The Federal Reserve made it official on Wednesday, announcing it would be cutting the remaining $15.0 billion from its monthly bond-buying program, also known as QE3.
So with that, the period of easy money flowing into the pockets of investors is over. Remember, it was the Federal Reserve’s relaxed easy monetary policy that helped to drive the S&P 500 up nearly 200% since 2009—and now it’s over, folks.
The stock market reacted with stocks heading lower, as there was a slight sliver of hope the Federal Reserve would decide to hold back on eliminating QE3. Investors will now have to deal with bond yields that could begin to move higher on the Federal Reserve’s move.
The Federal Reserve didn’t give a timeframe for when interest rates will begin to move higher from their near-zero levels, but the consensus is calling for the rate increase to begin sometime in mid- to late 2015. As you know, higher rates by the Federal Reserve will drive up yields and carrying costs for both companies and personal debt. Just think about the more than $17.7 trillion in national debt and how the higher interest rates will impact the government’s out-of-control carrying costs.
We are at what I would call a crux.
Stocks want to go higher but need a fresh catalyst to do so. The advance reading of the third-quarter gross domestic product (GDP) growth came in at a healthy annualized growth rate of 3.5%, which while down from the booming 4.6% in the second quarter, is nonetheless indicative that the economy is expanding.
At the end of the day, a strong economy, continued … Read More
For investors in small-cap stocks, this year has been quite a different experience from 2013, when the sector was raging and sizzling on the price charts.
Small-cap stocks are the laggards this year, with the benchmark Russell 2000 down nearly 14% from its peak and established in a bear market. The selling may be somewhat extreme at first glance but consider that the Russell 2000 surged an excessive 33% in 2013.
The reality is that gains like what we witnessed in 2013 were unwarranted; they were driven solely by the easy monetary policy put forth by the Federal Reserve and excessive froth in the stock market. We are now paying for the euphoria small-cap stocks encountered in 2013.
Now, while I continue to feel small-cap stocks are excellent longer-term plays, the short-term looks weary, given the technical breakdown on the chart of the Russell 2000.
Dumping higher-risk small-cap stocks is clearly the line of attack this year. But if the economic renewal holds into 2015 and the global economy doesn’t tank, we could see small-cap stocks rally next year. Keep this thought in mind, but know that at this time, it’s safer to shift your money to the large-cap or blue-chip stocks that have been battered this year.
Buying mature, consistent large-cap stocks on weakness makes sense as these companies have proven themselves to be steady players over time.
Think about it this way: Small companies will tend to struggle if the economy declines. Compared to the larger companies that can deal with several quarters or even years of underperformance, small-cap stocks would have a much more difficult time.
For … Read More
In 2013, when it was announced that the eurozone had emerged from its double-dip recession, the European stock market was optimistic and drove stocks higher.
Yet there was a sense the route to higher gross domestic product (GDP) growth was not clear due to the massive debt still on the books of many of the eurozone’s weakest members, widely known as the PIIGS nations (Portugal, Ireland, Italy, Greece, and Spain). Yes, the countries have shown some recovery, but they continue to be plagued by massive debt and abnormally high unemployment.
Unemployment across the region continues to run in the low double-digits, around 12%. For the youth under the age of 25, it’s much worse, with the unemployment rate around 40% in some of the PIIGS countries.
The problem is that a weak jobs market in the eurozone doesn’t reflect positively for the economies.
We are now seeing growth issues with the two pillars of the Eurozone, Germany and France, which are widely credited with helping to save the eurozone from a financial Armageddon.
The effects of the economic sanctions placed on Russia for its involvement in the Ukraine crisis appear to finally be filtering their way through to the eurozone and Europe, specifically Germany. One of Russia’s biggest trading partners, Germany saw a 5.8% decline in its exports in September alone.
The reality is that a weaker Germany doesn’t bode well for the eurozone.
In addition, with more than 800 million inhabitants in Europe, the market is significant. Slowing in this market will surely have an impact on growth in China and the United States, as well as the global … Read More
If you think Americans are firmly comfortable in the economy and jobs, think again. Yes, the stock market has returned strong gains and has been an investment opportunity over the past five years (since the end of the Great Recession in 2008), but much of it was artificially driven by the lax monetary policy put forth by the Federal Reserve. Now that the quantitative easing is dissipating and interest rates are set to edge higher sometime in mid-2015, I’m not all that comfortable.
The jobs numbers are improving, but they are still well below the 500,000 per month that some pundits deemed to be a sign of a healthy jobs market. We are generating about 200,000 jobs each month, which is well below what we want to see. In fact, we have only recovered the jobs lost during the recession—and we still need to build on that.
Given that there are still approximately 46 million Americans collecting food stamps, you’d understand why I still feel uneasy about the so-called economic growth in progress.
Consumers are still not spending at a rate many are hoping for. This is especially true in durable goods, which are not required for everyday living, so their buying can be bypassed.
As far as I’m concerned, the retail numbers still stink and don’t point to an investment opportunity in retail. Just take a look at the metrics at the big multinationals, such as Wal-Mart Stores Inc. (NYSE/WMT) and other retailers. While retail sales grow at a muted pace here, the growth is around 12% in China, where there is an investment opportunity in retailers.
Dick’s Sporting … Read More
Simply put, if Russia is held accountable, the downing of Malaysian Airlines flight ML17 in eastern Ukraine could destabilize the situation in the region and filter into the eurozone and Europe. That’s bad news.
When the conflict first surfaced regarding the possible annexation of the Crimea region and the influence of Russia, there were concerns after economic sanctions were levied on Russia. The following vote in Crimea that indicated a desire to leave Ukraine has further raised the geopolitical stakes in the volatile area and intensified the fighting between the pro-Russian rebels and Ukraine.
It’s a mess, and the shooting down of ML17 made the situation much worse. We are seeing increased economic sanctions on Russia, and this will likely impact the eurozone and Eastern Europe. There is also news of a Russian steel company selling some properties in the United States.
