Many of you are probably happy to bid farewell to January. Not only was the weather nasty, but the stock market also traded in a volatile manner, with the bias to the downside.
The month ended in the red, with the major stock market indices trading below their respective 50-day moving averages and looking lower. The S&P 500 is below 2,000 once again and has been unable to get its footing above with any sustained momentum (as you can see in the chart below).
For traders who follow the historical cycles of the stock market, we know that the negative month suggests the stock market is in for some difficult times this year. But I’m not convinced the bull market is over quite yet.
Chart courtesy of www.StockCharts.com
When the markets start January down, the tendency is for a down year for the stock market about 80% of the time, but that is not always the case. As we saw in 2014, January also produced a down month but recovered with an up year. That month, the decline in the Dow and S&P 500 was greater than this January’s, but the S&P 500 subsequently closed higher in eight of the next 11 months.
Chart courtesy of www.StockCharts.com
Now, I’m not suggesting the same will materialize this year for the stock market, but it’s something to keep in mind as we move into February, which saw the markets bounce back in 2014.
The key for the main stock indices will be the 200-day moving average (MA), which is just below where the indices are sitting at now, with the exception of … Read More
When it comes to America’s income levels, we continue to be a nation of haves and have-nots—the latter being the majority. There are about 48 million Americans collecting food stamps and many more are struggling to pay rent and put food on the table. In fact, we are now also seeing once-middle-class families going to food banks.
The government wants you to believe all is great, but that’s not true for everyone. Jobs are being created, but the majority are low-income service jobs that don’t require higher-level education. Yet highly educated workers are taking jobs that are far below their skill group and experience just to make ends meet.
As you all know, the income gap between the upper end—or the one percent—and the bottom end has been widening for years, if not decades.
The median family income declined to an inflation-adjusted $45,800 in 2010, compared to $49,600 in 2007, according to the Survey of Consumer Finances published by the Federal Reserve. The survey also suggested the top 10% of households made an average income of $349,000 in 2010 and had a net worth of $2.9 million.
Going back to 1962, the top one percent of income earners had a net worth of 125-times the median household income, according to the Economic Policy Institute. More recently, the gap surged to around 288-times the median household income in 2010 and is likely much worse now given the five-year bull market that has produced many new millionaires and has driven up the worth of the top one percent.
There is very little help for the financially unfortunate. Banks don’t care about this … Read More
The stock market staged a minor rally last week, but don’t get too excited yet; the buying support was largely triggered by a technically oversold market, rather than solid fundamentals or a fresh catalyst.
What I can say is that investors need to be careful with the high-beta stocks that are extremely volatile at this time and vulnerable to downside selling.
Just because momentum surfaces, it doesn’t mean the risk is dissipating. It’s simply an oversold bounce that could continue or falter again.
The fact that the Dow Jones Industrial Average and S&P 500 recovered their 50-day moving averages (MAs) last Tuesday is positive, but it doesn’t mean the worst is over.
I see the NASDAQ and Russell 2000 were still down more than seven percent as of last Wednesday and below their respective 50-day MAs. In fact, the Russell 2000 is within reach of testing support at its 200-day MA. This time around, we could see a bigger stock market correction, based on my technical analysis.
Until we see some sustained calm return, there could be continued selling pressure in the stock market, especially with the smaller high-beta stocks and large-cap momentum plays.
The most critical point to understand is that you need to preserve your capital base. The reality is that avoiding a loss is just as good as making profits. Imagine letting a losing trade run and before you realize it, the position is down 20%, 30%, or more.
This is especially true with the small-cap stocks. Making up ground following a major downside move is not easy. For instance, say you have a $10.00 stock and … Read More
According 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
Federal Reserve Chair Janet Yellen confirmed what we’ve been espousing in these pages for the last couple of years—that the so-called recovery feels an awful lot like a recession for most Americans.
Addressing a crowd in Chicago, the head of the Federal Reserve said the U.S. jobs market is still underperforming and will continue to need the help of an artificially low interest rate environment “for some time.”
Investors were, as you can imagine, afraid the Federal Reserve was going to raise short-term rates. A rate hike would elevate borrowing costs and pull the rug out from under stock prices.
But instead, the Federal Reserve said it was committed to keeping interest rates low in an effort to stimulate borrowing, spending, and economic growth. The artificially low interest rate environment is a welcome sign for Wall Street—which essentially ended the first quarter of the year where it began.
By committing to keeping interest rates low, the Federal Reserve is ensuring a steady flow of money into the stock market…which cannot help but raise the already-bloated indices higher. The S&P 500 continues to trade near record-highs, as does the Dow Jones Industrial Average. Even the NASDAQ’s all-time high is, all things considered, within striking distance.
With the current bull market now in its fifth year—all is well in the U.S.A.! That is, if you’re one of the fortunate few to even realize we’re in a bull market. There are far too many weak underlying indicators to suggest we’re on a stable—let alone sustainable—economic footing.
For instance, the U.S. unemployment rate has improved from 10% in 2009 to 6.7% today. On the … Read More
After a miserable winter of weak economic indicators (which were mostly blamed on the weather), the warmer spring weather will be a godsend for Wall Street. Unless, of course, there’s more holding the U.S. economy back than cold winds and snow.
That riddle will be answered in the coming weeks, but the long-term prognosis for the U.S. economy is a little murkier. While the S&P 500 is trading at record-highs, there is mounting evidence to suggest the U.S. economy could slow down, putting the brakes on the bull market.
Naturally, it depends on who you ask and what their time frame is. Despite mounting risks, such as ongoing troubles in Ukraine, slower growth in China, and the threat of increasing rates, some predict the S&P 500 will hit 2,075 by the end of the summer. That would represent an 11.5% gain from where it currently trades and a 12.5% gain for the first half of the year. (Source: Levisohn, B., “Don’t Call It a Comeback: Dow Jones Industrials Gain 120 Points, More to Come?” Barron’s, January 7, 2014.)
