2013

Investors Should Focus OnThe odds of a slowdown in the U.S. economy are stacking higher each day. Investors need to be very cautious and tread the waters carefully, as a slowdown in the U.S. economy will mean more misery to come—and what we see now may become worse.

In the midst of the U.S. government shutdown and the approaching debt ceiling issue, a lot has changed in the background. The major financial news channels are fixated on issues where past occurrences were eventually resolved. We have seen politicians come to a decision about the debt ceiling before, most recently in 2011, and this isn’t the first U.S. government shutdown; the government was able to come to a consensus before, and this time will be no different.

Moving away from all the current noise, when I look at the numbers, I see a rough road ahead for the U.S. economy.

Yes, I understand that we saw the U.S. economy increase at an annual rate of 2.5% in the second quarter of this year, but I have to ask if the third or fourth quarter is going to be the same.

In its September projections, the Federal Reserve expected the U.S. economy to grow between two percent and 2.3%. These predictions were revised lower from the previous projections in June, when it anticipated the U.S. economy would grow by 2.3% to 2.6%. Note that the lower bound projections in June have become the upper bound. (Source: “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, September 2013,” Federal Reserve web site, September 18, 2013.)

We also see companies in the U.S. economy … Read More


Did Wal-Mart Just Say Consumer Spending Is Declining?

By for Daily Gains Letter | Sep 27, 2013

Consumer Spending Is DecliningIt’s not a hidden fact that the biggest force that drives the U.S. economy is consumer spending. If it declines, you can say the odds of a slowdown in the U.S. economy are increasing. Consumer spending roughly makes up 70% of U.S. gross domestic product (GDP), so you can imagine how a small change can make a huge difference.

Well, this is exactly what the U.S. economy is going through. Consumer spending is at stake, so it shouldn’t be a surprise that economic growth is on the line.

One of the key indicators of consumer spending is consumer confidence. The logic is very simple: if consumers feel good, they will go out and spend. When paranoid or afraid of change, they will do the opposite and step back, reducing their spending.

The Conference Board Consumer Confidence Index, a key indicator of where consumer spending is headed, declined in September, dragging down almost 2.5%, from 81.8% in August to 79.7% now. (Source: “The Conference Board Consumer Confidence Index Falls Slightly,” Conference Board web site, September 24, 2013.)

Unfortunately, we are already starting to see early indications of deteriorating consumer spending.

In August, new orders for durable goods in the U.S. economy, excluding transportation, declined 0.1%. At the same time, the inventory levels at the manufacturers of durable goods continue to increase. In August, they increased $0.3 billion, or 0.1 %, to $379.1 billion; this was the highest level since this data was first published. You don’t want to see this combination of declining orders and increasing inventory when you are hoping for economic growth. (Source: “Advance Report on Durable Goods Manufacturers’ … Read More


How the Debt Fiasco Will End for Long-Term Investors

By for Daily Gains Letter | Sep 24, 2013

Long-Term InvestorsThe financial crisis struck the U.S. economy five years ago. Those who remember the collapse of Lehman Brothers know how much uncertainty was actually there. It seemed the U.S. economy was going to halt and the financial system would collapse. Ripples across the global economy were felt. Nothing looked safe—it was a total bloodbath. Investors had many questions, including if they would be able to protect their nest eggs.

As a result of all this, to fight the uncertainty and handle the issues at hand, the U.S. government and the central bank jumped in and started to spend. They bailed out the big banks in the U.S. economy to make sure everything would continue to run smoothly. We passed through that successfully, and the worst didn’t come upon us.

Sadly, as all this happened, we saw troubling trends starting to form in the U.S. economy.

Look at the national debt.

As the government started to rev up its spending spree, it posted a budget deficit and eventually borrowed money. To give you some idea, in January of 2008, when the behemoth was starting to awaken, the national debt of the U.S. economy stood at $9.2 trillion. Fast-forwarding to now, it stands at $16.7 trillion. Simple math suggests this is an increase of more than 81%. (Source: “The Daily History of the Debt Results,” Treasury Direct web site, last accessed September 20, 2013.)

