Daily Gains Letter

economic slowdown


How to Profit from ECB’s Attempts to End Economic Slowdown

By for Daily Gains Letter | Mar 31, 2014

Economic SlowdownRemember what happened in the U.S. economy when the financial system was about to collapse? The banks weren’t lending to each other, businesses, or even consumers. The U.S. economy was in a deep economic slowdown. Investment banks like the Lehman Brothers had already collapsed and more would follow. Something had to be done or else it would be a disaster situation.

When all of this was happening, the Federal Reserve stepped in to save the U.S. economy. It started to use a monetary policy tool called quantitative easing. The idea was simple: print money out of thin air and then buy back bad debt from the banks. As a result of this, the banks would have liquidity, which would eventually create more lending, moving the U.S. economy towards the path of economic growth.

You can look at Japan as another example of this. In order to fight the economic slowdown in that country, the Bank of Japan took similar actions to those of the Federal Reserve—I must say, the central bank of Japan has been involved with quantitative easing for a while.

The central bank of Japan wanted economic growth, which was what the Federal Reserve had hoped for in the U.S. economy. Japan’s central bank believed that by introducing quantitative easing, the value of the currency would go down and exports from the country would increase. The Bank of Japan also hoped that the quantitative easing would take the country away from the deflationary period it has been experiencing for some time.

With this in mind, you will come across various arguments. Some will say that quantitative easing has … Read More


Depressed Copper Prices Presenting Perfect Buy-Low, Sell-High Opportunity?

By for Daily Gains Letter | Mar 26, 2014

Copper Prices PresentingBy now, you have probably noticed one phenomenon: the speculations regarding China’s growth are increasing each day. Turning on the TV or flipping through the pages of the newspaper, you’ll likely hear and read all about how the second-biggest economic hub in the global economy will tumble.

No doubt, the arguments backing this argument are very credible. The Chinese economy is seeing an economic slowdown and troubles in that country continue to gain strength. For example, the Chinese manufacturing sector is stalling. In March, the HSBC Flash China Manufacturing Purchasing Mangers’ Index (PMI) declined to its lowest level in eight months. The output index declined to an 18-month low. (Source: “HSBC Purchasing Managers’ Index Press Release; Output contract at quickest pace in 18 months during March,” Markit, March 24, 2014.)

We have seen a few companies in the Chinese economy default on their bonds, and there are fears that more will soon fall. The widespread speculation is that the government might not come to the aid of those companies that are in trouble.

With this, investors are panicking. One of the hardest-hit asset classes due to this panic is copper. Please take a look at the chart of copper prices below.

Copper - Spot Price Chart

Chart courtesy of www.StockCharts.com

Since the beginning of the year, copper prices are down more than 13% and investors believe demand for the red metal will continue to decrease due to the decline in manufacturing. During the past decade, China was building massive infrastructure and a significant amount of copper was needed as a result. This is not the case anymore.

Copper prices have broken below a key level—$3.00—and … Read More


How to Profit from This Declining Currency

By for Daily Gains Letter | Mar 25, 2014

Declining CurrencyProblems in the Canadian economy are growing and whispers of an economic slowdown are looming in the air. If an economic slowdown does occur, the Canadian dollar will be the primary victim—and investors can profit heavily from this scenario.

The central bank of the country isn’t very optimistic about the growth. Commenting on the country’s first-quarter growth, the governor of the Bank of Canada, Stephen Poloz, said, “What we have seen is that the numbers in the first quarter have been a little shy of what we were expecting.” He added, “It’s easy to point to the weather as a qualitative explainer, but it is hard for us to believe that all of that is just that.” (Source: Woodbury, R., “UPDATE 3-Canada’s Poloz sees a future of slower growth, low rates,” Reuters, March 18, 2014.)

The Bank of Canada lowered its growth estimates from what it originally anticipated. It now expects the Canadian economy to grow at an annualized pace of 2.5% in the first quarter compared to the 2.9% it predicted in December.

The Bank of Canada isn’t the only place that is suggesting the Canadian economy is headed towards an economic slowdown.