The double-digit growth is expected to come as a result of increased investor sentiment in the U.S. economy. For starters, investors have experienced a relatively easy ride over the last year. And over the last two years, any corrections on the S&P 500 have been shallow, short, and sweet. It’s the perfect recipe for ongoing enthusiasm and confidence for investors to pour more equity into the S&P 500.
It doesn’t matter if the S&P 500 is overvalued, some investors only care that it keeps going up. And should first-quarter earnings of S&P … Read More
The winter storm that recently tore across the northeastern United States will, no doubt, take the blame for the continuing weak economic news and data that have been coming out of Wall Street. Having been the economic scapegoat since December, there’s no reason to change tactics.
But the raft of ongoing disappointing economic news and data suggests there’s more to the nation’s weak economic news than cold weather. After all, it’s not as if the U.S. economy had been red-hot and then suddenly hit a brick wall in December. If there’s one thing the U.S. economy has been—it’s consistently weak.
For example, while the S&P 500 and other stock indices have been enjoying prolonged bull runs, the U.S. economy has been stalling. Since the magical bull market began in 2008, the U.S. unemployment numbers have remained stubbornly high and the underemployment numbers eye-wateringly high. At the same time, wages are stagnant and, not surprisingly, retail sales have disappointed. More and more Americans are saddled with out-of-control debt and a record 20% of American households (one in five) were on food stamps in 2013.
Speaking of 2013, while the S&P 500 notched up a 30% annual gain, each quarter, an increasingly larger percentage of companies revised their earnings guidance lower. Saving the best for last, during the fourth quarter of 2013, a record 88% of S&P 500 companies that provided preannouncements issued negative earnings guidance.
But 2014 didn’t start out that well, either. For the first quarter of 2014 so far, 80% of the S&P 500 companies that have issued guidance revised their earnings lower; this compares to the 78% of … Read More
One of the investment strategies discussed in the mainstream these days is to add exchange-traded funds (ETFs) to your portfolio. It is said that when you do just that, your portfolio has lower risks and you are well diversified.
For investors who are not as advanced, when it comes to investing; this investment strategy makes sense. For those who are advanced, they shouldn’t fall for this investment strategy; they may be better off going the other way—buying individual stocks instead.
Let me explain…
Between March of 2009—when the bull market run started—until February of this year, if you bought the most famous ETF for your portfolio—that is SPDR S&P 500 (NYSEArca/SPY), which tracks the S&P 500—your returns would be more than 185%. Plus, there would be dividends. Including dividends, your returns would be just over 200%.
But, saying the very least, you could have done better.
If instead of buying the SPY at the time when markets were presenting investors with an opportunity of a lifetime you bought a company from the S&P 500 like General Electric Company (NYSE/GE), your profits would be upwards of 300%. This is including the dividends you would have received.
With all this said, let me make one thing very clear; I am not opposed to adding ETFs to a portfolio. Rather, I believe investors can get better portfolio returns if they are confident enough in making their investment decisions and buying individual companies instead of sticking to indexed investing.
In 2009, stock markets were very uncertain. With companies like GE, there were fears that it may go bankrupt. Buying at that time wouldn’t have … Read More
By Sasha Cekerevac for Daily Gains Letter | Feb 26, 2014
What year is this—1999?
Some of you might have been active investors in the bull market during the late 90s, as I was, witnessing the S&P 500 soar during that decade. In fact, the bull market was so strong back then that it created a false sense of confidence, as many people quit their regular jobs to become traders. As we all know, this didn’t last forever and the S&P 500 bull market popped and sold off sharply.
Just a couple of days ago, I read an interesting article about how small investors are back, seduced by the bull market, which has resulted in a very strong performance for the S&P 500 over the past few years.
There is nothing wrong with enjoying this bull market move, but when everyone thinks they are an exceptional trader over a short period of time, this worries me.
In the article, the active investor is an equipment salesman who is now “considering quitting his job to trade full time.” (Source: Light, J. and Steinberg, J., “Small Investors Jump Back into the Trading Game,” Wall Street Journal, February 21, 2014.)
This is what happens in a bull market; the consistent strength lulls people into believing they are somehow able to predict the future, when just a couple of years ago, they had no clue how to make money in the stock market.
That is the real test for investors—will your strategy work through a bear market as well as through a bull market? Just because you keep buying every dip in the S&P 500 and have, so far, been rewarded, this is not an … Read More
Yesterday, I wrote about how a raft of weak first-quarter results could trip up the S&P 500 and put a dent in its unblemished bull run. My theory: the S&P 500’s stellar performance in 2013 was a result of financial engineering (share buybacks and cost-cutting) and the Federal Reserve’s monetary policy, not strong revenue and earnings growth.
As a result, the S&P 500 and other key stock indices are overbought and overpriced, meaning stocks will have a tough time justifying their lofty valuations if first-quarter results fail to wow investors. And odds are good that they will disappoint. A record 94% of S&P 500 reporting companies revised their fourth-quarter guidance lower.
That is, unless investors fail to realize earnings projections were lowered and reward stocks for beating barely there expectations—it’s not impossible. For evidence, I point to the action in the S&P 500 in 2013.
With stocks on the S&P 500 being overpriced, it’s getting more and more difficult to find equities that will actually perform well based on legitimate metrics, like revenues, earnings, and cash. For the most part, it seems investors punish those stocks that don’t perform as well as expected by simply not lifting their share prices higher. As a result, it’s become increasingly difficult to build a balanced portfolio with both growth and value stocks—especially when you consider the fact that analysts expect the S&P 500 to grow just six percent in 2014. Analysts might be more optimistic about the S&P 500 long-term, but that’s of little solace for investors hoping to actually make money this year.
Investors on the lookout for value stocks may need … Read More
If the stock market is an indicator of U.S. economic health, then 2013 was a stellar year. The Dow Jones Industrial Average closed out 2013 with a 26% gain. The S&P 500 was up 29%, while the NASDAQ Composite was up 34%.
Despite a stellar 2013, the crystal ball for the U.S. economy and Wall Street in 2014 remains murky. That’s because investors might have to actually consider the health of the U.S. economy this year. Now granted, the U.S. economy kicked into high gear last January after the federal government avoided the dreaded fiscal cliff. Thanks to some recent economic indicators, the start of 2014 has been more subdued.