Of course, we are also hearing that the rich Russians who count on business in Russia and the global economy are also feeling the economic pinch and are not happy. The problem is that they won’t say anything towards the situation, assumedly due to their fear of President Putin and the Kremlin.
And while Europe is intensifying the pressure on Russia to do something, there’s also a need for the flow of oil and natural gas to continue into the eurozone and Europe, which gets about 40% of its energy needs from Russia.
While the impact on the Russian embargo has yet to be fully felt by the eurozone and Europe, it could worsen if the Ukraine conflict intensifies. In the first quarter, gross domestic product (GDP) growth … Read More
The stock market is looking higher. The DOW and the S&P 500 closed up for the fifth straight month as we enter into the second half of what has largely been a mixed and cautious year.
For growth investors, the good news is that small-cap stocks came back in June with a 5.15% advance and are easily leading the broader market. Technology also fared well with the NASDAQ up 3.9% in June. Blue chips and large-caps trailed the growth side. In the first half, the S&P 500 leads with a 6.07% gain followed by the 5.54% advance in the NASDAQ.
And while stocks are edging higher towards new records, we are also seeing positive gains in the critical jobs numbers. This is essential for the economy and consumer confidence.
We saw strong non-farm payroll jobs numbers for June last Thursday with the creation of 288,000 new jobs, which easily beat the consensus 215,000 estimate and the 244,000 jobs in May. Better yet, the unemployment rate also fell to 6.1%, the lowest level in nearly six years.
The growth in the jobs numbers will gain more traction in the stock market when the reading can surpass the 300,000 level, which could trigger heightened optimism.
What the higher jobs numbers mean is more business for the jobs placement firms, from the everyday jobs to management and executive positions.
A contrarian and speculative play on the jobs numbers recovery is Monster Worldwide, Inc. (NYSE/MWW), which currently sits around $6.85 per share with a market cap of $623 million.
Monster Worldwide runs the widely known job search web site Monster.com and was the first … Read More
The situation in Crimea should be closely monitored as it pertains to Europe and the eurozone. Russia is a major trading partner with the eurozone as well, supplying about 40% of the energy requirements in the area. That is why an escalation in Crimea could devastate the region, especially at a time when the economy is finally growing in the eurozone.
I’m carefully watching the stand-off in Crimea and, more importantly, what Russia is doing. Whether it’s simply geopolitical posturing or a plan to enter into Crimea is unclear. The Russians really don’t want a conflict, as it would likely push the country into a recession.
And a recession in Russia would also impact Europe and could drive the region’s economies down. Now, Russia is currently setting up meetings with the United States and United Nations (UN), so there’s some optimism that a peaceful resolution could emerge from the crisis.
The reality is that a healthy Russia also means better times for Eastern Europe, including some of the area’s strongest economic regions, such as Poland.
I view Europe and the eurozone as a potential investment opportunity if the Russia-Ukraine situation is resolved.
The market in Europe and the eurozone is massive and includes more than 800 million people who demand goods and services.
The eurozone’s gross domestic product (GDP) expanded at a rate of 0.3% in the fourth quarter, according to Eurostat. The eurozone is estimated to report GDP growth of 1.2% this year and 1.5% in 2015, according to the International Monetary Fund (IMF). Of course, these numbers could decline if a conflict surfaces in Ukraine.
A look at … 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
We narrowly averted the first fiscal cliff on January 1, 2013—now, it’s the infrastructure fiscal cliff of 2014! Over the last number of weeks, stories and new reports have been coming out about how much it will take to fix America’s aging infrastructure.
Every four years, the American Society of Civil Engineers (ASCE) grades the country and its states on the conditions of their infrastructure—and it isn’t pretty. Using a simple A–F school report card format, America’s cumulative grade average for infrastructure came in at D+! (Source: Infrastructure Report Card web site, January 2014.)
Overall, most (not all) grades fell below a C. Inland waterways and levees received a D-. And it will take a $100-billion investment to get things in shape. Dams earned a solid D and a repair price tag of $21.0 billion.
The grade for wastewater improved slightly to a D. Over the next 20 years, costs for the country’s wastewater and stormwater systems are expected to come in around $300 billion; representing three-quarters of the total infrastructure costs.
America’s aging bridges earned a C+ and need an investment of $76.0 billion. The country’s roads got a D and need an 86% annual budgetary increase, from $91.0 billion to $170 billion, to meet long-term needs.
As for America’s public schools, they received a D. For starters, half of U.S. public schools were built to educate the baby boomer generation—the first wave of whom are now retiring. Since the start of the recession (2008), state funding for education has declined, with 35 states providing less funding now than their 2008 levels.
This isn’t a total surprise when you … Read More
Despite stagnant wages and increased borrowing, Americans ramped up their consumer spending in January. The United States Department of Commerce said earlier this week that consumer spending rose 0.4% in January versus a forecast of 0.2%. (Source: “Real Consumer Spending Rises in January,” Bureau of Economic Analysis web site, March 3, 2014.)
Unfortunately, January’s boost in consumer spending wasn’t as broadly based as many were hoping. Spending on durable goods, which include cars, fell 0.3%, while spending on non-durable goods, such as clothing and food, fell 0.7%.
Consumer spending on services increased 0.8%—the biggest jump in services since October 2001. The increase in services spending can be attributed to higher heating bills and more and more people signing up for Obamacare. In fact, without the 11.3% jump in utility bills, consumer spending would have essentially been flat.
For an economy that gets roughly 70% of its growth from wide-based consumer spending, these results are not spectacular.
The increase in consumer spending comes on the heels of a report from the Bureau of Economic Analysis that personal income levels climbed 0.3% month-over-month in January after remaining flat in December. (Source: “Personal Income and Outlays, January 2014,” Bureau of Economic Analysis web site, March 3, 2014.)
This is pretty much in step with consumer spending. But there is an economic disconnect happening. While consumer spending fuels economic growth in this country—if left unchecked, consumer spending can also help throw the economy off a cliff.