The companies traded on Canadian stock exchanges are warning about an economic slowdown, too. We can tell this by looking at their corporate earnings. If their profits start to show troubles, then it means the overall economy may be slowing. Consider this: in the fourth quarter of 2013, 60% of all the companies on the Toronto Stock Exchange (TSX) missed their earnings expectations. (Source: Shmuel, J., “Why is the TSX rallying even as Canadian companies suffer?” … Read More


Sin Stocks Posting Impressive Gains in Struggling U.S. Economy

By for Daily Gains Letter | Mar 20, 2014

Why Sin Stocks Are Where the Money Is in This Stock MarketAs the investing adage of the day goes, “When the going gets tough, the tough get eating, smoking, and drinking.” And there’s plenty of tough economic data out there to send people into the arms of their favorite vices and sin stocks.

In a nutshell, U.S. unemployment has improved year-over-year to 6.7%, but the improved numbers are the result of an increase in low-wage-paying part-time retail jobs. The underemployment rate remains high near 13%, as does the long-term unemployed at 2.3%. And despite the soaring S&P 500, wages haven’t really budged in years.

In January, new orders for manufactured durable goods fell one percent, or $2.2 billion, to $225 billion—the third decrease in the last four months. Not surprisingly, retail sales, which account for about 30% of consumer spending, rose just 0.2% in February after two straight months of declines.

March consumer sentiment data missed forecasts, falling from 81.6 in February to 79.9—the lowest level in four months and the eighth miss in the last 10 months. This trickled down to February auto sales, which flat-lined year-over-year to 1.19 million and sat on the low end of annualized auto sales estimates of 15.34 million. Even January housing data were weak.

I realize most economists are blaming the weak U.S. economy on the bad winter weather, but I’m not so sure. And I’m certainly not alone. Even Stephen Poloz, the governor of the Bank of Canada, says it’s hard to believe that the recent economic slowdown is all due to the weather. (Source: “Loonie falls on Stephen Poloz’s gloomy forecast for growth,” The Canadian Press, March 18, 2014.)

The tough economic … Read More


How to Profit from China’s Economic Slowdown

By for Daily Gains Letter | Mar 13, 2014

China’s Economic SlowdownThere’s a significant amount of pessimism towards the Chinese economy these days, and the reasons behind this are very understandable. The economic data suggests the country is headed toward an economic slowdown.

In 2013, China’s gross domestic product (GDP) grew by 7.7%—barely better than the previous year and the estimates that were calling for the lowest growth rate since 1999. (Source: Yao, K. and Wang, A., “China’s 2013 economic growth dodges 14-year low but further slowing seen,” Reuters, January 20, 2014.) Keep in mind that despite beating the estimates, this GDP growth rate is much lower than the country’s historical average.

This isn’t all. A credit crunch is also in the making. We are now hearing how companies in China will have troubles paying their interest on the bonds they have issued. So far, we have seen one default on payment by Shanghai Chaori Solar Energy Science & Technology Co. This solar company, based in China, defaulted on a $14.7-million interest payment on bonds it issued two years ago. (Source: Wei, L., McMahon, D. and Ma, W., “Chinese Firm’s Bond Default May Not Be the Last,” The Wall Street Journal, March 9, 2014.)

Before this default, there was a slight hope that the government would come in and bail out the troubled companies—something that happened in the U.S. economy during the financial crisis in 2008. Now, with this default, there are speculations that we will see more of the same.

Furthermore, there are concerns that property values in the Chinese economy are going to see a correction. Over the past few years, there has been the mass development of ghost … Read More


Can This Precious Metal Save Your Portfolio from the Rising Tensions in Crimea?

By for Daily Gains Letter | Mar 5, 2014

key stock indicesThese days, we have been hearing a significant amount of news out of Ukraine. “Pro-Russian troops” are now in control of the security and administrative systems in the Crimea region, which is the mainly Russian-speaking area of the country. World leaders are saying that this is nothing but an act of aggression by Russia, saying that at the very least, the situation is worsening each day and it’s very unpredictable what could happen next.

As a result of the uncertainty, key stock indices here in the U.S. are sliding lower—mind you, the Ukraine is neither a major trading partner with the U.S. nor is it a country in which a lot of American-based companies operate. Considering this, one must wonder why key stock indices are seeing selling then at all.

Here’s what investors really need to know…

It all comes down to this: the Ukraine/Russia issue is a problem for the global economy, with which the key stock indices are highly correlated. If the global economy as a whole faces an issue, then the key stock indices slide lower. This is something investors have to keep in mind.

