Regular readers of mine will know that I used to be bullish on China; I thought the Chinese economy offered a good contrarian investment opportunity. Now, I’m turning my sights to the eurozone for the top potential investment opportunity outside the U.S.
Chinese Economy in 2015 Losing Steam
You don’t have to be behind the Great Wall of China to realize there are deeper issues brewing in the country of 1.3 billion people. Since assuming the role of the second-largest economy in the world, China’s economy has been caught in a downdraft, with weaker gross domestic product (GDP) growth and broad stalling across the board. There must be something about being number two. Prior to China, Japan held onto that position in 2010 and look what happened to its economy. Germany was third, but has been wallowing in the eurozone, as it spent its energy trying to save Greece and its poorer cousins in the PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain).
As many of you know, I have long been a bull on China, but even my sentiment has been eroding. I expect my bullishness to continue to decline, too, at least for the foreseeable future, until the country can turn things around.
A few weeks ago, the Chinese government cut its GDP growth outlook for the country to seven percent, down from 7.5% in 2014. Now the real number is likely below seven percent, based on what we have been seeing in the Chinese economy. The two-month period of January to February pointed to more evidence of the slowing in China, with weaker-than-expected results in … Read More
Eurozone Still Messy, but Economic Recovery Has Begun
Europe is open for business. Well, kind of. The region—namely the 19-country eurozone—has recently been in the news with the Greece fiasco and its potential exit.
Greece now has a four-month reprieve in the form of an extension to its current bailout loans and terms, but the distressed country still has to convince eurozone finance ministers that its revised bailout plan for austerity measures makes sense.
For the time being, we are seeing some progress in the eurozone that points to growth. I had been worried about the negative impact from the Russian mess, but so far, it appears to be a non-issue. In the end, Germany, the strongest member of the eurozone, remains on solid footing and that’s what really matters.
What’s Behind the Eurozone’s Economic Progress?
The region is also being driven by the flow of easy money after the previous decision by the European Central Bank (ECB) to maintain near-zero interest rates and buy back about US$70.0 billion in eurozone bonds monthly. Sound familiar? It’s just like what the Federal Reserve did for years. The ECB’s similar actions will likely mean gross domestic product (GDP) growth and higher stock market prices ahead in the region.
Now the eurozone is not as strong in its recovery as the U.S., but I sense there will continue to be good investment opportunities to come, especially given the cheaper relative valuation of the eurozone.
Depending on whom you listen to, the eurozone’s GDP is expected to expand anywhere from 1.2% to perhaps as high as 1.5% this year. Again, not great, but it’s … Read More
There is yet another Greek tragedy playing out across the Atlantic, where legendary poets, mathematicians, scientists, and thinkers once roamed. Fast-forward several thousand years and the country once known for its proud history is cracking at its foundation, burdened by tens of billions in debt and fiscal chaos. (There is a way investors can profit from Greece’s potential demise, but more on that later…)
Syriza Party to Negatively Change Economic Outlook in Eurozone?
Making the situation even more uncertain for this poor cousin in the 19-country eurozone is the recent transformation in power with the left-wing Syriza party, under Prime Minister Alexis Tsipras, assuming control. The problem for the stability of the eurozone is that Tsipras’ party won on a platform to revise the country’s previous bailout requirements.
Greece wants to alter the austerity demands set by the previous government and lenders. Of course, the eurozone is refusing to do so and expects Greece to honor its original deal.
One of the revisions Greece wants is a cut in the country’s budget surplus to 1.5% of gross domestic product (GDP), rather than the set three percent. Simply put, Greece wants to spend more, which would impact the debt obligations to the eurozone.
Things like bringing back pensions, increasing wages, and other spending is clearly not what the eurozone wants Greece to do. The eurozone realizes that a steady return to lowering spending and debt in Greece is the way to reform and potentially strengthen the region.
Greece faces a big debt repayment this summer and all signs point to a refusal to play. This Greek drama could get messier, with … Read More
The money printing presses may be dry in the U.S., but they are just being inked up across the Atlantic in the eurozone, where they’re beginning to print easy money in the form of euros. While there are both pros and cons to this move, there is the potential for American investors to profit.
Recall how the Federal Reserve’s three rounds of quantitative easing (QE1, QE2, and QE3) over the past six years helped the stock market and economy. Of course, there are the negatives with the booming $18.0-trillion national debt.