According to the Federal Reserve Bank of New York, at $11.52 trillion, overall consumer debt levels (including mortgages, auto loans, student loans, and credit cards) are at their … Read More
These 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
I hate to harp on the U.S. housing market so much, but it is a major indicator of the health of the U.S. economy. Following previous recessions, investment in the U.S. housing market increased early on and helped drive the recovery. In fact, the U.S. housing market was a major factor that helped lift the U.S. economy out of past recessions in 1981, 1990, and 2001. But it isn’t happening this time around.
According to the National Association of Home Builders, the U.S. housing market contributes to the country’s gross domestic product (GDP) in two ways: private residential investment and consumption spending on housing services. Historically, residential investment, which includes construction of new single-family and multi-family structures, residential remodeling, the production of manufactured homes, and brokers’ fees, has averaged around five percent of U.S. GDP. (Source: “Housing’s Contribution to Gross Domestic Product (GDP),” National Association of Home Builders web site, last accessed March 3, 2014.)
Housing services, which includes gross rent, utility payments, and imputed rent (an estimate of how much it would cost to rent owner-occupied units), averages between 12% and 13%. That leads to a combined total of 17%–18%.
But the U.S. housing market has been falling short as an engine of economic growth. In 2005, residential investment accounted for 6.1% of U.S. GDP. In 2012, it accounted for just 2.8%, and it has averaged just three percent since then—meaning that two percent of the national GDP is missing from private residential investment.
More broadly, since the U.S. housing market collapsed in 2008, the industry has made less than half its normal contribution to U.S. economic growth. According … Read More
While the U.S. economy is hardly on solid footing, the fact remains that as the world’s biggest and most influential economy, the U.S. doesn’t have to be running optimally to keep the global economy chugging along. Though, it would be nice if the U.S. economy would gain sustainable traction. Until then, we will have to be content with its glacial pace of recovery.
And it is slow. In 2012, gross domestic product (GDP) growth was 2.8% and in 2013, it slowed to just 1.9%. Things are expected to get better over the next two years. U.S. GDP growth is forecast to hit 2.8% in 2014 and an even three percent in 2015.
The rest of the world will be playing catch-up. Well, save for the Chinese economy, which has a 2014 growth forecast of 7.5%. GDP growth in the eurozone picked up 0.3% in the fourth quarter of 2013—the third quarter of growth since the end of an 18-month recession. (Source: “Eurozone GDP growth gathers speed,” BBC News web site, February 14, 2014.)
The International Monetary Fund (IMF) forecasts that India’s GDP growth will hit 4.6% this year and climb to 5.4% in 2015. Brazil recently revised its 2014 GDP growth rate from 3.8% to 2.5%—which is still higher than analysts’ GDP growth forecasts of 1.79%. (Sources: Mishra, A.R., “IMF says India needs more rate hikes to bring inflation down,” Livemint.com, The Wall Street Journal, February 20, 2014; “Brazil cuts 2014 budget, GDP estimate,” Buenos Aires Herald web site, February 21, 2014.)
For investors who have been waiting for a broadly based global recovery, these are encouraging signs. It also … Read More
If the state of the U.S. housing market is a key indicator on the health of the U.S. economy, things aren’t looking great. Against a backdrop of an obviously weak U.S. economy, U.S. housing prices have been rising steadily higher, beyond the reach of affordability for the average American.
According to a CoreLogic report, national housing prices are expected to climb 10.2% year-over-year. In 2012, U.S. housing prices increased 11%. While these are solid numbers, it’s important to remember that U.S. housing prices are still roughly 20% below their 2007 pre-recession highs. (Source: Gruszecki, D., “HOUSING: CoreLogic report, Inland home prices up 22% in January,” The Press-Enterprise web site, February 4, 2014.)
In spite of this divergence, fewer homebuyers are able to actually take advantage of the near-record-low interest rate environment and get into the market. That’s because first-time homebuyers—the fuel of the U.S. housing market—are being shut out by investors.
First-time homebuyers account for just 27% of all U.S. housing purchases in December—a huge spread over the 30-year average of 40%. But in spite of U.S. housing prices still being depressed compared to 2007, December existing-home sales rose just one percent month-over-month, which was less than expected.
Granted, some will say that first-time homebuyers tend to purchase lower-priced homes and are not necessarily a true reflection of the U.S. housing market. New homes are, as that theory goes, more geared toward those looking to climb up the property ladder. Well, for those who recall, December new-home sales fell more than expected—seven percent to a seasonally adjusted annual rate of 414,000. At the time, we were told not to worry, … Read More
For an economy that relies on consumer spending to fuel the vast majority of its economic growth, ongoing weak retail sector sales and increased jobless claims cannot be part of the equation. But they are. And have been.
In January, U.S. retail sector sales fell by 0.4%—the most since June 2012. Economists had predicted that January’s retail sector sales would be unchanged in January after falling by a revised 0.1% in December. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” U.S. Census Bureau, web site, February 13, 2014.)
January retail sector sales, excluding automobiles, gasoline stations, and restaurants, showed the worst year-over-year growth since 2009. And with the harsh winter weather, January’s sales reflect the sometimes unpredictable, cyclical nature of our spending, from discretionary (e.g., cars) to non-discretionary (e.g., heating).
At the same time, more Americans filed applications for unemployment benefits for the week ended February 8. Jobless claims climbed by 8,000 to 339,000; the four-week moving average for new claims increased to 336,750 from 333,250. Many economists continue to blame the cold weather for both weak retail sector sales and increased jobless claims. (Source: “Unemployment Insurance Weekly Claims Report,” United States Department of Labor web site, February 13, 2014.)