Ukraine is just one of the issues for the global economy that we see in the news; there are others, which investors need to know about, that may have even more gruesome consequences on the key stock indices than now.

For example, the Chinese economy isn’t getting much attention these days, but we see manufacturing activity in the country is continuously declining. This shows that the demand is slowing down and it will impact the bottom-line of companies on the key stock … Read More


As Investors Grow More Skeptical Toward Stocks, Time to Move to Safe Haven ETFs?

By for Daily Gains Letter | Feb 19, 2014

Safe Haven ETFsWe see there’s a significant amount of economic news mounting against the argument that key stock indices will go higher this year. We see major companies on the key stock indices reporting corporate earnings that are dismal to say the very least. We see indicators of prosperity suggesting the opposite is likely going to be true for the U.S. economy. Lastly, we also see troubles developing very quickly in the global economy.

First on the line are the corporate earnings of companies on the key stock indices—which is hands down one of the main factors that drive these indices higher. We see companies showing signs of stress. Consider General Motors Company (NYSE/GM), for example; the company’s corporate earnings declined 22% in 2013 from the previous year. (Source: “GM reports lower-than-expected 4Q earnings,” Yahoo! Finance, February 6, 2014.)

Some might call this a story of the past; we need to look at what the future looks like instead. Sadly, going forward, companies on the key stock indices and analysts look worried as well. Consider this: so far, 57 S&P 500 companies have issued negative corporate earnings guidance, while only 14 have issued positive guidance. At the same time, analysts’ expectations are coming down as well. On December 31, the consensus estimate expected S&P 500 earnings to grow by 4.3%; now, these expectations have come down to 1.5%. (Source: “S&P 500 Earnings Insight,” FactSet, February 7, 2014.)

Looking at the broader U.S. economy, it’s not moving in favor of the key stock indices, either—the economic data isn’t looking very promising.

Industrial production in the U.S. economy declined in January from the previous … 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


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


Is This Currency Losing Its “Safe” Status?

By for Daily Gains Letter | Jan 24, 2014

Profit from the Canadian Dollar's DemiseNot too long ago, I wrote about an economic slowdown in the Canadian economy and how it could take the value of the Canadian dollar even lower. (Read “How American Investors Can Profit from the Canadian Economy’s Demise.”) By no surprise, the Canadian dollar (also referred to as the “loonie”) looks to be in a freefall. Take a look at the following chart.

The Canadian dollar is currently trading at its lowest level since September of 2009. Since the beginning of the year, the loonie has declined more than four percent compared to other major global currencies.

Considering all that is currently happening, can the Canadian dollar go down any further?

Canadian Dollar - Philadelphia Chart-moeChart courtesy of www.StockCharts.com

Simply put, yes, the Canadian dollar may still see some more downside. After the U.S. economy showed a significant amount of stress during the financial crisis, investors flocked to buy the Canadian currency. This may not be the case anymore.

Since the last time I wrote on this topic, some more information on how the Canadian economy is doing has been released. This new information reaffirms my suspicions. It seems the economic slowdown in the Canadian economy is gaining some momentum; even the central bank of Canada looks slightly worried. This could be very bearish for the Canadian dollar.

First of all, wholesale sales in Canada in the month of November remained unchanged from the previous month. Out of the 10 provinces in the country, only four reported an increase in their wholesale sales. (Source: “Wholesale trade, November 2013,” Statistics Canada web site, January 21, 2014.) Wholesale sales can provide an idea about the retail … 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


The Economic Slowdown No One’s Talking About

By for Daily Gains Letter | Jan 21, 2014

The Economic Slowdown No One’s Talking AboutIt seems major economic hubs in the global economy are facing hardships, and they are moving towards an economic slowdown. But during discussions about where the next trading opportunity will be, some countries never get mentioned. For example, there is significant talk about an economic slowdown in the Chinese economy and the Japanese economy and how investors can profit. However, the Australian economy goes unnoticed even though it’s facing an economic slowdown as well, and it looks like conditions in the country are getting worse.