Factory activity in China hit a three-month low in December. While Germany and Italy reported healthy manufacturing numbers, British manufacturing growth eased and France hit a seven-month low of 47.0 (scores below 50 indicate contraction). Here at home, the U.S. economy got a boost after it was announced that manufacturing hit an 11-month high in December of 55.0, up from 54.4 in November. (Source: Weisenthal, J., “This Manufacturing Report From France Is Just Plain Ugly,” Business Insider, January 2, 2014.)
To show it believes the U.S. economy is improving, the Federal Reserve recently announced that it will begin to taper its quantitative easing efforts this month. Instead of pumping $85.0 billion per month into the U.S. economy, it is going to purchase just $75.0 billion in bonds.
And to quell investors’ fears, the Federal Reserve said it will continue to keep interest rates artificially low until the unemployment rate hits 6.5% or lower—a target that probably won’t be reached until … Read More
Now that New Year’s has come and gone, as we look forward into 2014, the big question will be how the stock market performs this year, especially following an impressive advance in 2013 that was beyond my estimates.
The past year was seen as the year of the Fed-induced market rally that resulted in some strong gains across the board from blue chips to technology and growth stocks. It was one of the best years to make money on the stock market in recent history.
At this stage, the economy is looking better and will need to strengthen in order for the stock market to advance higher toward more record gains. A strong January would be positive and would suggest an up year for the stock market.
My early view is that the stock market will head higher in 2014, but not at the same rate as we saw in 2013, which was out of whack.
The key will be how fast the Federal Reserve, under Janet Yellen, decides to taper its bond buying. A slower taper is supportive for the stock market. However, the flow of money will depend on the rate of economic renewal and, more specifically, the jobs market and whether job creation continues to move along at a steady pace. If we see growth and more jobs created, the Fed will continue to cut its bond buying, though it has said that it will keep interest rates near record lows until the unemployment rate falls to 6.5% or lower, which could happen sometime in mid- to late 2014.
I see another up year for the stock … Read More
When it comes to building a balanced portfolio, investors like to find stocks that provide both value and growth. If you’re a value investor, you’re always on the lookout for companies that are cheap relative to their earnings, assets, or price-to-book value; in other words, they look for what’s undervalued.
A growth investor, on the other hand, likes to look at publicly traded companies that are in a position to rapidly increase their revenues and profits; they want stocks with excellent long-term growth potential. This could include those stocks that have provided revenue and earnings guidance that is expected to outperform the market or industry.
While sticking with one strategy over the other can work, it can also lead to lurching gains when your investment strategy hits economic headwinds. However, combining both strategies can produce more consistent returns.
But if profitable investing really was that easy, everyone would be following this investment strategy, which means no one would be making money.
The fact of the matter is that in this economic environment, it’s pretty tough to find unloved, overlooked value and growth stocks. That’s because virtually everything is going up.
The S&P 500 is up 26% year-to-date and 15% since its pre-Great Recession high. Not to be outdone, the Dow Jones Industrial Average is up more than 21% since the beginning of the year and up roughly 13% from its pre-recession high. The NASDAQ is hands down the top performer so far this year, up 30% since January 2 and more than 40% since peaking in 2007.
In a bull market where it seems like everything is going up, it’s … Read More
Whether you’re in Pamplona, Spain or on Wall Street, when it comes to running with the bulls, the object is to stay ahead of the pack. This means not getting gouged physically or financially. However, there are an increasingly large number of investors out there right now who think they’ve got a handle on the bull market.
Why? The Federal Reserve says it won’t taper its generous $85.0-billion-per-month quantitative easing policy until the U.S. economy improves. And by that, it means—for now at least—an unemployment rate of 6.5% and an inflation rate of 2.5%.
As a result, the Federal Reserve’s easy money and artificially deflated near-record low interest rates have put the stock market front and center for income-starved investors looking for capital appreciation. As long as the Fed keeps its printing presses in overdrive, there’s no reason to think that the bull market will take a breather.
Case in point: in spite of a year marred with revised lower earnings in the first, second, and third quarters and a record 83.5% of companies issuing negative guidance for the fourth quarter, investors have been flocking with reckless abandon to the S&P 500, which continues to trade near record levels. (Source: “Earnings Insight,” FactSet web site, October 6, 2013.)
For the last week of October, 45% of investors were bullish on the market, down from 49.2% for the week ended October 24—the highest level since February 2011. Month-over-month, the number of market bulls climbed 25%. Over the same period of time, the S&P 500 climbed 4.8%. In the last week of June, just 30.28% of Americans were bullish, representing a four-month … Read More
With the S&P 500 and Dow Jones Industrial Average continuing to trend steadily higher, many investors are wondering if, after four and a half years, the bull market can continue. After all, the S&P 500 is outpacing profits at the fastest rate in 14 years, starting in 1999—the heart of the “dot-com” era.
How long can the S&P 500 party rage on for?
In a rational world, companies that deliver weaker earnings are punished with a lower share price, not rewarded. But that’s not what is happening: investors are willing, it seems, to pay more for a company whose earnings are flat, marginally higher, or, in some cases, lower.
The S&P 500 has climbed almost 150% since 2009 and is up 17% year-to-date. While many think the bull market is getting long in the tooth, that 17% gain represents the best year-to-date performance in 16 years.
That’s pretty impressive when you consider that 78% of the companies in the S&P 500 issued negative earnings guidance in the first quarter. Yet during the first quarter, the S&P 500 climbed more than 10%.
Ahead of the second quarter, 80% of all companies on the S&P 500 issued negative guidance. During the second quarter, the index advanced around two percent, but that had less to do with earnings and more to do with the fact the Federal Reserve said it might begin to taper its quantitative easing (QE) policy. Before America’s favorite sugar daddy threatened to hold back Wall Street’s $85.0-billion-per-month allowance, the index was actually up more than five percent.
So, during the first six months of 2013, under an umbrella of … Read More
After a strong July, the S&P 500 is looking like it is in correction mode, trading down more than three percent since the beginning of the month and effectively erasing the last two months’ gains. It’s quite possible that the corrective phase could last until early October—that is, if history, looming economic news, and geopolitical issues have anything to say about it.