Unfortunately, it doesn’t end here. Not too long ago, Treasury secretary Jack Lew sent a letter to the U.S. government saying that if they don’t increase the national debt limit currently in place by October, the U.S. economy … Read More


What the Big Increase in “Cash Purchase Rate” for Homes Means

By for Daily Gains Letter | Aug 19, 2013

Cash Purchase RateIt wasn’t all that long ago that first-time home buyers were responsible for fuelling the housing market. They’d buy starter homes and fix them up; this helped sellers move to bigger homes, and so on. Then the housing market crisis began, and everything became topsy-turvy.

Today, first-time home buyers are competing with well-heeled individuals and investors looking to snap up distressed houses at bargain prices. This simple shift could undermine the long-term growth of the still-struggling U.S. housing market.

The most recent data shows that more than half of all homes sold last year and so far this year in the U.S. have been paid for in cash. Before the housing market crisis, just 20% of all homes were purchased with cash; since then, the all-cash purchase rate has more than doubled.

Why the huge increase? Even though mortgage rates continue to hover near record low levels, many first-time home buyers have been locked out due to tighter lending rules. They’re also getting outbid by well-heeled investors and institutions looking to add real estate to their portfolio. Many homeowners cannot trade up to a larger home because their homes have, since 2007, lost so much of their value—which means many homeowners are staying put.

A 2012 poll of homeowners, conducted by the National Association of The Remodeling Industry, found that more than a quarter of respondents (26%) said they plan to stay in their homes for an additional 16 to 20 years, because their home’s value decreased so much during the recession. On top of that, 23% said they were going to stay put for an additional six to 20 … Read More


Eurozone Recession Over, They Say; Time to Consider Investing There?

By for Daily Gains Letter | Aug 16, 2013

Eurozone Recession OverNo matter what the overarching economics are in the U.S., the fact of the matter is that you really can’t beat the Federal Reserve.

Sure, unemployment and underemployment are high, consumer confidence is down, personal debt is high, and housing prices are still 25% below their 2006 highs, but with the Federal Reserve dumping $85.0 billion per month into the markets and keeping interest rates artificially low, the markets can’t help but rejoice. And until those two dynamics change, the markets will continue to rally, with the odd pullback—which, for most investors, signals the perfect time to rebalance their portfolio.

And right now, it looks as if the winds on Wall Street are favoring the eurozone. After starting in the latter part of 2011, the longest ever eurozone recession has come to an end.

The economies of the 17-member eurozone grew by 0.3% during the second quarter, which is more than expected; the general consensus had the eurozone climbing at a rate of 0.2%. Some think the stronger-than-expected results provide further evidence that the worst of the eurozone’s debt crisis is over. (Source: “Eurozone comes out of recession,” BBC web site, August 14, 2013.)

Eurozone chart

But it might not be quite that cut and dry. The growth was driven mainly by business and consumer spending in Germany and France, the eurozone’s two largest economies. During the second quarter, Germany’s economy grew 0.7%, while France’s economy increased 0.5%.

Other countries in the eurozone have not been quite as fortunate. Spain and Italy are still struggling, Greece’s economy slipped 4.6% year-over-year, and the Netherlands and Cyprus are still in recession.

When the eurozone … Read More


Why Chasing Income Stocks Is No Longer a Smart Move

By for Daily Gains Letter | Aug 2, 2013

Federal ReserveAmerica’s favorite sugar daddy, Federal Reserve chairman Ben Bernanke, has once again come to Wall Street’s rescue. The U.S. Federal Reserve said that while the economy continues to recover, it is still in need of support. As a result, it will continue its $85.0 billion-per-month bond-buying program unabated. (Source: “Federal Reserve Issues FOMC Statement,” Board of Governors of the Federal Reserve System web site, July 31, 2013.)