Unemployment in the Australian economy is increasing. The Australian Bureau of Statistics reported that in December, the country’s unemployment rate increased to 5.8%—0.1% higher from the previous month. The number of those employed full-time declined by 31,600. Part-time workers increased in the month, and the unemployed increased by 8,000 in December, reaching 722,000. (Source: “Australia’s unemployment rate increased slightly to 5.8 per cent in December 2013,” Australian Bureau of Statistics web site, January 16, 2014.)

The demand for work in the Australian economy is also very slow—a classic situation during an economic slowdown. Job advertisements in the country declined 0.7% in December after declining 0.8% in November. For the year, job advertisements in Australia have declined by nine percent. (Source: Kwek, G., “Job ads: signs of stabilisation,” Sydney Morning Herald, January 13, 2014.)

Another indicator of an economic slowdown, manufacturing activity is not so great in the Australian economy either. The Australian Industry Group Australian Performance of Manufacturing Index (PMI)—an indicator of manufacturing in the Australian economy—contracted for the second consecutive month. The index sat at 47.6 in December. (Source: “Manufacturing Remains in Contraction,” Markit … Read More


How American Investors Can Profit from the Canadian Economy’s Demise

By for Daily Gains Letter | Jan 16, 2014

American InvestorsOur neighbor to the north is facing some headwinds. In Canada, there are troubles developing that may drive the country toward an economic slowdown. In 2008, the ripple effects from the U.S. economy into the global economy caused an economic slowdown in many countries. The Canadian economy was one of the few nations that didn’t suffer a major hit; it was able to stand strong.

Now, Canada may not be able to stay on such strong footing, as it faces a possibly severe economic slowdown due to a few phenomena that are starting to line up to create a perfect storm.

First of all, the housing market in the Canadian economy is becoming much overvalued. According to Deutsche Bank, the Canadian housing market is the most overvalued housing market in the global economy. Looking at the value of the Canadian housing market as a ratio of home prices and rent, this market is overvalued by 88%. (Source: Babad, M., “Canada’s housing market most overvalued in the world, Deutsche Bank says,” The Globe and Mail, December 11, 2013.)

As we move through the beginning of 2014, the Canadian housing market is showing signs of a slowdown. Building permits, one of the early indicators of which direction the housing market is headed, saw a 6.7% decline month-over-month in November. (Source: “Building permits, November 2013,” Statistics Canada web site, last accessed January 9, 2014.) If the housing market soon faces troubles and prices decline, a major economic slowdown could follow.

Secondly, the employment situation in Canada, another indicator of an economic slowdown, is becoming dismal. In December, Canada’s unemployment rate increased by 0.3% … Read More


France Falling Prey to Eurozone Slowdown Good News for U.S. Investors?

By for Daily Gains Letter | Dec 16, 2013

Good News for U.S. InvestorsThere’s an investment opportunity in the making at one of the eurozone nations for U.S. investors, and it’s becoming more compelling each passing day.

We know the eurozone still burns. The economic slowdown in the common currency region still prevails. We have heard from the European Central Bank (ECB) that it’s still trying to work very hard to break the strength of the economic slowdown. The central bank has lowered the benchmark interest rate and hinted that it might go ahead with a form of quantitative easing. In the past, we also heard the ECB say it will do whatever it takes to save the eurozone.

Sadly, it’s failing.

You see, when the eurozone crisis began, the problems were contained to a limited number of countries, but now we see the economic slowdown spreading through the region; now, the stronger eurozone nations are falling prey to it.

The opportunity? France.

France is the second-biggest economic hub in the eurozone. The economic slowdown in the French economy continues to gain strength. We heard that in the third quarter, the French economy contracted by 0.1%. In the second quarter, it showed growth of 0.5%. (Source: “French economy contracts 0.1 pct in third quarter,” Reuters, November 14, 2013.)

Unemployment in the French economy is also on the rise. In September, the unemployment rate in France reached 11.1%—that’s 3.26 million individuals who were out of work. In October, it declined to 10.9%, but that’s still higher than it was during the same period a year ago. In October of 2012, the unemployment rate in the second-biggest eurozone nation was 10.5%. (Source: “Euro area unemployment … Read More


Why I Won’t Be Surprised If the Global Economy Caves

By for Daily Gains Letter | Dec 9, 2013

Global Economy CavesThe global economy looks to be in trouble, as there may be an economic contraction on the horizon. If all the pieces of the puzzle fall into place, companies on key stock indices might face issues in delivering corporate earnings.