And that could present a number of interesting opportunities for investors who like to bet against the stock market.
Since 1940, the stock markets have generally performed the worst in September; that doesn’t just include the U.S., but also Germany, Japan, and the U.K. In fact, for the S&P 500, September has posted the worst monthly returns going all the way back to the 1920s. September is even crueler on the Dow Jones Industrial Average, showing a negative bias going back to 1896.
Historical metrics aside, there is a lot of economic news coming out, and a number of looming global events that could add insult to injury. The Federal Reserve could begin tapering its $85.0-billion-a-month quantitative easing policy sooner than later, especially in light of last Thursday’s encouraging economic news that saw U.S. jobless claims drop to their lowest level in six years.
Negative overarching economic news continues to plague the U.S., but chances are that the Federal Reserve will focus on the positive to justify the pullback—it’s what they do. Since many believe the quantitative easing has been fuelling the U.S. bull market, too much good economic news could put a damper on things. That could translate into a further correction on the S&P 500 and … Read More
The S&P 500 and Dow Jones Industrial Average may be trading at record highs, but not everyone is enjoying the so-called signs of economic growth. In fact, there isn’t too much for the average American to cheer about when it comes to the U.S. economy.
Fortunately, investors looking to benefit from real economic growth may consider diversifying their investing boundaries and looking at exchange-traded funds (ETFs) with exposure to one of the most mature economies in the world: the United Kingdom.
As Wall Street and the Federal Reserve celebrate economic growth in America, here are a couple numbers to consider: U.S. unemployment remains stubbornly high at 7.4% (and has been above seven percent for over four years now) and the underemployment rate is at an eye-watering 14% (and has been at least 14% since 2009). On top of that, wages are flat (minimum wage has been stuck at $7.25 an hour since July 24, 2009), personal debt is up, the growth rate of real disposable income is at its lowest levels in decades, and, not surprisingly, July’s consumer confidence numbers slipped.
Many point to housing as a sure sign of economic growth; however, U.S. home ownership is at its lowest level in 18 years and U.S. housing prices are still 25% below their 2006 highs. Those who lost their homes or are unable to get a foot on the property ladder are left paying all-time record-high rent prices.
The long-running bull market has more to do with the Federal Reserve’s $85.0-billion-per-month stimulus package and artificially low interest rates. Real economic recovery is rooted in economic growth and jobs, not downward … Read More
A few days ago, I went out for lunch with a friend whom I haven’t seen in a while. He is an active investor who manages his own portfolio. In the past few years, he has done very well for himself, to say the least; the returns on his portfolio have been amazing, and much better than what the key stock indices have provided. This intrigued me, so I asked him how he was able to do all of this in a fairly short period of time.
His response was very short and simple. “You see,” he said, “while many investors look for the ‘ten baggers’ or ‘home runs’ and get emotionally attached to their position, I focus on an approach that’s the complete opposite.”
“What I have seen in my experiences in the past, and I see it very often, is that investors have expectations beyond reality,” he explained. “They want the highest return in the shortest period of time by risking a lot. You have to be very lucky to see robust portfolio growth over time with these types of investment strategies.”
With this strategy in mind, here are three crucial steps investors should follow to grow their portfolio.
1. Be on the Lookout and Act Accordingly
Investment opportunities are present all the time, no matter what kind of market it may be. Be it a bull market, bear market, or range-bound market, investors need to know what kind of investment strategies to use. Bringing back my friend’s example, he knew the direction the markets were following was to the upside, so he traded his way through in … Read More
America’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
On July 23, the Dow Jones Industrial Average hit an all-time intraday high of 15,604.22. That same day, the S&P 500 also hit a new high of 1,698.78. With the markets doing so well, you could be forgiven for thinking today’s baby boomers are laughing all the way to the bank.
But that’s not so! Most baby boomers haven’t really benefited from the bull market. While it runs with reckless abandon, it’s leaving behind most Americans who are in retirement. Over the last five years, stocks and bonds have rallied, but the housing market has remained relatively flat. That means affluent Americans who park their assets in stocks and other financial products have done quite well. Those Americans with their wealth tied up in the value of their homes, however, have not.
Since the beginning of the current bull market in 2009, the S&P 500 has climbed more than 160%. U.S. housing prices, on the other hand, are still more than 25% below their 2006 highs.
Retiring baby boomers are also facing another challenge. Early boomers—those between 61 and 65—are more financially stable (for the most part) than their younger peers (those between 50 and 55). The early boomers worked during a period of economic stability in an era when defined benefit plans were the norm. In 1965, the inflation rate was 1.59%; by 1970, it had risen to 5.84%.
The late boomers, in contrast, started working in a more unsettled economic time. In the 1980s, many companies rolled their retirement plans over to 401(k) accounts, tying their self-directed retirement savings to the ups and downs of the stock market. … Read More
It 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
The world’s two biggest economies seem to be competing against one another to see which can be a bigger drag on the global economy.
In the U.S., the problem is the regulators. As the old saying goes, you can’t fight the Fed.
On Wednesday, June 19, the Federal Reserve announced it would continue its quantitative easing program—at least until America’s jobs market improves substantially. At the same time, the Federal Reserve also said it would ease the $85.0 billion-per-month program by the end of the year, and could end it altogether in 2014.
For a bull market rooted more in the Federal Reserve’s monthly alimony payment than sound economic numbers, this is bad news. After five years, the world’s largest economy might have to stand on its own legs in 2014; that’s not something it’s prepared to do.
The U.S. markets reacted to the news the following day in a sea of red. In fact, less than two percent of S&P 500 companies were trading up.
And in China, the problem is disappointing manufacturing news, and it suggests the global economy is in worse shape than anyone thought.
The HSBC Flash China Purchasing Managers’ Index hit a nine-month low of 48.3 (49.2 in May). The Flash China Manufacturing Output Index came in at 48.8 (50.7 in May), a new eight-month low. A measure below 50 indicates contraction. (Source: “HSBC Flash China Manufacturing PMI,” Markit Economics, June 20, 2013.)