Fortunately, there is a silver lining to all of this. They suggest we’ll start to see an acceleration in hiring and retail sector sales in the spring and summer seasons—meaning they have written off the entire first quarter of the year, a quarter most economists initially predicted would be bullish. Myself and the financial editors here at Daily Gains Letter, on the other hand, have been warning … Read More
With the markets selling off, many may not think now is the best time to consider discretionary stocks. But it’s because the markets are selling off that beaten-down stocks selling non-essential products and services (what people want, not need) might be worth a second look—not just because many discretionary stocks are beaten down, but rather because consumer spending fuels the majority of economic growth in this country.
Normally, when consumers have the money to spend, they do so on discretionary items like travel, electronics, cars, and luxury brands. But, as virtually all of us can contest, this isn’t always the case. Credit card purchases may not be the same as having discretionary income, but they accomplish the same short-term goals.
Granted, there is a mountain of evidence to suggest investors should shun discretionary stocks. Unemployment is high, wages are stagnant, and, for the first time ever, working-age Americans are the primary recipients of food stamps. On top of that, median household income (adjusted for inflation) has declined for five straight years. (Source: DeNavas-Walt, C., et al., “Income, Poverty, and Health Insurance Coverage in the United States: 2012,” United States Census Bureau web site, September 2013.)
That hasn’t stopped us from spending. At $3.04 trillion, consumer credit is up 22% over the last three years. Total household debt is more than $13.0 trillion, close to its 2007 pre-recession level and just below the $17.0-trillion government debt load. (Source: Cox, J., “It’s back with a vengeance: Private debt,” CNBC, October 12, 2013.)
During the last quarter of 2013, the U.S. economy expanded at an annual rate of 3.2%. During the third quarter, … Read More
The technology sector was my top growth area in 2013 and it has been since the reversal out of the recession. The euphoric buying in social media and Internet services stocks in 2013 obviously shows the immense upside price appreciation potential that lies in the technology sector.
The NASDAQ recently broke above 4,200 to a 13-year high and is within 20% of its all-time high of just over 5,100, which it achieved during those crazy and irrational times in late 1999 and early 2000. But we all know what happened thereafter, when the Internet bubble burst.
Now, while we have seen some big-league moves in some of the mobile and social media stocks, the gains are still nowhere near the ridiculous moves made some 14 years ago in the technology sector. I recall some speculators becoming millionaires via buying technology penny stocks that really had no financial history, but these companies were able to cater to the greed in investors to propel the stock market higher.
I doubt these times will surface again, but we will likely see glimpses when stocks rocket higher for no apparent reason except momentum.
Following the Internet bubble, I thought we may not see 5,000 on the NASDAQ for years. But that time has arrived, as the NASDAQ may be set to reach this former pinnacle sometime in early 2015, as long as the investment climate remains positive for stocks.
Take a look at the long-term chart of the NASDAQ below. Notice the record peak in March 2000, when stocks spiked higher.
Chart courtesy of www.StockCharts.com
Since the technology sector imploded and the NASDAQ bottomed … 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
By Sasha Cekerevac for Daily Gains Letter | Jan 22, 2014
One of the hardest lessons to learn is to buy assets when others are selling them. As an investment strategy, if there is value in something, at some point, the market will rebound, provided that there are fundamental reasons for this to occur.
Take the case of our housing market. From the depths of the Great Recession until now, the housing market has made a huge move up. Yes, it was pushed by the Federal Reserve, but there were fundamental reasons why the housing market showed value as an investment strategy.
One company that I’ve liked for many years is The Blackstone Group L.P. (NYSE/BX). This firm is filled with smart people who are willing to buy an asset when others are negative, looking at the investment strategy from a long-term point of view.
Blackstone has become the largest single-family housing rental company in the U.S. When the housing market collapsed, they saw an investment opportunity, as many homes were selling below the cost of building them. Plus, the yield they were able to obtain in the housing market was far higher than many other investments at that time.
The company bought more than 40,000 homes in the U.S., spending $7.5 billion. Obviously, Blackstone made a huge return in the U.S. housing market. But now Blackstone’s turning its sights overseas.
The U.S. wasn’t the only nation to be hit with a housing market meltdown. Spain’s housing market has seen a 40% drop in prices, and Blackstone now believes this, too, is a great long-term investment opportunity.
Blackstone recently paid $173 million for 18 apartment buildings in Madrid, and the company … Read More
Is 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
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
Despite the retail sector’s every attempt to generate sales this Thanksgiving, from sharp discounts to being open earlier than ever, their efforts fell flat. It’s further evidence that the U.S. economic recovery is not as entrenched as many think it is, and once again shows the economic disconnect between Wall Street and Main Street.
In spite of high unemployment, stagnant wages, consumer confidence at a seven-month low, and a smaller number of people forecast to hit the shops over the Thanksgiving weekend, the National Retail Federation still predicted sales to grow 3.9% from last year. (Source: Banjo, S., “Holiday Sales Sag Despite Blitz of Deals,” Yahoo.com, December 2, 2013.)
Over the Black Friday weekend in 2012, U.S. shoppers spent roughly $60.0 billion in the retail sector, but this year, it was a different story altogether. While the final numbers have yet to be tallied, early indicators show that total U.S. retail sector spending over the Thanksgiving weekend fell to $57.4 billion. It’s also the first time that retail sector spending over the Thanksgiving weekend has dipped in at least four years.
Even during the worst of the recession and the beginning of the so-called economic recovery, U.S. shoppers were willing to spend, buoyed by optimism. Five years into the so-called economic recovery, and shoppers are tightening their belts, weighed down by pessimism.
But it didn’t start out that way; in fact, most U.S. retail sector stocks were initially quite enthusiastic about their prospects. Wal-Mart Stores, Inc. (NYSE/WMT) had originally planned to open its doors at 8:00 p.m. Thursday night, but instead opened its doors at 6:00 p.m. Target Corporation (NYSE/TGT) … Read More
Love them or hate them, fast food restaurants are an American institution. That’s not a huge surprise when you consider the hamburger was first created here around 1900 and the first fast food restaurant, A&W, opened its doors in 1919. For almost 100 years, our taste buds have been both regaled and assaulted by any number of fast food restaurants, now affectionately called “quick service.”