Major economic hubs in the global economy are witnessing an economic slowdown. Those economies aren’t marching ahead, and their growth rates seem to be stagnant. If this continues, then it wouldn’t be a surprise to eventually see the global economy cave in, resulting in a global economic slowdown.

The eurozone, one of the biggest economic hubs in the global economy, remains under severe scrutiny. In the third quarter, the gross domestic product (GDP) growth rate for the common currency region declined to 0.1%, while in the second quarter, the GDP growth rate was 0.3%. (Source: “Second estimate for the third quarter of 2013,” Eurostat web site, December 4, 2013.)

The troubled countries in the eurozone, including Greece, Spain, and Portugal, are stuck in depression-like conditions, but major countries in the region also face economic pressures. For example, Germany’s third-quarter GDP growth rate came in at 0.3% compared to the second quarter, which saw 0.7% GDP growth from the previous quarter. (Source: Ibid.)

Australia, another major economic hub in the global economy, is facing headwinds as well. In the third quarter, the Australian economy grew by only 0.6% from the previous quarter. The annual GDP growth rate of Australia registered at 2.3%. In the second quarter, the Australian economy grew 0.7% and the annual growth rate was 2.4%. (Source: Kewk, G., “Australia’s economic growth falling short,” The Sydney Morning Herald web … Read More


How Investors Are Profiting as the Eurozone Crisis Makes a Comeback

By for Daily Gains Letter | Nov 21, 2013

Investors Are Profiting as the Eurozone CrisisMajor economic hubs in the global economy are in outright trouble, and each passing day there’s more economic data suggesting the slowdown is holding its own. Investors need to be wary about what’s happening, because it can affect their portfolio significantly.

The eurozone crisis, which sent ripple effects into the global economy, is rising again. In the early days of the eurozone crisis, we heard how the economies of such nations like Greece, Spain, and Portugal were suffering. Now, the bigger nations in the euro region are showing signs of stress. Consider France, the second-biggest economy in the eurozone, for example. This major economic hub in the global economy witnessed contraction in the third quarter. On top of this, France’s unemployment rate continues to increase.

Germany, the biggest economy in the eurozone and the fourth-biggest economic hub in the global economy, slowed in the third quarter. The gross domestic product (GDP) of the country increased just 0.3% in the third quarter. In the second quarter, Germany’s GDP increased by 0.7%. (Source: “Gross domestic product up 0.3% in 3rd quarter of 2013,” Destatis, November 14, 2013.)

Similarly, Japan, the third-biggest nation in the global economy, continues to struggle, despite the extraordinary measures the central bank and Japanese government have taken to boost the economy. In the third quarter, the growth rate of the Japanese economy slowed down. The GDP grew 0.5% from the previous quarter. The annual GDP growth rate of the Japanese economy was 1.9% in the third quarter. (Source: “Gross Domestic Product: Third Quarter 2013,” Cabinet Office, Government of Japan web site, November 14, 2013.)

Adding more to the … Read More


Profit from Emerging Markets with Just One Investment

By for Daily Gains Letter | Nov 12, 2013

Profit from Emerging MarketsEmerging market equities have taken center stage these days because, according to some, the key stock indices in the U.S. economy are reaching the overpriced mark. Investors’ returns aren’t going to be as robust going forward; there’s a significant amount of noise about them taking the shape of a bubble.

With all this happening, investors are asking which emerging market economy they should invest in. Should they buy companies operating in India? Or is China still the best emerging market economy in which to invest?

The answer to this question is not as easy as it may seem to some. Investors have to keep in mind that each emerging market is unique—it presents different opportunities, risks, and rewards.

Take China, for example. As key stock indices in the U.S. economy have increased this year—the S&P 500 is up more than 23% so far—the stock market in the Chinese economy hasn’t performed as well; in fact, the key stock indices there have declined. Please look at the chart below: the Shanghai Stock Exchange Composite Index has declined more than 6.4% between January and October.

Shanghai Stock Exchange Composite Chart

Chart courtesy of www.StockCharts.com

Does this mean there’s room for growth? Don’t be too quick to judge. The Chinese economy is going through a bit of an economic slowdown. This year, the country’s gross domestic product is expected to increase much less than its historical average; the growth of the Chinese economy is projected to be lower next year as well. At the same time, there’s noise stating that there may be a credit crisis in the country.