Here’s a quick summary of the China Flash Manufacturing Index: output is decreasing at a faster rate, new orders are decreasing at a faster rate, new export orders are decreasing at a … Read More
I have a friend who inherited a large amount of money just before the markets crashed. He bought a house and “Rolex” watch, retired, and decided to become a day trader. Unfortunately, he has no experience with the stock market, but it seemed easy enough to him.
Since then, despite the five-year bull market, he has managed to lose a fair bit of money. This does not prevent him from telling those around him how they should invest—after all, he has a Rolex watch and no debt. Even with a dwindling bank account and an embarrassing investment portfolio, he still fashions himself a stock market dandy.
Over the last number of years, he has been the markets’ biggest cheerleader. The markets are going up—the definition of a rebound. I, on the other hand, am an unrepentant bear. I’m not saying the markets aren’t bullish; I’m saying the markets are bullish because of the Fed’s quantitative easing policies, not a burgeoning U.S. economy.
When the financial crisis began in 2008, the U.S. national debt stood at $9.2 trillion; today, it is near $17.0 trillion. By the end of the decade, the White House says the national debt will touch $20.0 trillion.
Yes, the S&P 500 and Dow Jones have reached dizzying heights. But it’s important to remember that, even with quantitative easing, it’s taken five years just to get back to pre-crash levels. Five years after the government bailouts began, unemployment is still high; home values have not rebounded; wages aren’t just stagnant, they’ve actually declined; and the number of Americans relying on food stamps has soared 80% to 47.5 million…. Read More
So this is what it looks like when global investors take their eyes off the Federal Reserve’s quantitative easing policy and focus on the real economy instead! As I’ve been predicting, the global sell-off of stocks looks like it’s beginning in earnest.
And you can pinpoint the exact moment investors and economists around the world began to get jittery. It was on May 22, right after 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 haven’t been the same since.
Japanese stocks have entered bear market territory, tanking more than six percent last Thursday to a nine-month low on the threat of reduced economic stimulus from central banks. South Korean shares slipped 1.4%, hitting their lowest close in seven months.
Concern that China’s economic growth is grinding down has seen the Shanghai Composite Index trading at its lowest levels since mid-December 2012 and has dropped 12% from the year’s high on February 6.
One of China’s biggest trading partners may also be feeling the pinch. Australia’s economy expanded just 2.5% in the first quarter, below projected forecasts of 2.7%. While the country’s economy had been chugging along due to increased demand for natural resources, it is beginning to sputter thanks to the slowdown in China. Couple this with the country’s underperforming non-mining sectors, and you can see why Goldman Sachs and others think Australia could, after 22 years, slip into recession. (Source: “Australia’s economic growth rate misses forecasts,” BBC web site, June 5, 2013.)
On top of that, the World Bank cut its global 2013 growth forecast … Read More
Generally speaking, by keeping focus on the long term, investors can grow their portfolio with peace of mind. When doing this, they are not concerned about what happens to their portfolio on a daily basis; rather, they are looking for performance at the end of the year, when it’s less stressful.
That said, while not denying that focusing on the long term is definitely a good idea, there are times when investors may be able to speculate with high probability trades and give their portfolios a little boost. As I have said before, an increase of just one percent over time can amass into a significant sum.
Consider the following two investment strategies through which investors may be able to grow their portfolio:
1. Sell in May and Go Away
If you have seen or heard the financial news recently, then you have most likely heard of this strategy before. The implication behind this investment strategy is that investors should sell stocks in the month of May and not come back to the markets until October. This is because in this period, historically speaking, the key stock indices don’t perform well, providing dismal returns.
According to the Stock Trader’s Almanac, since the 1950s, in the six months between May and October, the Dow Jones Industrial Average has gained only 0.3%. Compared to the other six months, November through April, the gains on the Dow have averaged 7.5%. (Source: Task, A., “‘Sell in May and Go Away’ and Other Sayings Best Ignored,” The Daily Ticker, May 31, 2013.)
2. Turn of the Month
This investment strategy is very simple. Investors apply … Read More
For months I’ve been asking if the red-hot stock market has gotten too far ahead of itself. Between December 31, 2012 and May 22, 2013, the S&P 500 increased 19%. During the same period, the Dow Jones Industrial Average climbed 18.9%.
These strong increases came in spite of the fact that during the first quarter of 2013, 78% of the S&P 500 companies issued negative earnings-per-share (EPS) guidance and nearly 80% of the S&P 500 companies issued a negative outlook for the second quarter.
I argued that the current bull market has nothing to do with the shape of the U.S. economy. The current bull market has been supported by the Federal Reserve’s $85.0-billion monthly quantitative easing policy and artificially low interest rates.
And once the quantitative easing policy is cut back, Wall Street will no longer be able to rely on the Federal Reserve, and instead will have to focus its attention on the shape of the actual U.S. economy.
It’s quite possible that investors are beginning to see how dire the U.S. economy actually is. 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 markets haven’t been the same since.
Currently trading near 1,600, the S&P 500 is trading down more than four percent from the peak of the rally on May 22. It has also been making lower lows, consistent with a textbook downtrend. The Dow Jones is in hot pursuit, trailing almost four percent from its May 22 peak. The longest uninterrupted rally since the markets bottomed in early 2009 is in … Read More
Despite the raft of negative economic news we’ve been seeing over the last umpteen months, additional sour news that backs up the prevailing negative winds on Wall Street still manages to shock even the most seasoned of analysts.
According to an article headline published by Dow Jones Newswires, “U.S. Factories Show Surprising Contraction.” I’m not sure why the editors at Dow Jones Newswires would be surprised—disappointed, perhaps, but not surprised—but apparently, they are. (Source: “U.S. Factories Show Surprising Contraction,” NASDAQ web site, June 3, 2013.)
They are surprised, in spite of high unemployment, falling median incomes, an increasing number of Americans receiving food stamps, high personal and student loan debt, and stagnant wages. Even Wall Street seems a little tepid. Of the S&P 500 companies that have issued corporate earnings guidance for the second quarter of 2013, almost 80% have issued a negative outlook.