From its humble beginnings, the restaurant industry has become an economic juggernaut, generating around $1.8 billion in daily sales. In 2013 alone, restaurant industry sales are expected to generate $660.5 billion; that’s equal to roughly four percent of the U.S. gross domestic product. (Source: “2013 Restaurant Industry Pocket Factbook,” Restaurant.org, last accessed November 8, 2013.)
While the U.S. restaurant and quick service industry took a hit immediately following the Great Recession, the industry has bounced back. During the second quarter, trips to quick service restaurants—which account for 78% of industry traffic—were up by one percent, while consumer spending increased by three percent. (Source: “U.S. Restaurant Traffic Increases Modestly and Average Check Growth Drives Spending Gains in Q2, Reports NPD,” NPD Group web site, September 17, 2013.)
More specifically, traffic to fast casual restaurants, which is included under the quick service banner, increased by eight percent in the second quarter. After several consecutive quarters of decline, casual dining held steady. Things were not so good for midscale/family dining restaurants, however, which experienced a two-percent decline in traffic.
Even though the U.S. retail and food services sales results for the third quarter have not been released yet, the U.S. Census Bureau announced recently that advance estimates of … Read More
Are 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
Despite Congress miraculously pulling the U.S. back from the brink of destruction by temporarily raising the debt ceiling and ending the U.S. government shutdown, Americans continue to be a pessimistic bunch. But can you blame us?
According to Gallup’s U.S. Economic Confidence Index, consumer sentiment remains in negative territory. After falling to -39 during the recent standoff in Washington, U.S. economic confidence has improved to -36. To use the term “improved” is being generous; in late May, the index was at -3. (Source: “U.S. Economic Confidence Index [Weekly],” Gallup web site, October 14, 2013.)
While the brinksmanship in Washington is (temporarily) over, our pessimism isn’t. According to another poll, 71% said economic conditions right now are poor, while just 29% said economic conditions are good—the lowest level of the year. Now granted, it takes time for economic confidence to return; following the debt negotiations in 2011, it took economic confidence five months to recover. (Source: Steinhauser, P., “CNN Poll: After shutdown, America is less optimistic about economy,” CNN web site, October 22, 2013.)
Unfortunately, it could be worse this time, thanks in large part to high unemployment and stagnant income and wages. And there’s also the fact that Washington only agreed to fund the government through to January 15, 2014 and extend the debt ceiling through February 7, 2014. Americans can’t get too optimistic about the economy knowing the government is just taking time to reload.
Fortunately, there are economic lands where optimism is blooming in light of real economic change. Economic optimism in the eurozone improved for the fifth straight month and hit a two-year high in September. The … Read More
Federal Reserve Chairman Ben Bernanke has reassured us that his quantitative easing (QE) efforts have been an asset for both Wall Street and Main Street. But for some odd reason, the benefits seem to be trickling upward.
Over the last four years, the S&P 500 has climbed 150%. During the same time frame, the number of Americans receiving food stamps has risen 113% to 47 million, or one-sixth of the American population.
As a broader measure, since the Great Recession began, the top one percent of earners have seen their incomes rise 31.4%, while the bottom 99% saw their earnings rise 0.4%. This translates into the top one percent capturing 95% of the total growth in American wealth during the so-called recovery.
Even those Americans who thought they planned responsibly for retirement have been caught flat-footed. Thanks to QE and artificially low interest rates, the Federal Reserve has taken “income” out of “fixed income” investments and made saving for retirement that much harder.
And with “QE Infinity” in play, it’s not going to get any easier. According to a new global study, one in eight workers say they will never be able to fully retire. It’s worse in the U.S. and the U.K., where the numbers sit at roughly 20%. (Source: “The Future of Retirement: Life after Work?,” HSBC.com, September 2013.)
On top of that, just 51% of American workers say they were “very” or “somewhat” confident that they would have enough money to live comfortably in retirement; in 1995, that number was 72%. That said, 51% actually seems a little optimistic when you consider that 57% of workers say … Read More
Consumers like to purchase stuff, whether they need it or not. In the United States, this tendency to buy is our economic engine, driving 70% of all U.S. economic growth. In 2012, $11.119 trillion of the $15.685 trillion produced in the U.S. went towards household purchases. (Source: Amadeo, K., “What Are the Components of GDP?” About.com, April 25, 2013.)
With that much at stake, it’s easy to see why consumer confidence levels are one of the best economic indicators we have. If consumers are optimistic, they’ll spend more, and the economy expands; if they’re pessimistic, they rein in their discretionary spending, and the economy grinds down.
While Wall Street may be riding high, most of Main Street isn’t, and you can see that reflected in the consumer confidence numbers. High unemployment, high debt levels, and the idea of higher interest rates and slower economic growth have put a damper on America’s desire to spend the country out of its recession.
U.S. consumer confidence levels fell in August, just one month after reporting a six-year high. According to the Thomson Reuters/University of Michigan’s preliminary reading, consumer sentiment slipped to 80.0 from 85.1 in July, the highest since July 2007. Wall Street economists, who clearly have their pulse on the heartbeat of the average American, were expecting August consumer confidence levels to actually increase to 85.5. (Source: “U.S. consumer sentiment weakens in August,” Reuters web site, August 16, 2013.)
It was a different story in the eurozone: consumer confidence levels there rose in August to their highest level in more than two years. During the second quarter, it was reported that the … Read More
Investors need to be careful, as the risks on key stock indices are continuously piling up. They need to keep a close eye on their portfolio, and maybe should consider taking some profits off the table.
Since the beginning of the year, key stock indices, like the S&P 500, have been constantly increasing in value and making new highs. Recently, we witnessed the S&P 500 reach above 1,700, and other key stock indices, like the Dow Jones Industrial Average, entering uncharted territory as well.
With these increases, investors are now asking: how high can the key stock indices really go?