If all of the trouble growing in the Chinese … 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


Is Now the Right Time for Emerging Market Equities?

By for Daily Gains Letter | Sep 3, 2013

TEmerging markets seem to be gaining popularity these days when it comes to the “next big thing” for investors. The reason for this is very simple: emerging market equities have come down in value significantly from their recent highs, leaving investors asking if its time to jump in and buy to profit.

Take a look at the equity market in India, for example—the country is considered one of the biggest emerging markets. The India Bombay Stock Exchange 30 Sensex Index is down more than 10% from its peak in late July.

India isn’t alone; stocks and key stock indices in other emerging market economies are in very similar conditions, if not performing worse. China’s stock market is lagging, Indonesia’s has recently plummeted, and the Brazilian equity market continues to show dismal returns.Please look at the chart below to get a more precise idea:

Stock Exchange 30 Sensex Index Chart

Chart courtesy of www.StockCharts.com

 Before adding companies involved in emerging markets or buying an exchange-traded fund (ETF) that gives them exposure to those economies, every investor should ask themselves: does the stock market declining in value really mean there’s value—or, in other words, an opportunity for profit?

The answer: not necessarily.

Investors should consider that emerging market economies are sometimes relied on by developed nations to buy their products, because they can make them at cheaper rates. So if the developed markets start to see some sort of economic slowdown, the emerging market economies could see ripple effects. This may just be one of the phenomena driving the stock markets in those countries lower.

The developed nations in the global economy aren’t showing robust growth. For example, … Read More


What You Need to Know to Protect Yourself from the Global Economic Slowdown

By for Daily Gains Letter | Aug 1, 2013

Global Slowdown to Disrupt Your PortfolioThe global economy is showing traits that shouldn’t go unnoticed by investors. Instead, investors should keep a close eye on their portfolio and make sure they are managing their risk properly by not being overexposed to a certain region, having their assets allocated in different asset classes, and having stop orders in place for their doubtful positions.

Investors need to know that companies trading on the key stock indices have exposure to the global economy; this means their stock prices can suffer.

The global economy looks to be heading towards a period of stagnant growth or an outright economic slowdown. The reason behind this notion is very simple: countries across the board in the global economy are witnessing anemic growth, and the demand is declining.

For example, consider India, one of the well-known emerging markets in the global economy. The central bank of India expects the country to grow by 5.5% in the fiscal year ending March 2014. This was lower than the central bank’s earlier forecast of 5.7%. (Source: Goyal, K., “India Central Bank Holds Rates in Push to Stem Rupee Plunge,” Bloomberg, July 30, 2013.)

In June, industrial output in the third-biggest hub in the global economy, Japan, fell 3.3% from a month earlier. This was the first time in five months that industrial output in the country fell; it had increased 1.9% in May. (Source: “RPT-Japan June industrial output falls 3.3 pct mth/mth,” Reuters, July 29, 2013.)

In addition to this, in the same month, the country’s retail sales also didn’t register as expected. Retail sales in the Japanese economy increased only 1.6%, compared to the 1.9% … Read More


New Data Out of Germany Threatening Shorts on Eurozone?

By for Daily Gains Letter | Jul 29, 2013

New Data Out of Germany Threatening Shorts on EurozoneThe economic slowdown in the eurozone has become the topic of discussion lately. The reason for this is mainly because it is sending ripple effects into the global economy, and the growth is being stalled. We have seen countries like Switzerland and China face scrutiny as the economic slowdown picked up in the eurozone. As the demand in the common currency region declined, exports from those nations to the eurozone also deteriorated.

This caused concerns that the major countries in the eurozone, like Germany and France, will see a downturn, which could possibly take the region into another downward spiral.

Surprisingly, those concerns have shown some weakness in the most recent economic news.

Germany, the biggest economic hub in the eurozone and one of the only few countries to weather the economic slowdown in the region, had concerns that business will slow down. Fortunately, the indicators suggest this hasn’t happened yet.