Before the markets opened Wednesday, the Bureau of Economic Analysis reported that second-quarter U.S. gross domestic product (GDP) expanded at a faster-than-expected pace of 1.7%; that’s up from a revised 1.1% in the first quarter. (Source: “National Income and Product Accounts Gross Domestic Product, second quarter 2013 (advance estimate),” Bureau of Economic Analysis web site, July 31, 2013.)

Despite the better-than-expected results, the Federal Reserve said that the U.S. economy expanded at a modest pace during the first six months of the year, and that the overall economic picture remains lackluster.

To help quell nervous investors, the Federal Reserve also revised the unemployment rate at which it would consider raising interest rates to six percent; previously, the Federal Reserve had said it would raise interest rates once the jobless rate hit 6.5%. Needless to say, with unemployment sitting at 7.6%, the U.S. economy has a long way to go.

Lower long-term interest rates are supposed to encourage consumers and businesses to take out loans for homes, new equipment, etc. At the same time, banks have been reluctant to lend to those who need it the most, which is reflected on Wall Street. Thanks to the Federal Reserve’s $85.0-billion-per-month quantitative easing policy, the S&P … Read More


How a Slowdown in the PC Market Can Be Good News for Investors

By for Daily Gains Letter | Jul 19, 2013

How to Take Advantage of Declining PC SalesInvestors whose portfolios include companies that make personal computers (PCs) should be careful—they might be headed towards hard times.

Gartner, Inc. (NYSE/IT), an information technology (IT) research provider, reported that this quarter, global shipments of PCs declined for the fifth consecutive quarter, falling 10.9% from a year ago. (Source: King, I., “PC Shipments Fall for 5th Quarter Even as U.S. Decline Slows,” Bloomberg, July 11, 2013.)

The firm also reported that some of the biggest PC makers saw sales drop. Hewlett-Packard Company (NYSE/HPQ), which controls 16.8% of the PC market, witnessed its PC shipments decline 4.8%. Dell Inc. (NASDAQ/DELL) experienced PC shipments plunging 3.9% over the quarter; it controlled 11.8% of the market share.

What all this means is that if the PC makers aren’t shipping as many units as before, then their corporate earnings will decline. This will mean lower stock prices and, eventually, more losses to investors’ portfolios.

Now the critical question: how can an investor actually profit from the situation? One way to profit would be to bet against these PC makers, but that can be risky to investors who are investing for the long run and don’t want to add too much risk to their portfolio.

But there’s an alternative way to grow a portfolio as PC sales deteriorate.

According to a forecast from International Data Corporation (IDC), a company providing market intelligence, shipments of tablets worldwide are expected to increase 58.7% year-over-year in 2013, for a total of 229.3 million units.

There’s more: “What started as a sign of tough economic times has quickly shifted to a change in the global computing paradigm with mobile … Read More


How Smart Investors Can Benefit from the Current Global Economic Slowdown

By for Daily Gains Letter | Jul 18, 2013

Current Global Economic SlowdownIt is becoming very evident that the global economy is marching towards a period of major turbulence. I see both established and emerging economic hubs in the global economy struggling, and if it continues, then economic slowdown becomes inevitable.

Consider the estimates of growth in the global economy by the International Monetary Fund (IMF). It expects growth in the global economy to be as stagnant as 2012, forecasting a growth rate of a little over three percent. The IMF expects emerging economies to grow by five percent in 2013 and about 5.5% in 2014. (Source: “Emerging Market Slowdown Adds to Global Economy Pains,” International Monetary Fund web site, July 9, 2013.)

But with what we are already seeing, these estimates might just become obsolete, and the IMF might once again lower its forecast for the global economy.

For example, consider the Chinese economy, the second-largest economic hub in the global economy. It grew at an annual pace of 7.5% in the second quarter of this year from a year earlier—a decrease from 7.7% in the first quarter. The Chinese economy’s performance in the second quarter was the slowest in the last three quarters and marked the longest streak of growth rates below eight percent in at last 20 years. (Source: “China Growth Slows to 7.5% as 2013 Target Under Threat,” Bloomberg, July 15, 2013.)