Looking at the broader picture, the U.S. economy isn’t performing as well as the key stock indices are suggesting. In times of high economic activity, the stock market tends to perform well. This is not the case for the U.S. economy as it stands, as the U.S. gross domestic product (GDP) only increased at an annual pace of 1.7% in the second quarter of this year. (Source: “Gross Domestic Product, second quarter 2013 (advance estimate),” Bureau of Economic Analysis, July 31, 2013.)
On top of this, the unemployment situation is still bleak in the U.S. economy, risking deterioration in consumer spending. The average American Joe is still facing many problems: look at food stamp usage and the amount of homes under negative equity, for instance.
Adding to the worries, the global economy is also showing signs of deep stress, with countries across the map showing concerns. For example, China is expected to show a significantly lower growth rate compared to its historical average this year, and the eurozone remains troubled … Read More
The road to home ownership in America may have been paved with good intentions, but the current housing market recovery shows it’s not leading to Oz. Even though home values are on the rise, U.S. home ownership, at 65%, is at its lowest level in 18 years—and for some, that’s still too high.
Since the real estate market bubble burst in 2007, a number of riskier borrowers have been squeezed out. At the same time, there are a lot of potential first-time home buyers unable to take advantage of near-record-low borrowing costs and get into the housing market because banks are wary of lending. And for a sustained housing market to take hold, first-time home buyers need to be able to actually access the housing market.
In fact, the so-called “housing market recovery” isn’t really benefiting those Washington has been pushing for. Thanks to tax credits that were made available when the Great Recession began, first-time buyers accounted for more than 50% of U.S. housing market sales as of 2009. That’s a substantial increase over the 30-year average of 40%.
The U.S. housing market has experienced some major changes since then. Today, first-time home buyers account for just 29% of sales. One could argue that first-time home buyers, typically in their 20s and 30s, don’t have enough credit history to get a mortgage. And because of stagnant wages and mile-high unemployment, they haven’t had time to build up a nest egg. After being bailed out by tax payers, banks are no longer willing to lend to those they believe are untrustworthy.
So while affordability in the U.S. housing market is … Read More
Switzerland is at a crossroads. On one hand, the country, long celebrated for its economic growth, saw its exports
hit hard in May. That’s not a good long-term indicator for a country whose exports account for 50% of the gross domestic product (GDP).
On the other hand, Switzerland recently signed a free trade deal with China. For investors looking to diversify their portfolio, all the pieces are in place for an excellent trading opportunity. (Source: “Switzerland Exports,” TradingEconomics.com, last accessed July 12, 2013.)
When most people think of Switzerland, they think of banking.
That tradition came from Switzerland’s political neutrality (it avoided both World Wars), which has translated into long-term political stability, strong monetary policies, and economic growth, making it an attractive safe haven for investors. In fact, it is estimated that almost 30% of all funds held outside their country of origin are kept in Switzerland.
More recently, Switzerland’s political neutrality meant that it has been able to enjoy economic growth while the rest of Europe was embroiled in economic turmoil. Switzerland is not a member of the European Union (EU), and only became a member of the United Nations (UN) in 2002.
As a result, trade is the foundation of Switzerland’s prosperity. Switzerland’s economic growth hinges on its main exports, including watches and clocks (TAG Heuer, Hublot, Zenith), medicinal and pharmaceutical products (Novartis, Roche), food processing (Nestle), and electronics and machinery (ABB Ltd., Sika AG).
For years, Switzerland’s economic growth has been helped, in large part, by Germany and the United States, its two largest trade partners. In 2012, Germany accounted for about 25% of Switzerland’s foreign trade. … Read More
The American Dream has taken a beating over the past few years, after the housing bubble burst and the subsequent market crash. But that’s all in the past now—or so it seems. The idea of home ownership is back on the table for a growing number of Americans.
The Department of Commerce reported that new-home sales climbed 2.1% in May compared to April—the highest level since July 2008. While the sales of new homes (476,000) remain below the 700,000 annual rate that’s considered healthy, they’re still up 29% year-over-year. The median price of a new home sold in May was up 3.3% year-over-year, at $263,900. (Source: “New Residential Construction in May 2013,” U.S. Census Bureau web site, June 18, 2013, last accessed June 28, 2013.)
Keeping the optimism alive, the National Association of Realtors (NAR) said that more Americans signed contracts in May to buy previously owned homes than at any other time in more than six years.
Total existing-home sales in May were up 4.2% to a seasonally adjusted annual rate of 5.18 million versus 4.97 million in April. Total existing-home sales are also up 12.9% over the 4.59 million recorded in May 2012. The NAR noted that the strong growth is unsustainable unless new home construction starts increase by 50%. (Source: “Existing-Home Sales Rise in May with Strong Price Increases,” National Association of Realtors web site, June 20, 2013.)
The Standard & Poor’s Case-Shiller Index showed that existing-home prices in 20 U.S. metropolitan areas were, on average, 12.1% higher in April than a year earlier. San Francisco led the way at 23.9%, with Las Vegas a close second … Read More
Will your retirement mantra be, “save, save, save,” or “work, work, work?” That depends on how close to retirement you are—at least, according to a recent study published by The Pew Charitable Trusts. (Source: “Are Americans Prepared for their Golden Years?,” The Pew Charitable Trusts web site, May 16, 2013, last accessed June 13, 2013.)
When the Great Recession hit in 2007, the oldest baby boomers were just a few short years away from retirement. And, after a lifetime of economic expansion and planning for retirement, they faced the real possibility of losing a significant portion of their savings. The economic downturn also heightened retirement planning concerns facing virtually everyone else.
Many Americans who had held off saving for retirement saw their situations exacerbated by unemployment and a bleak job market. Many more also found themselves saddled to homes that were worth a lot less than they were just a few years before—though that’s a better predicament than those who discovered their houses were worth less than the mortgages they were carrying.
According to the report, early baby boomers (those born between 1946 and 1955) were heading toward retirement with enough savings to maintain their financial security. And thanks to both the “Dot-Com” boom and housing bubble, early baby boomers had higher overall wealth, net worth, and home equity than the Great Depression babies (those born between 1926 and 1935) or war babies (born between 1936 and 1945) had at the same ages.
