Daily Gains Letter

jobs growth


What’s Handicapping First-Time Homebuyers?

By for Daily Gains Letter | Mar 24, 2014

First-Time HomebuyersFor months and months now we’ve been pointing to seemingly obvious economic data to prove that the U.S. housing market is in trouble because of the weak U.S. economy. Those in the “know”—economists and the real estate board—have been waxing eloquence on how the weather is the main culprit behind the disappointing U.S. housing market numbers.

The National Association of Realtors (NAR) said existing-home sales in December were adversely affected by bad weather in many areas. Sales of existing homes in January were down 5.1%, reaching their lowest levels in 18 months. At the time, the NAR echoed it’s sentiment from the previous month and said the prolonged winter weather was playing a role and positive housing market activity would be delayed until spring.

Well, spring has sprung, and it looks like blaming the weather is getting a little old. Existing-home sales in February fell 0.4% month-over-month and 7.1% year-over-year to their lowest level since July 2012. (Source: “February Existing-Home Sales Remain Subdued,” National Association of Realtors web site, March 20, 2014.)

First-time homebuyers, the litmus test for how well the economy is doing, accounted for 28% of purchases in February—that’s up from 26% in January (which was the lowest market share since the NAR first started compiling monthly data). In February 2013, first-time homebuyers accounted for 30% of sales. The 30-year average for first-time homebuyers is 40%—a number both real estate professionals and economists consider ideal.

As per usual, the U.S. housing market is being propped up by those with lots of money. All-cash sales made up 35% of sales in February—up from 33% in January and 32% in … Read More


Two Precious Metal Plays for Waning Consumer Confidence

By for Daily Gains Letter | Feb 27, 2014

Two Precious Metals PlaysAgainst a backdrop of record-highs for stocks, consumer confidence is waning—seeing its greatest drop in four months. The S&P 500 touched record intra-day territory earlier in the week, suggesting the bull market remains intact and the well-earned and (far too) short-lived mini correction may be over.

Investors and analysts, it seems, have embraced blaming the cold weather for all our economic ills, effectively brushing aside weak U.S. housing numbers, jobs data, and manufacturing and retail sales.

Meanwhile, consumers—those who need jobs, houses, cars, and other items that support the companies that actually make up the S&P 500—seem to have lost faith in the economy. Consumer confidence levels in the U.S. fell more than expected in February, as Americans became more pessimistic about the economy and jobs.

Consumer confidence levels fell to 78.1 in February from a revised 79.4 in January. Economists were expecting consumer confidence levels to increase in February to 80.2, proving, once again, that Wall Street does not have its finger on the pulse of American consumer confidence levels. (Source: “The Conference Board Consumer Confidence Index Declines Moderately,” The Conference Board web site, February 25, 2014.)

Not to fear though; The Conference Board said the decline in February’s consumer confidence toward business conditions, jobs, and earnings was only “moderate,” meaning, I suppose, that it could be worse.

But not too much…

Those optimistic Americans claiming jobs are plentiful increased slightly to 13.9% from 12.5%. Those who think jobs are hard to get were virtually unchanged at 32.5% from 32.7%. It’s incredible, really, that The Conference Board can, with a straight face, proclaim that our appraisal of current economic … 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


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

By for Daily Gains Letter | Dec 20, 2013

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

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

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

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

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

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


The “For Sale” Sign on Precious Metals

By Sasha Cekerevac for Daily Gains Letter | Dec 13, 2013

Sign on Precious MetalsDo you feel wealthier today compared to last year?

According to the Federal Reserve, you should, as the household net worth of Americans rose 2.5% between the second and third quarters of 2013 for a total of $77.3 trillion. (Source: “Financial Accounts of the United States,” Federal Reserve, December 9, 2013.)

The Federal Reserve calculates household net worth by looking at the value of stocks, homes, and other assets, minus mortgages and debts.

In fact, the nominal total wealth is at a record high. Adjusted for inflation, the current level of net worth is approximately one percent below the peak prior to the Great Recession. On paper, it appears as though economic growth is booming thanks to the Federal Reserve.

But if you’re like most Americans, you’re probably skeptical of this so-called economic “growth,” and rightfully so, since the underlying fundamentals of economic growth really are missing.

While we are seeing some jobs growth, it’s obvious that the current situation is far from ideal. Millions of people remain unemployed, and the jobs being created are of poor quality.

However, because of the Federal Reserve’s easy money printing, asset prices have been boosted upward, creating a significant amount of wealth for the top portion of America’s society.

Over the long term, we cannot have sustainable economic growth if only the top five to 10% of Americans participate. While the Federal Reserve has tried to create economic growth for everyone, the policies are quite clearly tilted toward the very wealthy.

What does this say about the current level in the stock market?

Many people in the mainstream media are stating that the … Read More


October’s Upbeat Home Sales Good News for Bears?