China is performing well below its historical average. It wasn’t uncommon for the Chinese economy to grow at an annual pace of more than 10% in recent years.

The problems for the global economy don’t end there, as the troubles in the eurozone still continue. And … Read More


Warning Signs Emerging for the Key Indices

By for Daily Gains Letter | Jul 9, 2013

Why Its Time to Reduce Your Exposure in Key Stock IndicesInvestors who have allocated significant portions of their portfolio towards the key stock indices should look into reducing their exposure, as they appear to be heading lower.

While the key stock indices soar and the most prominent stock advisors remain bullish, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), often referred to as the “fear index,” is indicating that they need to be very careful. The key stock indices may be entering a period of turbulence ahead.

Recently, a technical indicator called the “golden crossover” occurred on the VIX’s chart, indicated by the black circles in the chart above. This happens when the short-term or faster 50-day moving average crosses above the long-term or slower 200-day moving average. This is considered a bullish signal among technical analysts.

Please look at the chart below:

Volatility Index Chart

Chart courtesy of www.StockCharts.com

What’s even more interesting is that this crossover is the first since July 2011 and fourth since key stock indices like the S&P 500 started to tumble in late 2008. Whenever this type of crossover occurred, the S&P 500 declined, as shown by the green line below the chart above.

But the case for a decline in key stock indices goes beyond this one statistical phenomenon.

Consider this: according to FactSet, 87 companies on the S&P 500 have each issued a negative guidance regarding their corporate earnings for the second quarter so far, while only 21 have issued a positive guidance.

If the number of S&P 500 companies issuing a negative corporate earnings guidance remains at 87, then it will be the highest number since FactSet started to track companies’ corporate earnings … Read More


These Companies Can Protect You from the Coming Market Decline

By for Daily Gains Letter | Jul 8, 2013

Why Central Banks Have Encouraged RiskInvestors who love technical analysis must be having a sense of déjà vu. Whenever the Federal Reserve announces it’s ending its quantitative easing policy, the markets respond by cratering.

In March 2010, when the Federal Reserve announced it was ending its first round of quantitative easing (QE1), the Dow Jones Industrial Average and S&P 500 both fell 14% over the next three months. To help prop up the economy, the Federal Reserve initiated QE2 in November 2010 and concluded it seven months later. By early October, the Dow and S&P 500 had lost close to 15% in value.

In September 2012, the Federal Reserve initiated QE3—investors’ nerves were calmed when they discovered it was open-ended. Today, the Federal Reserve spends $85.0 billion a month on Treasury bonds and mortgage-backed securities to help prop up the American economy.

As I have been reading, that massive monthly cash injection doesn’t even begin to give the full picture of how much liquidity the Federal Reserve’s quantitative easing policies, and those of other central banks, are flooding the financial markets with.

Since the financial crisis began in 2007, the five biggest central banks have purchased roughly $12.0 trillion in assets. Coupled with the near-record-low interest rates, that accounts for about $33.0 trillion of fiscal and monetary stimulus spending—that’s about 46% of the global economy.

Suffice it to say, the Federal Reserve’s artificially low interest rates have made it easier than ever to borrow money, sending many international stock markets to new heights. And it’s from these dizzying heights that the markets are pondering the future of QE3.

While the Federal Reserve hasn’t said equivocally … Read More


Maybe You Can Beat the Federal Reserve After All

By for Daily Gains Letter | Jul 2, 2013

Preparing for the Stumble of the Federal ReserveI used to think that financial results and economic data were the backbone of Wall Street, but I think it’s safe to say that the most important force driving the markets today is the Federal Reserve.

Everything the markets have done since the Federal Reserve initiated its first round of quantitative easing back in 2008 is testament to this. After bottoming in early 2009, the Dow Jones Industrial Average has climbed almost 120%, while the S&P 500 is up more than 135%.

As this five-year period of unprecedented Federal Reserve-inspired money printing continues, unemployment remains high, home values are still 25% below their pre-market crash levels, wages are stagnant, and the number of Americans relying on food stamps has soared 80% to 47.5 million.