But that doesn’t mean their retirement plans didn’t take a hit. Between 2007 and 2010, every age group experienced a significant loss of wealth. Early boomers lost … Read More
The global economy seems to be in trouble. Some of the major economic hubs are showing deep concerns about their growth, while others are in outright economic misery and are registering poor economic performances.
China, the second-biggest hub in the global economy, is expected to grow at a much lower rate than its historical average. The International Monetary Fund (IMF) predicts the Chinese economy to grow 7.75% this year, lowering its prior forecast of eight percent. (Source: “IMF cuts China growth forecast to 7.75% in ’13,” China Daily, June 3, 2013.)
In 2012, the Chinese economy grew at the pace of 7.8%. Sadly, while this growth rate does look impressive for developed nations like the U.S., it was the slowest China had experienced in 13 years.
Japan, the third-biggest nation in the global economy, is experiencing a recession. The Bank of Japan has taken a severe approach to bringing the Japanese economy up to par, but it continues to fail. Exports from the Japanese economy remain stagnant, despite its currency falling more than 12% since the beginning of the year.
Bringing attention to the eurozone, it remains under severe stress. This time around, as the common currency region is in a recession once again, it’s not only the debt-infested nations that are suffering; the strongest and most major economies are also struggling for future growth.
Germany, the fourth-biggest economy in the world and the biggest in the eurozone, only grew 0.1% in the first quarter of 2013. In the last quarter of 2012, the German economy witnessed an economic contraction of 0.7%. (Source: “Germany reports sluggish first-quarter growth of 0.1%,” … Read More
A diverse retirement portfolio should contain stocks from a number of different sectors. With America in the throes of unpredictable spring weather, now is the perfect time to consider agricultural stocks. Not just because it’s the beginning of the seasonal growing period, but also because agriculture is one of the most diverse sectors. One good reason to consider agricultural stocks is because the sector is booming, especially exports.
Between fiscal 2009 and 2012, U.S. agricultural exports increased 41% to $135.8 billion. Going forward, world trade growth is expected to climb to between four and five percent in 2013. Europe’s recession and Japan’s economic slowdown will be major factors preventing more rapid growth in 2013. At the same time, the U.S., Asian, and Latin American economies are expected to drive higher growth in 2013. (Source: “Latest U.S. Agricultural Trade Data,” United States Department of Agriculture web site, May 2, 2013, last accessed May 16, 2013.)
And 2013 is shaping up to be a record year for U.S. agriculture. Year-to-date, U.S. agricultural exports are up 10.9% at $79.2 billion versus the same period in 2012. Thanks to overall world macroeconomics, fiscal 2013 U.S. agricultural exports are forecast at a record $142 billion. (Source: “Outlook for U.S. Agricultural Trade – FY 2013 Exports Forecast at a Record $142 Billion; Imports at a Record $112.5 Billion,” United States Department of Agriculture, Cornell University Library web site, February 21, 2013, last accessed May 16, 2013.)
As one of the most diverse sectors, where should investors interested in U.S. agricultural stocks turn? The agricultural sector contains the more obvious, traditional operations—those that grow crops and raise … 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
The 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.
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.
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
An unexpectedly rosy jobs report on Friday helped propel the Dow Jones Industrial Average and S&P 500 to record highs. The Dow Jones crossed the 15,000 threshold, touching 15,009.59, while the S&P 500 hit 1,618.46.
The U.S. Department of Labor announced that a net 165,000 jobs were created in April, and hiring was much stronger in February and March than first estimated. Together, job creation and hiring helped bring the unemployment rate down to 7.5%, the lowest in four years. (Source: “The Employment Situation – April 2013,” Bureau of Labor Statistics web site, April 3, 2013.)
The upbeat jobs report is a reassuring sign that the U.S. jobs market is indeed improving, in spite of higher taxes and government spending cuts that took effect earlier this year—and in spite of the Federal Reserve dumping $85.0 billion into the economy each month.
Growing optimism in the world’s largest economy could be just what retail investors sitting on the sidelines have been looking for.
After years of bad news, including the U.S. housing collapse, 2008 financial crisis, high unemployment, economic troubles in the eurozone, geopolitical tensions in the Middle East, nuclear threats from Dennis Rodman’s friends in North Korea, and domestic terrorism, American investors need a little silver lining.
This could be good news for all the previously ignored economically sensitive stocks. One area that has been performing well over the last 12 months has been the entertainment industry. The perfect short-term escapes for economically and politically weary people, movie studios and concert halls have been performing well. It’s one of the few cyclical industries that’s been acting like a defensive play…. Read More
When an investor is planning to grow their portfolio over time, they must realize that any economy—be it the U.S., Canada, Germany, or any other country in the world—goes through many business cycles. Some terms associated with these business cycles include “recession,” “recovery,” and “peak.”
In each stage of a business cycle, markets behave differently. Investors need to make sure they adjust their portfolio accordingly to minimize their risk. What may be good during times of economic prosperity may not be the best option during economic misery.
Recession simply refers to a period in a business cycle when a country experiences a downturn in its economy. Some characteristics of a recession include slowing industrial production, rising unemployment, and declining sales. A country is said to be in a recession when its gross domestic product (GDP)—what the economy produces—contracts for two consecutive quarters.
In a recession, businesses do poorly, so as a result, stock markets aren’t usually a great place to be. Think of it this way: if people don’t have jobs, will they go out and buy? Not likely. Companies’ profit margins get squeezed, and the stock market falls.
During a recession, investors need to look for safety—their losses in the stock market can add up. They may want to consider high-grade government bonds and companies with good fundamentals. Investors might also want to look at financial “safe havens,” such as gold, to protect their assets.