The business confidence in the country has been improving, increasing for a third month in a row in July. In June, the Ifo Institute’s Business Climate Index increased to 106.2 from 105.9; the index is based on a survey of 7,000 business executives. (Source: Randow, J., “German Business Confidence Rises for a Third Month,” Bloomberg, July 25, 2013.) Keep in mind that businesses are the first to see changes in economic conditions; if they are optimistic, it’s considered a good sign for the economy.

But that’s not all: manufacturing in the eurozone also showed signs of relief, improving for the first time since July of 2011. The Flash Eurozone Manufacturing Purchasing Managers’ Index (PMI), reported by Markit, registered at … 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


Look to This Eurozone Nation for Shorting Opportunities

By for Daily Gains Letter | Jul 15, 2013

Italy the Next Country to Send a Wave of Trouble Headed for AmericaInvestors who are looking to profit from the ongoing crisis in the eurozone should really be looking at Italy. It may just be the next country in the common currency region to run into troubles after Greece, Portugal, Ireland, Spain, and Cyprus have already made their own headlines.

Confesercenti, Italy’s retail association, recently reported that each day in Italy, 143 businesses are closing. Since the troubles emerged in the global economy in 2008, 224,000 businesses have closed their door in this one eurozone nation. (Source: “Crisis is closing ‘134 retail outlets’ a day in Italy,”  ANSA English, June 19, 2013.)

“It’s a massacre,” said Confesercenti president Marco Venturi. “Every day five grocers, four butchers, 42 clothes shops, 43 restaurants and 40 bars and catering businesses close down.” (Source: Ibid.)

And the economic miseries for Italy don’t end there. The economic slowdown in the country is deep in the roots of its economy and is taking a heavy toll.

The index tracking industrial production in Italy is in a continuous plunge. It stood at 80.80 in April, down 0.3% from March and at its lowest since April of 2009. The last time the index was that low was back in the late 1980s. (Source: “Production of Total Industry in Italy,” Federal Reserve Bank of St. Louis, July 1, 2013.)

Making things worse, Standard & Poor’s Ratings Services downgraded Italy’s credit rating to BBB from BBB+ after citing a negative outlook. This puts the sovereign rating of the eurozone country very close to the junk rating—speculative and with a higher risk of default. (Source: “ECB’s Noyer: S&P Italy Downgrade Underlines Priorities for … Read More


Has Hope Run Out for the Eurozone?

By for Daily Gains Letter | Jun 20, 2013

Has Hope Run Out for the EurozoneThe economic slowdown in the eurozone continues to take a toll on the global economy. It’s causing major economies like China to suffer severely due to anemic demand. Sadly, looking ahead, there’s really no light at the end of the tunnel. Despite the bailouts and the European Central Bank (ECB) taking a tougher stance, countries at the epicenter of the crisis continue to suffer and show dismal economic data, and others are starting to follow their lead towards economic scrutiny.

The Bank of Spain, the central bank of the fourth-biggest economy in the eurozone, reported that the total amount of bad loans in the country had increased to 167.1 billion euros in April from 162.3 billion euros in March. Month-over-month, the amount of bad loans in the Spanish economy has increased by 2.9%. (Source: “Spain’s mortgage crisis lingers on as bad loans soar,” Deutsche Welle, June 18, 2013.)

The ratio of bad loans to all the credit in the country increased to 10.87% from 10.47%. This means that out of every 100 loans in Spain, almost 11 were considered “bad” or default loans.

The situation in Italy, the third-biggest economic hub in the eurozone, is very similar. The Italian Banking Association reported that bad loans in the country increased by 2.3 billion euros to 133 billion euros from March to April. Year-over-year, the bad loans in this eurozone country have grown 22%, making up 3.5% of the total loans. (Source: “Bad loans at Italian banks still growing in April,” Reuters, June 18, 2013.)

What’s even more troubling is that industrial production in the eurozone is declining. It decreased by 0.6% … Read More


Why a Eurozone Break-Up Could Happen; What It Means for Your Investments

By for Daily Gains Letter | Jun 7, 2013

Eurozone Break-Up Could Happen; What It Means for Your InvestmentsThe eurozone crisis has been haunting the global economy for a while.

Countries in the common currency region are deteriorating very quickly. Look at the Spanish economy, for example: in the first quarter of 2013, it contracted 0.5% after continuing its slide from the last quarter of 2012, when it declined 0.8%. The Spanish economy, the fourth-biggest in the eurozone, has been contracting for seven successive quarters. (Source: “Austerity chokes off Spanish economy,” Deutsche Welle, May 30, 2013.)