By for Daily Gains Letter | Dec 6, 2013

Good News for BearsGood news is not always what it seems. On the surface, October’s new U.S. housing market sales numbers came in well above the forecast. But dig a little into the foundation of the report, and you’ll find more than a few reasons to be skeptical.

But before we dig deeper, let’s first take a look at the overall numbers. In October, sales of new single-family houses came in at a seasonally adjusted rate of 444,000, a whopping 25.4% increase month-over-month above the revised September rate of 354,000 and a 21.6% increase year-over-year. (Source: “New Residential Sales in October 2013,” United State Census Bureau web site, December 4, 2013.)

Those are pretty solid numbers—at least, until you factor in the 20% margin of error on the numbers provided by the U.S. Census Bureau and Department of Housing and Urban Development.

On top of that, sales for June, July, August, and September were all revised lower. Sales were revised downward by 0.9% in June, 4.4% in July, 10% in August, and 6.6% in September.

It’s also all about perspective. On one hand, you could champion the U.S. housing market recovery by noting that the 25.4% increase from September was the biggest one-month gain in more than 30 years! On the other hand, October’s new U.S. housing market home starts number is tempered a little when you consider the September 2013 rate of 354,000 was the weakest reading since April 2012.

Still, you can’t ignore the fact that new starts in the U.S. housing market are up month-over-month—but what’s fueling the growth? It can’t be a result of sustained jobs growth, as the … Read More


How Low Interest Rates Are Holding 144 Million U.S. Workers Hostage

By for Daily Gains Letter | Oct 28, 2013

144 Million U.S. Workers HostageAre the long-term retirement plans of working Americans being held hostage by the Federal Reserve?

If the point of quantitative easing was to stave off a recession and spur jobs growth, I think it’s fair to say the Federal Reserve’s $85.0-billion-per-month money-printing scheme has been a failure. At the very least, I’m not so sure the money was well spent, and that the end does not justify the means.

I enter as evidence almost $4.0 trillion that the Federal Reserve has dumped into the U.S. economy since 2009. To put that into perspective, the average unemployment rate that same year was around 8.5%; that translates into roughly 13.1 million Americans being out of work in 2009. Fast-forward to today, and the unemployment rate stands at an unacceptable 7.2%, or 11.3 million Americans. (Sources: “Civilian Labor Force (CLF16OV),” Federal Reserve Bank of St. Louis Economic Research web site, last accessed October 24, 2013; “The Employment Situation – September 2013,” U.S. Bureau of Labor Statistics web site, October 22, 2013.)

It could be argued that over the last four years, the Federal Reserve has printed off $4.0 trillion to create 1.8 million jobs.

But at what expense? Since the stock market crash in 2008, the Federal Reserve, through its use of quantitative easing, has sent U.S. interest rates towards near-record lows. In fact, the Federal Reserve has kept the federal funds rate target between zero and 0.25% for almost five years.

That’s terrible news for anyone looking to save money, and near-record-low interest rates make it virtually impossible for people to save money to meet their retirement needs. Sadly, for those nearing … Read More


Stellar Jobs Growth in Restaurant Industry Making These Fast Food Stocks Irresistible

By for Daily Gains Letter | Aug 26, 2013

Fast Food Stocks Irresistible to InvestorsQuick-service (aka fast food) restaurants may want to herd customers in and out as swiftly as possible, but when it comes to their numbers, it’s worth slowing down a little.

For example, on any given day, the restaurant industry generates around $1.8 billion in sales. In July 2013, industry sales came in at $45.83 billion, a 17.7% increase over the $38.93 billion recorded in July 2010. When it comes to pulling your weight, few do it like fast food employees: in 2011, sales per full-time-equivalent (non-supervisory) employee were a jaw-dropping $83,947. For investors, restaurant stocks can make a lot of money. (Sources: “America Shops: U.S. Retail and Food Service Sales,” The Wall Street Journal, August 13, 2013; “2013 Restaurant Industry Pocket Factbook,” Restaurant.org, 2013.)

It takes a lot of people to generate these daily sales for restaurant stocks; in fact, it takes more than 13 million people, or nearly 10% of the U.S. workforce. Over the next decade, the restaurant industry is expected to add a further 1.3 million jobs, reaching 14.4 million by 2023.

Perhaps not surprisingly, restaurant industry jobs growth has, for the past 13 consecutive years (2000 to 2013) and counting, outpaced the overall U.S. economy. On the whole, restaurants and restaurant stocks are a good barometer of the health of the economy. If restaurant stocks are reporting solid growth, it means Americans have more disposable income.

While a handful of restaurant stocks like McDonalds Corporation (NYSE/MCD), Burger King Worldwide Inc. (NYSE/BKW), and The Wendy’s Company (NASDAQ/WEN) may grab most of the attention, there are a large number of other restaurant stocks out there, some well known … Read More