Recovery, or expansion, is a stage in the business cycle when things are getting better for the economy. Consumer confidence improves, businesses hire, and individuals find jobs. Consider the U.S. economy, for … Read More
Dow Jones Industrial Average at Record High; Defensive Plays for the Bottom 99% of Americans Who Missed the Bull Market
The Dow Jones Industrial Average hit an all-time high of more than 14,400 last Friday, soaring past the 2007 pre-recession record of 14,164. Thanks to the Wall Street hoopla, most Americans probably believe the economic recovery is firmly entrenched and the good times will keep rolling.
Those on Wall Street are certainly cheering, as are those privileged few who were already rich before the markets took middle-class American down five years ago. Unfortunately, the rest of the country doesn’t have reason to celebrate.
If you’re the Federal Reserve, this disconnect doesn’t make sense. After all, higher stock prices boost consumer wealth and confidence, which translates into increased spending.
Over the last five years, we’ve learned that unlike water, wealth trickles upward.
During the first two years of the Great Recession (2007–2009), average real income per family plummeted by more than 17%, the largest two-year drop since the Great Depression. (Source: Saez, E., “Striking it Richer: The Evolution of Top Incomes in the United States,” Berkeley University of California web site, January 23, 2013.)
But surely things got better for the average American after the so-called “economic recovery” kicked in? Not quite. Between 2009 and 2011, the top one percent of households by income reeled in 121% of all gains. How can anyone grab more than 100% of anything? It’s easy when you factor in inflation. The top one percent became 11.2% richer, while the bottom 99% became 0.4% poorer.
In 2010, the first full year of the economic recovery, the top one percent claimed 93% of all income gains.
The top one percent didn’t just do better than the bottom … Read More
The crippling recession has made it more difficult than ever to foresee where the economy is headed and where unpredictable investors are going to send the stock market.
Some stocks respond positively when the economy is weak. Most do well when the economy is chugging along. Others start to perform well when the economy begins to recover.
Since the start of the Great Recession, North Americans have been clutching their wallets a little tighter. That does not bode well for firms that rely on discretionary income and consumer confidence.
Despite the economic strain of high gas prices, North Americans continue to take to the highways. On the commercial front, the trucking industry is the driving force behind the U.S. economy, with as many as 750,000 interstate motor carriers.
Until we can replace “fill ’er up” with “beam me up,” we’ll continue to pay whatever it costs at the pumps.
TravelCenters of America LLC (NYSE/TA) operates and franchises travel centers primarily along the United States interstate highway system. The company’s network of more than 235 interstate highway travel centers in 41 U.S. states and Ontario, Canada is one of the largest in North America. Its “TCA” and “Petro” locations provide fuel, sit-down restaurants, fast food restaurants, convenience stores, and lodging. With professional truck drivers as its main customers, some outlets also offer “trucker-only” services, including: laundry and shower facilities, TV rooms, and truck repair services.
The company has a market cap of $222 million, $102 million in cash, and $96.4 million in long-term debt. Currently trading near $7.70 per share, TravelCenters has a book value of $12.33 per share.
On November … Read More
Baby boomers have dominated the North American economy over the past quarter-century. As the 77 million baby boomers enter retirement, their spending habits might be changing, but they’re still an economic force to be reckoned with.
Betting on the baby boomers to boost your investment portfolio could be as difficult as trying to time the markets. That said, there is one area that’s often overlooked but has been seriously outstripping the markets.
With children leaving the nest, a growing number of retiring baby boomers are turning to pets for companionship. They also don’t mind giving their pets the best of everything. Over the years, pet pampering has evolved from knocking table scraps onto the kitchen floor to preparing premium food, elegant grooming spas, specialized products, and luxurious overnight day-care centers that show animal-themed movies.
According to the American Pet Products Association (APPA), an estimated 72.9 million households (62%) owned a pet in 2011. In 1988, the first year the survey was conducted, 56% of U.S. households owned a pet. (Source: “2011-2012 APPA National Pet Owners Survey,” American Pet Products Association, last accessed February 15, 2013.)
While the U.S. economy has been sputtering along since 2001, the pet care industry has been on fire, with total expenditures climbing 86% to roughly $53.0 billion in 2012 (from $28.5 billion in 2001). In 2011, Americans spent $51.0 billion on pets, a 5.4% increase over the $48.4 billion spent in 2010.
Seemingly immune to the recession, when America’s retail economy was crumbling from 2008 to 2010, pet spending increased by 11.9%. (Source: Warren, E., “Despite recession, we still indulge our pets,” Chicago Tribune April … Read More
The eurozone has become one of the biggest concerns lately, and it’s sending ripples through countries in the global economy. In addition, the debt-infested nations, such as Greece, Spain, Portugal, and Italy, are dragging their peers down the path of economic misery—hurting their economic growth prospects.
Greece is in a depression, with increasing unemployment and its economic conditions quickly deteriorating. The International Monetary Fund (IMF) suggests Greece still needs more help from the other eurozone countries. The IMF believes that all the measures taken so far by the eurozone nations since the crisis began in Greece aren’t enough to bring Greece’s national debt to a sustainable level. The IMF predicts that Greece will need as much as 9.5 billion euros from 2015 to 2016, just to bring its national debt to a sustainable level. (Source: Rastello, S. and Petrakis, M., “IMF Says Greece Will Need More Money, Has Elevated Risks,” Bloomberg, January 18, 2013.)
Similarly, Spain is sinking further into recession. Spain’s economy contracted 0.7% in fourth quarter 2012. Mind you, this was the steepest decline in the country’s production since 2009. (Source: “Spanish Economic Contraction Accelerates,” Deutsche Welle, January 30, 2013.)
As a result of all this chaos, strong countries in the eurozone started to suffer, and the entire region entered another recession in the third quarter of 2012. The 17 nations of the eurozone contracted 0.1% in the third quarter, after seeing a decline in the region’s gross domestic product (GDP) of 0.2% in the first quarter. (Source: “Eurozone falls back into recession,” BBC News, November 15, 2012, last accessed February 13, 2013.)
Looking ahead, things appear to … Read More