So I’m not sure why anyone would be surprised that U.S. factories showed a contraction.
The Institute for Supply Management (ISM) said its index of economic activity in the U.S. manufacturing sector contracted in May for the first time since November 2012, and only the second time since July of 2009. After flirting with the 50.0 level, the Purchasing Managers’ Index (PMI) fell to 49.0 in May from 50.7 in April. A reading below 50.0 indicates a contraction in the manufacturing sector and, usually, ebbs and flows in step with the health of the economy. (Source: “May 2013 Manufacturing ISM Report On Business,” Institute for Supply Management web site, June 3, 2013.)
And it’s not as if the United States is an economic island. China, the … Read More
Investors interested in making long-term investing commitments in the face of an irrational, Federal Reserve–enhanced bull market need to consider the facts. Sure, the markets are running higher, but it isn’t on sound economic policy.
U.S. unemployment remains stubbornly high, as does personal debt. U.S. wages are stagnant, and first-quarter U.S. gross domestic product (GDP) growth came in well below the expected expansion rate. Of the S&P 500 companies that have issued corporate earnings guidance for the second quarter of 2013 so far, almost 80% have issued a negative outlook.
It’s fair to say the run-up on Wall Street has more to do with the Federal Reserve’s $85.0-billion-per-month quantitative easing policies and artificially low interest rates than it does an economic rebound.
Still, there are potential investing areas that even the Federal Reserve can’t touch. Case in point: no matter what happens on Wall Street, over the next 18 years, roughly 10,000 Americans will turn 65 every single day.
And over the next 20 years, they will each spend $142,000 in medical expenses, though that estimate is an average number and does not include long-term care costs that some retirees may incur. Or at least that’s according to a recent study that examined commercial data from 2002 through 2010 and Medicare data claims from 2006 through 2010. (Source: Yamamoto, D.H., “Health Care Costs—From Birth to Death,” Health Care Cost Institute web site, May 2013.)
Not surprisingly, the study found that the amount of health care a future retiree will need varies by their current age and life expectancy. If you retire at 55, you’ll spend about $372,400 ($744,800 for a … Read More
The stock market rally that began in March of 2009 is gaining attention once again. The key stock indices have surpassed the highs they registered before the U.S. economy was hit with a financial crisis and the ones made at the peak of the tech boom.
With all this, the direction in which the key stock indices are headed next has become a topic of discussion among investors: can they go any higher? Or we are bound to see another market sell-off, like the one we saw in 2008 and early 2009?
When looking at the state of the global economy, things are turning bleak. We have major economies outright worried about their future economic growth. For example, the Chinese economy is expected to grow at a slower rate compared to its historical average; the Japanese economy is still struggling with a recession, and efforts by the Bank of Japan to boost the economy haven’t really showed much success; and the eurozone is witnessing its longest economic contraction, with major nations falling prey to economic slowdown.
But looking at the U.S. economy, it portrays a different image; it appears things have improved. Unemployment is lower and consumer spending has increased since it edged lower in the financial crisis—both possible good signs of a stock market rally.
To no surprise, the noise is getting louder and louder as the key stock indices are moving higher. The bears are calling for the end of the bull market, while the bulls are cheering for the key stock indices and believe that they are bound to go much higher. Estimates are being thrown out; … Read More
The stock market continues to chug along, hitting new highs virtually every day. Back in early March, the Dow Jones Industrial Average crossed 14,200 for the first time ever. It has continued to climb over the last two months and is currently sitting near 15,100. So far this year, the Dow Jones is up more than 15%. The S&P 500 is running in step and is up 14.5% in 2013.
With things going so wildly well on Wall Street, you’d think Americans would be cheering in the streets! But they’re not—not by a long shot. Incredibly, economists argue that stock market gains make the average person feel richer, and it encourages them to spend.
It’s hard to feel empowered as consumers to spend when wages are flat and taxes are up. In fact, the median household income has dropped by more than $4,000 since 2007 and 2008. So while the stock market is rocketing to new highs, American workers aren’t really reaping the benefits.
While lower-wage jobs accounted for 21% of all recession losses, they accounted for 58% of recovery growth; those who are working those jobs take home a handsome $13.83 per hour. Mid-wage jobs accounted for 60% of recession losses, but only 22% of recovery growth. (Source: “The Low-Wage Recovery and Growing Inequality,” National Employment Law Project web site, August 2012, last accessed May 13, 2013.)
Workers in seven of the 10 most common occupations typically earn less than $30,000 a year, which is significantly less than the nation’s average annual pay of $45,790. Registered nurses make the most at $67,900 a year. (Source: “May 2012 National Occupational … Read More
With the Dow Jones Industrial Average and S&P 500 climbing into new territory almost daily and a large number of great stocks running in step, many investors are wondering if the markets are going to continue to run higher. And if so, should they sell, take some profit, or average up?
Normally, investors want to know if it’s a good idea to average down, not up. Averaging down is the art of buying more shares in a company at a lower price than you originally paid. This brings the overall average price you paid for each share down.
For example: you buy 10 shares at $1.00. You then purchase equal amounts at $0.90, $0.70, and $0.25; this brings the average price you paid per share down to $0.71. While there are legitimate times to average down, the majority of the time, it involves investors stupidly throwing money at a bad company—averaging down and down and down in the absence of any rise in share price.
Averaging up, on the other hand, is when you purchase additional shares in a company at a higher price than you originally paid, thereby raising the average price you paid for each share. For example, you buy 10 shares at $1.00, then buy equal amounts at $1.10, $1.30, and $1.75; this raises the average share price up to $1.28. Unlike averaging down, averaging up is the art of throwing good money at a great company.
Here are three reasons why it’s better to average up than average down in today’s market:
Relieves Stress: Investors don’t pair “averaging down” with “catching a falling knife” for no … Read More
Reflecting the strength in the U.S. housing market, Weyerhaeuser Company (NYSE/WY) reported very good financial results in its first quarter.