For further proof, just look at the actions of the last few weeks. On May 22, the Federal Reserve hinted it might start tapering off its $85.0 billion-per-month quantitative easing policy as early as Labor Day.

The global markets responded with a massive sell-off. Just the idea that the global economy could survive without the Federal Reserve’s cheap money supply and artificially low interest rates was a little too much to bear.

Then, on June 19, the Federal Reserve riled markets again when it came right out and said that thanks to the strong economy, it would consider tapering off its monthly $85.0-billion quantitative easing policy by the end of the year. It also said it could end its quantitative easing policies altogether in 2014. Again, the markets tanked.

Just how strong is the U.S. economy? During the first quarter, 78% of S&P 500 companies issued … Read More


Safe Stocks to Shield You from Fed’s Bad Decisions

By for Daily Gains Letter | Jun 28, 2013

 unemployment rateIt was just a week ago that the Federal Reserve, pointing to an improving economy, said it would continue its quantitative easing program—at least until America’s job market improves substantially. We weren’t, however, told what “substantially” looks like.

Many think that means an unemployment rate of 6.5%. And to get there, the U.S. would have to create somewhere in the neighborhood of two million jobs. That’s assuming all things remain equal—but, of course, they never do.

The Federal Reserve also said that, thanks to the economic rebound, it would consider tapering its monthly $85.0-billion purchase of Treasuries and mortgage-backed securities by the end of the year.

On top of that, the Federal Reserve said it could end its quantitative easing policies altogether in 2014.

Federal Reserve Chairman Ben Bernanke’s celebratory remarks may have been a little premature.

The Department of Commerce reported on June 26 that gross domestic product (GDP) in the first quarter of 2013 grew 1.8% over the fourth quarter of 2012. Previously, the Bureau of Economic Analysis (BEA) forecast first-quarter 2013 GDP growth of 2.4%. (Source: “National Income and Product Accounts Gross Domestic Product, 1st quarter 2013 [third estimate]; Corporate Profits, 1st quarter 2013 [revised estimate],” Bureau of Economic Analysis web site, June 26, 2013.)

Aside from home construction and government, the final 2013 first-quarter GDP report from the Commerce Department showed downward revisions. For example, consumer spending—which accounts for almost 70% of U.S. economic activity—increased by just 2.6%, much less than the forecasted 3.4%. That may not sound like much, but it means spending was 23% below forecast.

Granted, the numbers reflect the U.S. economy as … Read More


These Emerging Markets to Benefit from New Global Economy

By for Daily Gains Letter | Jun 25, 2013

Are Smaller Emerging Markets the Next Big Trade for Investors?While the majority of Americans might not have passports, that doesn’t mean we should avoid investing in foreign countries—especially in this market. Since rebounding in 2009, the S&P 500 has climbed around 145%, peaking on May 22 at 1,687.18. And that’s when it all started to go wrong.

On May 22, the Federal Reserve hinted that since the U.S. economy seemed to be on the right track, it might begin to ease its $85.0 billion-per-month quantitative easing policy. Just the idea of losing out on free money sent the markets into a frenzy—over the following two weeks, the S&P 500 lost more than four percent of its value.

While the S&P 500 regained some ground, it continued to be volatile leading up to the Federal Reserve’s June 19 meeting. During that meeting, the Federal Reserve announced that while it would continue with its quantitative easing policy, it would still ease the $85.0 billion-per-month program by the end of the year, and could end it altogether in 2014. Over the following two days, the S&P 500 slipped almost four percent.

While many investors are worried the U.S. economy will not be able to sustain itself without the Federal Reserve’s bond-buying program, there are other markets that investors can turn to if they’re looking for protection and wealth creation.

But bigger is not always better in this economic climate. On June 19, the Hong Kong and Shanghai Banking Corporation (HSBC) said its preliminary monthly Purchasing Managers’ Index (PMI) for China fell to a nine-month low in June of 48.3; a reading under 50 indicates a contraction.

Since May 22, the iShares MSCI … Read More