ECB Introduces Easy Money Printing Program
Looking to avoid a hard landing, so to speak, the European Central Bank (ECB) did just as it was expected to do and held the current near-zero interest rates intact; but even more important was its decision to buy about 60 billion euros in bonds monthly in the 19-country eurozone. That’s about 69 billion greenbacks (or $69.0 billion). That amount isn’t far off of the $85.0 billion the Fed was buying, or should I say printing, each month before the ink dried up on QE3. The ECB’s program will begin in March and continue to the end of September 2016.
Just like what we witnessed in the U.S., the aim of the monetary easing in the eurozone is to help jumpstart the stalling economy and avert a potential recession.
Easy Money Just in Time
The timing for the eurozone was critical, given that the region’s two major pillars, Germany and France, are beginning to feel the effects from the other weaker member nations.
And recall that the eurozone has Greece and its financial … Read More
Oil may be holding above $40.00 per barrel, but investors shouldn’t get too comfortable. The chart foreshadows oil prices could falter and maybe even drop below $40.00.
It’s true that speculation has influenced the direction of oil to some degree, but much of the negative sentiment has to do with a declining global economy that shows some despair. And while gross domestic product (GDP) growth in the U.S. is pretty decent, what we are witnessing in the global economy cannot be saved by what is happening domestically. That suggests weaker oil prices ahead—along with weaker commodity prices overall.
How Stalling in Global Economy, China Will Affect Commodities
The World Bank just cut its outlook for the global economy and the eurozone for this year. The reality is it could get much worse.
What investors have to understand is that the stalling in the global economy will impact not only oil demand and prices, but also other commodities that move in conjunction with the direction of the global economy.
Copper is declining to dangerous support levels not seen since the global economy was pulling out of its recession in 2009. Copper is dependent on GDP growth, which is at a crossroads.
Yet all eyes will be focused on China as the country gets set to deliver its fourth-quarter GDP. Based on what we are seeing in the country, the number could be ugly.
Of course, what we will likely see is a somewhat massaged version of the true GDP reading from Beijing. The government controls the flow of information it wants the world to see, so a steady decline is preferred … Read More
2014 Recap: What Will Affect the Economy in 2015
Looking back on 2014, despite the elimination of quantitative easing and the pending rise in interest rates by the Federal Reserve, it’s clear that the bulls controlled the stock market.
In early December, things were looking rough. Stocks were threatening to move lower as the market focused on the economic stalling in China, Japan, and Europe, along with the political and economic turmoil in Russia that could kill the economic renewal in the eurozone and the global economy.
However, a positive that sets up well for 2015 is the renewed positive bias that emerged and drove the DOW and S&P 500 to new record-highs. The blue chips were sizzling in late December as the DOW easily blew above the 18,000 level for the first time on December 23. Blue chips closed up 7.5%, which was a big improvement over a month earlier.
In my estimation, the buying sets up well for the New Year as financial credit remains relatively easy and flowing, and the comparative yields on bonds are way too low to shift capital. Buying 10-year bonds yielding little more than two percent is not enticing for investors who have been seeing above-average gains since 2008.
The country continues to produce jobs at a rate of more than 200,000 per month in 11 of the 12 months in 2014. I expect this to continue into 2015. Excessive growth and downward pressure in the unemployment rate could drive the Fed to look at increasing rates earlier.
Oil continues to hold at the $50.00 range, but it could move lower. Saudi Arabia, … Read More
Heck, it doesn’t look like Santa will be coming to the stock market this year. The blue-chip Dow Jones Industrial Average (DJIA) fell 185 points on Tuesday, prior to rallying to cut its loss—but this was followed by a 170-point intraday decline on Wednesday. Yesterday, the DOW did rally 63 points, but the index was up more than 200 points earlier in the session, so clearly, the apprehension continues to grip the market.
The volatility and stock market apprehension is even more amazing given that the DOW came within nine points of testing 18,000 just a few days back. The mainstream financial media was quickly talking about the DOW at 20,000 and how amazing the stock market bull run was. On CNBC, I heard a stock market pundit talk about how we were at the start of a colossal 15-year bull market.
Now, I’m not saying it can’t happen, as we have already seen decade-long stock market bull runs over the last few decades, so it could materialize. The real test, however, will be when bond yields and interest rates begin to ratchet higher, which will likely be sometime by mid-2015.
Economic Mess Forming in Global Economy
The key now will be the global economy and whether it can avert a sustained slowdown. It doesn’t help that Russian President Putin is causing unnecessary political strife that will likely drive his country’s economy into another recession next year—a move that will also impact Europe’s economies.