The company’s 2013 first-quarter revenues leapt to $1.95 billion, way up from $1.49 billion in the same quarter last year, on solid demand from all its business lines.
Net earnings grew significantly to $144 million, way up from earnings of $41.0 million in the same quarter last year.
On the stock market, Weyerhaeuser is expensively priced, but it certainly is great to see this mature company reporting solid business growth.
Stocks related to the U.S. housing market have been on a tear for the last couple of years, but it is very much a sector that is chock-full of risk.
It is not a group of companies on the stock market that a conservative investor would want to use while saving for retirement.
The Home Depot, Inc. (NYSE/HD) is a component company in the Dow Jones Industrial Average and has been a powerhouse wealth creator recently.
On the stock market, Home Depot has doubled over the last 18 months, which is pretty spectacular for such a mature, large-cap company.
It is a reflection, however, of the enthusiasm that institutional investors have for the U.S. housing market and the resurgence that it is now experiencing.
Of course, there is no runaway bull market in housing, but the action in the stock market reflects a recovering housing market, as does the fact that earnings from housing-related companies are going up.
D.R. Horton, Inc. (NYSE/DHI) reported excellent growth in its latest quarterly revenues of $1.4 billion, up a spectacular 49%.
The company’s earnings … Read More
“Buy low, sell high.” It seems so easy. Could there be a more simplified (read: misguided) piece of investing advice out there? In this economic climate, many investors who want to come in off the sidelines are wondering if a better adage would be, “buy high, and sell higher.”
On the other hand, after an explosive ascent, other investors are waiting patiently to buy on the eventual dip. The big question, of course, is when will there be a dip or market correction (a pullback of 10% or more) for investors to take advantage of?
It’s not as if there isn’t enough of a global impetus to drive a market correction. The U.S. is racked with massive debt and high unemployment, gross domestic product (GDP) growth has been revised downward, consumer confidence is down, retail sales are down, and personal debt is up. Building permits have declined since January, while foreclosure rates are picking up.
Not surprisingly, poor economic numbers are finally catching up with the red-hot S&P 500, where 78% of the listed companies have issued negative earnings per share (EPS) guidance. U.S. first-quarter corporate earnings results are trickling in, and it’s not looking great—Bank of America Corporation (NYSE/BAC), Yahoo! Inc. (NASDAQ/YHOO), and Intel Corporation (NASDAQ/INTC) all disappointed.
Then there are the global economic indicators. Jens Weidmann, the head of Germany’s central bank, said it could take 10 years for Europe to recover from the debt crisis. Those ever-optimistic bulls need only look to Cyprus to be reminded of the fragile state of the eurozone—and how the global markets would respond if the local governments (Italy, Spain, etc.) followed … Read More
With the Dow Jones Industrial Average and S&P 500 hitting record highs, many investors may be wondering if it’s time to re-jig their asset allocation, divert more money into the stock market, and take full advantage of the long-in-the-tooth bull market.
Normally, when we consumers go shopping at the mall, we look for deals, and buy when something is on sale. A rational buyer doesn’t put a sale item back, deciding they’d rather purchase it at full price. When it comes to shopping, we are a rational lot.
The same cannot be said for the stock market, especially during a bull market. If there’s one thing a bull market can do, it can give us a false sense of security that leads us to make irrational decisions—two factors best left out of the money management equation.
For starters, when the markets are doing well, we feel optimistic, downplay the risks, and overestimate our stock-picking prowess, regardless of how well-informed we are. Interestingly, depressed people are more realistic about their investments.
The emotional disconnect is one reason why investors do not sell stocks that are performing poorly. Studies show that the pain investors experience when taking a loss is two-times as great as the pleasure we feel when we make money. In an effort to avoid pain, we avoid selling stocks that actively erode our retirement portfolios. Hoping for a rebound, we’d rather deplete our retirement fund than deal with the pain associated with a modest loss. (Source: “Investor psychology: How to avoid over-confidence,” Modern Wealth Management web site, May 9, 2012, last accessed April 12, 2013.)
Where does that leave … Read More
Sporting goods store Cabela’s Incorporated (NYSE/CAB) is up 20 points on the stock market since the beginning of the year.
In the fourth quarter of 2012, the company reported that comparable store sales grew 12%. Fourth-quarter revenues grew 15% to $1.1 billion, while earnings rose a solid 20% to $89.9 million.
The company’s first quarter of 2013 should be very good. Wall Street analysts have been increasing the company’s earnings estimates across the board for this year and next.
Both Wal-Mart Stores, Inc. (NYSE/WMT) and Target Corporation (NYSE/TGT) have been exceptionally strong performers on the stock market. Both of these positions are trading at all-time record highs.
For its fiscal 2013 third quarter, ended February 28, 2013, NIKE, Inc. (NYSE/NKE) reported exceptionally good results for such a mature global brand.
According to the company, its third-quarter sales grew nine percent to $6.2 billion, with growth experienced in all geographies except Greater China and Japan.
NIKE’s gross margin improved 30 basis points to 44.2%, while earnings rose 16% to $662 million and earnings per share grew 20% to $0.73. The company’s stock chart is below:
Chart courtesy of www.StockCharts.com
NIKE has done an exceptional job on the stock market and operationally for such an old brand name. Wall Street earnings estimates are increasing, and NIKE should report another great quarter in June.
Specific brands in the retail universe are doing great. But weather is a big factor in retail merchandising, and this past winner likely kept a lot of shoppers indoors. First-quarter same-store sales could be underwhelming.
There is continued momentum available in the stock market. Earnings results don’t need to … Read More
The Dow Jones Industrial Average and the S&P 500 continue to soar into uncharted territory. With strong gains over the last four-plus years, you’d think there must be a lot of really wealthy investors out there who are celebrating.
There aren’t many rags-to-riches stories coming out of this bull market. There are a lot of rich-to-richer stories, though.
