Daily Gains Letter

economic renewal


What I’d Consider Buying as the Market Moves Higher Again

By for Daily Gains Letter | Aug 27, 2014

Consider Buying as the Market Moves HigherThe stock market appears anxious to move higher to new record highs.

In the past week, the Federal Reserve released its Federal Open Market Committee (FOMC) meeting minutes that suggested it wanted to see stronger, sustained growth before deciding on when to raise interest rates. This includes both economic growth and jobs creation.

On Thursday, the Bureau of Economic Analysis (BEA) will report the second reading of the second-quarter gross domestic product (GDP), which came in at a surprising annualized four percent for the advance reading.

The consensus is that the second reading will show the GDP growth holding at the same four-percent level. If it does, it would be excellent for the economy but at the same time, ironically, it would make investors and the stock market nervous about the status of interest rates.

The issue is that the Fed wants to see controlled and steady economic growth and a four-percent reading could raise red flags, pointing to inflation—which means higher interest rates. The inflation rate is benign at this time as consumers continue to hold back on spending.

The stock market will get anxious if the reading remains the same, but we would want to wait to see how the economy fares in the third and fourth quarters of the year before making any drastic moves.

Of course, the stock market is all about expectations going forward and clearly, a strong second reading of the 2Q14 GDP will send some to the exits.

The Fed also wants to see the jobs market continue to expand at its previous trend of generating an average of more than 200,000 monthly … Read More


What the World Cup and the Stock Market Have in Common This Year

By for Daily Gains Letter | Jul 14, 2014

How to Make Some Premium Income This SummerLast Wednesday, I had fun watching the World Cup game between Argentina and the Netherlands. As strange as it may sound, I actually found that the tension and apprehension throughout the match reminded me of the stock market.

Despite the Dow Jones Industrial Average recently trading above 17,000 and the S&P 500 at another record-high, I still sense the stock market is vulnerable to selling. I think this will be especially true if the second-quarter earnings season pans out as expected, devoid of any major growth in earnings or revenues.

Alcoa Inc. (NYSE/AA) offered up a nice report, but I’m not sure how much it counts, as the company really is not a major bellwether as to the health of the global economy.

The reality is that consumer spending drives the economy and the stock market. I would rather look at what’s happening at bellwether global retailer Wal-Mart Stores Inc. (NYSE/WMT) than Alcoa. The “Death Star” of the retail sector is struggling for growth around the world—and that cannot be good news. Even discount stores, which tend to be more immune to slowing, are showing signs of weakness.

In other words, while the stock market has edged higher, I still wouldn’t get too comfortable at this time. I think we could see another minor stock market correction should earnings tank. Of course, this would provide us with an investment opportunity to buy shares on weakness in the stock market.

Now there’s some optimism following the Federal Reserve’s dovish remarks from its June meeting, as there’s a sense that interest rates will not ratchet higher until after mid-2015, depending on the … Read More


The Contrarian: Why I Think Stocks Will Rise in 2014

By for Daily Gains Letter | Jan 6, 2014

Stocks Will Rise in 2014Now 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


Best Days for Gains in Housing Stocks Behind Us?

By for Daily Gains Letter | Dec 16, 2013

Housing Stocks Behind Us 2Mortgage rates are on the rise. In November, the 30-year fixed rate mortgage stood at 4.26% compared to 3.35% a year earlier in November 2012. The average rate for the 30-year fixed rate mortgage in 2007 prior to the subprime meltdown was 6.34%, according to data from Freddie Mac. (Source: “30-Year Fixed Mortgage Rates Since 1971,” Freddie Mac web site, last accessed December 13, 2013.)

Much of the decline in mortgage rates was driven by the Federal Reserve’s massive quantitative easing policies that saw the central bank buy $85.0 billion in bonds per month in an effort to drive down lending rates and drive up consumer demand in the housing market.

Yet after adding trillions to the balance sheet of the Fed, the housing market has recovered and is currently on pretty solid ground, with higher demand and prices.

But all of this bond buying will eventually stop and the impact will push mortgage rates higher. Of course, the amount by which bond buying is reduced will be dependent on the economic renewal and jobs market. I do not know how high mortgage rates will rise in one, two, or even five years, but they will move higher as long as the economy and jobs market continue to improve.

The housing market could easily absorb a small rise in mortgage rates, but with the lowest mortgage rates behind us for the time being, I suspect the housing market will inevitably slow down as far as home price increases and sales. This could take a few more years.

With the Fed expected to begin its bond tapering early in the New … Read More