Other troubled countries in the eurozone, such as Greece, Portugal, and Italy, continue to take a toll on the region, as well. In April, unemployment in the eurozone reached another record-high, registering at 12.2%, compared to 12.1% in March; 19.3 million individuals were jobless in the euro area. (Source: “Unemployment statistics,” Eurostat web site, last accessed June 5, 2013.)

With the economic slowdown gaining a stronger grip on the region and with major economic hubs like Germany and France begging for growth, there are movements erupting across the eurozone demanding the abolishment of the economic bloc.

Germany has witnessed a rise of a new party called the Alternative for Germany party. According to a recently conducted poll, seven percent of Germans said they would “certainly” vote for this anti-euro party, while 17% said they would “probably” vote for them. (Source: Geiger, F., “New Anti-Euro Party May Enter German Parliament – Poll,” Wall Street Journal, April 6, 2013.)

But it’s not just Germany; other countries in the eurozone have the same kind of movement spreading. For example, there are political parties in Portugal that want out of the eurozone and two parties with … Read More


Can the Eurozone Crisis Really Make a Dent in Your Portfolio?

By for Daily Gains Letter | May 8, 2013

Eurozone CrisisThe eurozone has sent waves of confusion through the global economy, and investors are concerned about what it could do to their portfolio. To say the very least, investors have all the right to be worried—bulls and bears are creating noise, making investment decisions even more difficult to make.

 

Bears’ Argument

The eurozone is in recession for the second time since 2009.

Back then, the problem was the debt-infested nations like Greece, Spain, and Portugal that swept the region with a slowdown, but now things appear to be different. The strongest nations like Germany and France are showing bleak performance. Similarly, other smaller nations that didn’t even make the news before are now in the headlines—just look at Slovenia and the Netherlands, for example.

Why is this a concern? The problem at the very core is that there are America-based companies that operate in the eurozone. If the region suffers through severe economic slowdown once again, the demand from consumers will decline due to high unemployment. As a result, the U.S. companies will see their sales decline, and eventually, their portfolio will deteriorate.

Bulls’ Argument

To fight this economic slowdown in the region, the European Central Bank (ECB) has taken some major steps. For example, to reduce the risks of the region dissolving, the ECB said it will “do whatever it takes” to save the region. (Source: “Verbatim of the Remarks Made by Mario Draghi,” European Central Bank web site, July 26, 2012, last accessed May 7, 2013.)

On May 2, the ECB announced a cut in its interest rates, lowering them to 0.50% from 0.75%. In addition, while … Read More


Two Tips for Making Your Profits Rise as Lending Declines

By for Daily Gains Letter | May 1, 2013

Profits Rise as Lending DeclinesAccording to the Federal Reserve’s data compiled by Barclays PLC, in the first quarter of 2013, total consumer loans at the biggest U.S. banks fell 0.6%; they declined 0.2% at the smaller banks. (Source: Fitzpatrick, D. and Raice, S., “Drop in Borrowing Squeezes U.S. Banks,” Wall Street Journal, April 25, 2013.)

Similarly, business lending in the U.S. economy is weak, as well. In the first two weeks of April, outstanding loans by the big banks to U.S. companies declined nine percent when compared to the end of March. In the first quarter, lending to businesses only increased 2.7%.

Why does it really matter?

To say the very least, consumers and businesses shying away from borrowing suggests the U.S. economy may be heading towards an economic slowdown. This is mainly because the U.S. economy is dependent on consumer spending, as it makes up more than 70% of the gross domestic product (GDP).

In times of economic growth, consumers have jobs for the near future, and they are able to spend and borrow for things they want. Likewise, when consumers are spending, businesses need to meet the demand, and as a result, they borrow to either invest in new plants or buy new equipment.

Next, this phenomenon of consumers and businesses not borrowing shows that big banks can run into troubles ahead. At their very core, banks are in the business of lending; they take deposits from their customers—those who save—and lend them to others. Less borrowing from customers will eventually shake their core business, forcing them to cut costs to stay profitable.

As bad as these situations may sound, investors actually … Read More