Regardless of which way the markets are headed, people are, for the most part, bad at investing. Between 1990 and 2010, the average U.S. equity investor earned just 3.8% annually, less than half the 9.1% return from the S&P 500. The average fixed-income (bonds) investor pocketed just one percent annually over the same 20-year time frame, as opposed to the 6.9% annual return reported by Barclays U.S. Aggregate Bond Index. (Source: “Investors Can Manage Psyche to Capture Alpha: Dalbar Study of Investor Returns Offers Way to Improve Investor’s Alpha,” Dalbar, Inc. web site, April 1, 2011, last accessed April 11, 2013.)
The average stock fund investor barely beat inflation, while the average fixed-income investor lost money after factoring in inflation. Why are we so bad at investing? Technically, it’s not our fault. We’re hardwired not to lose, but to cut and run.
In days of yore, we survived with our fight-or-flight instinct by running when it made sense to run. The vast majority of those who stuck around to fight the good (no-chance-of-winning) fight didn’t make it. Those who did, though, had bragging rights.
Fast-forward to today, and it’s hard to fight our instincts when it comes to investing. We overestimate our investing acumen when the markets are doing well, and we … Read More
It’s time for all stock market investors to re-evaluate their portfolio risk.
If a new bull market happens to develop, it’s easy to jump on the bandwagon. But with so much uncertainty and risk out there—risk that is 100% beyond your control—equity investors need to be safe.
There is always room for speculation with play money, but when it comes to money being used to save for retirement or dividend income being used while in retirement, capital preservation is absolutely key.
Utility stocks immediately come to mind when I think about capital preservation and the stock market. This is a sector that is often used to generate income for those who are in retirement.
Surprisingly, some utility stocks have actually been very good wealth creators in terms of capital appreciation. Like always, which individual companies you own matters. This is why the returns from mutual funds can be so mediocre. Diversification works, but always has a cost.
Looking at utility stocks, trends are important—trends in population growth, migration, or in things like power usage from industrial customers. Just look up a utility stock index and the stock market charts of those companies. You can see which companies are the standout players, and why they are because of migration trends in demand.
Another stock market sector that offers some safety and the opportunity for capital gains and decent dividends is energy. But in the oil and gas business, size counts.
A company like Chevron Corporation (NYSE/CVX) has proven to be a reliable stock market performer and dividend payer. It is an ideal retirement stock. And even with the amazing growth taking … Read More
The disconnect between the economy and Wall Street just gets wider and wider. And no one seems alarmed. Over the last four years, the Dow Jones Industrial Average and the S&P 500 have roared higher in spite of the fact that the U.S. economy is struggling to avoid a double-dip recession.
For the average American, there is no difference between a bull market and bear market. Unemployment remains high, so too does household debt. Gross domestic product (GDP) remains flat, consumer confidence is down, and housing is still fragile.
What’s keeping the bull market afloat? Not retail investors. If it weren’t for the Federal Reserve and the deep pockets of the well-heeled on Wall Street, the current Dow Jones trajectory might look a little different.
What can bring a bull market to a screeching halt? Usually an overheated economy and sense of overconfidence combined with lower unemployment, an accelerated GDP, and high interest rates. All of these ingredients are lacking in the current climate, leading many pundits to believe the bull market has more than enough room to run.
Still, this is not your average bull market, so the tried and true indicators for growth may not hold water. Many believe the current rally is a creation of the Federal Reserve and its opened-ended quantitative easing. The markets are also moving on thin volumes and low volatility. It wouldn’t take much to spook Wall Street and send the markets reeling.
So what could derail the current bull market? History and economics? Historically, the U.S. experiences an economic slowdown every four to six years. The current bull market is now in … Read More
The Dow Jones Industrial Average continues to climb into uncharted territory, trading above 14,500. This is in spite of weak underlying economic indicators. On Main Street, unemployment remains high, consumer confidence is low, and gross domestic product (GDP) remains bleak. On Wall Street, it’s confetti, unicorns, and a raging bull.
But for how much longer? Every four to six years, the U.S. experiences an economic slowdown. It happens like clockwork. The current bull market is now in its fourth year (if you were fortunate enough to even realize we’re in a bull market).
While some investors may be sitting on the sidelines, waiting for a market correction, others are trying to figure out if they should jump in. Thanks to the economic disconnect between the Dow Jones and what the average American is feeling, it’s tough to decide whether investors should stay or go.
In this economic climate, it might be best to think about trading the market—not the economy.
One bright (but fragile) sector that has been performing well is housing (in spite of the fact that housing prices are still down 41% from their 2007 peak). In February, U.S. builders broke ground at a seasonally adjusted annual rate of 917,000. That’s up from 910,000 in January and the second-fastest pace in four-and-a-half years. (Source: “New Residential Construction in February 2013,” U.S. Census Bureau web site, March 19, 2013, last accessed March 28, 2013.)
Is this the shape of things to come? It was also announced that building permits increased 4.6% to 946,000; the most since June 2008, just a few months into the Great Recession.
Where can investors … Read More
Two big trends are about to collide: global warming and global re-inflation. And the result is going to create a lot of shocks and opportunity. I’ve heard people refer to the recent tsunamis, rising temperatures, floods, and droughts as the “weather apocalypse.” Whatever you call it, the re-inflation in prices combined with global warming is going to create a new super cycle in agriculture and agribusiness.
The business cycle is changing in financial markets. Currencies are being devalued. The bull market in bonds is over. Central banks are repatriating their gold. There’s massive monetary stimulus, and now there are rising prices, which should help boost earnings initially. The stock market could go a lot higher this year.
The re-inflation cycle has staying power, even through the next U.S. recession. An inflationary business cycle, product scarcity, increasing demand, and the weather represent a fundamental, long-term uptrend for agriculture—the final leg of the commodity price cycle.
The stock market’s recent breakout was very powerful. Wall Street is now ahead of first-quarter earnings season. Before the next big crash, I think the stock market will have one final push higher—a lot higher than current levels.
I absolutely agree with Jim Rogers’ view about agriculture. But hey, even Jim has something to sell you. The re-inflation definitely has consequences, but global monetary stimulus is on a tear. And as an investor, it doesn’t pay to fight it.
The stock market is holding firm ahead of first-quarter earnings season. Its performance is very similar to the strength experienced during the first four months of last year. “Sell in May, and go away?” I think it’s … Read More