Meanwhile, Germany is struggling to regain its footing after spending so much money and effort trying to save the eurozone from a financial abyss. Without Germany … Read More
Recently, in the U.S. economy, we have been seeing decent jobs numbers, cheaper gas prices, and appreciating wealth in the housing market. The end result is consumers with more money to spend on things that make them happy, such as dining and travel. And I can see an investment opportunity opening up in some restaurant stocks.
When people are confident with their financial situation, they tend to spend more freely.
Take a look at the chart of the Dow Jones US Restaurants & Bars Index, which has been edging higher and appears to be breaking out following a sideways channel. I feel there’s a continued investment opportunity in the sector, as long as the economic growth holds and people continue to feel confident.
Chart courtesy of www.StockCharts.com
Whether it is fast food, family dining, or higher-end dining, the restaurant business is all about marketing food that appeals to diners and meets their needs.
The Long-Term Investment Opportunity: McDonald’s
Over the last couple of years, one of these restaurant stocks was McDonalds Corporation (NYSE/MCD). The seller of the “Big Mac” with the famous golden arches had its issues years ago when diners were caught up in the move to healthier eating. McDonald’s revised its menu and added healthier choices, which resulted in the stock surging back to the top of the restaurant sector.
While McDonald’s remains a long-term investment opportunity, the company has been facing competition from new entrants into the fast food market that offer alternatives.
The Rapidly Expanding Investment: Chipotle
An investment opportunity in restaurant stocks over the past few years has been Chipotle Mexican Grill, Inc. (NYSE/CMG), which … Read More
October U.S. retail sector sales numbers are in, but are they worth getting excited about?
The Census Bureau announced on Wednesday that October retail sector sales increased 0.4% month-over-month and 3.9% year-over-year to $428.1 billion. From a shorter-term perspective, the 0.4% increase really isn’t anything to get excited about; that 3.9% year-over-year increase, though, looks pretty good. (Source: “Advance Monthly Sales for Retail and Food Services October 2013,” U.S. Census Bureau web site, November 20, 2013.)
Or does it? Take a step back, and you can see we’ve been in a downtrend for the last few years.
In October 2010, U.S. retail sector sales were up 6.9% month-over-month. This isn’t a big surprise when you consider the so-called economic recovery only began in mid-2009. In October 2011, U.S. retail sector sales were up 7.6% year-over-year, another strong gain on the back of ongoing optimism that the economy would rebound. (Source: “Retail and Food Services Sales,” Federal Reserve Bank of St. Louis Economic Research web site, November 20, 2013.)
But then we realized the economic recovery wasn’t much of a recovery at all. In 2012, October retail sector sales were up just 4.4%, almost half the gain of the previous year, and in October 2013, U.S. retail sector sales were up just 3.9%. Looking at it from a longer-term perspective, even the recent October year-over-year numbers aren’t anything to get worked up about.
Today, we’re more than 50 months and $3.0-plus trillion into the Federal Reserve-guided recovery, and we really don’t have much to show for it. In fact, you could argue that the economy might have done better without any … Read More
Maybe I’m reading into the economy too much, but the current state of the U.S. economy and Wall Street isn’t adding up. The vast majority of people don’t think we’re in a bubble, including Federal Reserve chair nominee Janet Yellen. Granted, you can only really point to a bubble in retrospect, but still, it certainly looks and feels like we are in one.
Talking before the Senate Banking Committee during her first public appearance as Federal Reserve chair nominee, Janet Yellen said she plans to keep printing $85.0 billion a month and set no timetable for when the Fed will begin to taper.
Truth be told, the Federal Reserve has been, for the most part, pretty straightforward about when it will taper its quantitative easing policy: when the U.S. economy improves. For most, that means an unemployment rate of 6.5% and inflation at 2.5%.
At the same time, other scenarios have been floated about, including no tapering until the unemployment rate hits 5.5%, or better yet, the Federal Reserve begins to taper in early 2014, but continues to keep interest rates artificially low until, by some estimates, 2020. Really, what’s the rush?
And why should they? Since early 2009, the S&P 500 has climbed more than 160% and is up more than 25% year-to-date. The Dow Jones Industrial Average, on the other hand, is up 132% since early 2009 and is up 21.5% year-to-date. And it looks like the good times are going to continue to roll, because, in the words of Janet Yellen, “It could be costly to fail to provide accommodation [to the market].”
Take a few steps … Read More