September is usually a down month for stocks. If the past week is a preview, I see no change for 2009. We are starting to see a pattern emerge surrounding earnings. Once earnings season begins, the market rallies. As more companies report an improvement from the previous quarter and outlooks begin to improve, the market reacts favorably for almost 2 months. Then earnings optimism wears off and economic data is the only measurable news for the market. This data is flip-flopping between positive and negative. We see home sales rise but foreclosures also rise. China's GDP is ridiculously high for a recession, but the White House lowers our expectations for a quick recovery.
I do not think the market is going to see a significant correction. We will see some pullbacks and some stalling leading up to the next earnings season, but no complete pessimism like we saw at the beginning of the year. Of course unemployment will rise a little further and GDP will take time to recover, but earnings will be increasingly easier to beat compared to year over year numbers. There is lots of reasons to be bullish. Once we see consumers start to spend again and pay off their debts, the market will soar. The market will not spike anytime soon, which is a good thing, but we will see a moderate climb. Now is a good time to cash in on profits and wait for earnings season to roll around again before its time to make serious cash money.
Thursday, August 27, 2009
Thursday, August 13, 2009
Home Numbers Can Be Misleading
Over the last couple months, we have seen some significant housing numbers point toward stabilization in the housing market. Some housing industries, such as building products and real estate management, have outperformed almost everything over the past 3 months. Sure, this does look like positive signs of a turnaround. However, I would err on the side of cation.
Home prices rose in a few places, mortgage applications came in higher, and investors thought this was the bottom. If you look closer at the numbers, the overwhelming majority of metropolitan areas around the country had decreasing home prices. Foreclosures jumped in July showing that people are still having trouble paying for their home. Unemployment is still high and is expected to rise even further. It is hard to see how prices will rise and foreclosures fall when unemployment is a major problem. I haven't even mentioned the rise in mortgage rates that might also discourage new home sales.
There is no doubt that housing saw positive signs this summer and investors were happy. This may very well be the bottom. But the fact is that people are still unemployed and having trouble paying bills. New home sales are still depressed. The only ones really buying are bargain hunters who are scooping up the foreclosures. I think housing remains nothing but speculation until unemployment decreases and people are able to pay their bills without a problem. What will be first to rise? Building products. It is what we need for renovation and new homes. This is why it has been the best performer for the housing industry the past quarter. Building products is where the cash money will be. Just wait for a pullback and positive economic news. Then start buying.
Home prices rose in a few places, mortgage applications came in higher, and investors thought this was the bottom. If you look closer at the numbers, the overwhelming majority of metropolitan areas around the country had decreasing home prices. Foreclosures jumped in July showing that people are still having trouble paying for their home. Unemployment is still high and is expected to rise even further. It is hard to see how prices will rise and foreclosures fall when unemployment is a major problem. I haven't even mentioned the rise in mortgage rates that might also discourage new home sales.
There is no doubt that housing saw positive signs this summer and investors were happy. This may very well be the bottom. But the fact is that people are still unemployed and having trouble paying bills. New home sales are still depressed. The only ones really buying are bargain hunters who are scooping up the foreclosures. I think housing remains nothing but speculation until unemployment decreases and people are able to pay their bills without a problem. What will be first to rise? Building products. It is what we need for renovation and new homes. This is why it has been the best performer for the housing industry the past quarter. Building products is where the cash money will be. Just wait for a pullback and positive economic news. Then start buying.
Monday, August 10, 2009
Consumer Discretionary: An Optimistic Sector
Consumer discretionaries, mainly the retail industry, reported same store sales last week. Many same store sales were down as July turned out to be a disappointing month for retailers. You would think that these stocks would have been down on the disappointing news, but most shot up for the day. Remember when I said stock prices depend on the outlook during earnings season? Well, stock prices shot up when these retailers raised outlooks for the year. This also shows improved optimism for the overall economy.
Consumer discretionary stocks will be one of the top sectors coming out of the recession. We have seen lots of gains already and still some of these stocks are undervalued. One of the main reasons that this sector was down in sales was the fact that the consumer has not starting spending yet. We have to wait for the consumer to come around before we see these sales increase. But that doesn't mean we have to wait to buy these stocks. It will get easier to beat YOY numbers as we reach last year's worst quarters. Stocks will soar as they are able to handily beat these numbers and even some estimates. It's never too early to be making cash money. Wait for pullback and then load up on consumer discretionary.
Consumer discretionary stocks will be one of the top sectors coming out of the recession. We have seen lots of gains already and still some of these stocks are undervalued. One of the main reasons that this sector was down in sales was the fact that the consumer has not starting spending yet. We have to wait for the consumer to come around before we see these sales increase. But that doesn't mean we have to wait to buy these stocks. It will get easier to beat YOY numbers as we reach last year's worst quarters. Stocks will soar as they are able to handily beat these numbers and even some estimates. It's never too early to be making cash money. Wait for pullback and then load up on consumer discretionary.
Wednesday, August 5, 2009
China Rising
Markets around the world have seen some type of rally over the past few months. There is money to be made in these rallies but the question is: Where should I invest to make the most? Many people enjoy investing here in the US largely because they are familiar with our companies and their business models. But is this really the best place to invest to recoup piles of losses we incurred over the past year?
The answer is no. Emerging markets have rallied more than the US. Specifically, China is leading the way. Don't get me wrong. The US has seen a tremendous rally that is likely to continue for a while as the economy improves and companies revert back to their profit making ways. If you want to outperform anyone and everyone, you have to incorporate China into your portfolio. Many mutual funds that are solely focused on China have returned 40% YTD returns. Emerging market mutual funds and ETFs have returned a double digit monthly averages for the past few months (percentages are compliments of the mutual fund section in Money Magazine). This shows emerging markets are not only outperforming but are the highest in timeliness.
So, why China? Consider the stimulus plans that are considered the driver to a economic rebound. The US has spent trillions to stimulate the economy. The amount of money spent is only equal to about 5% of our GDP. China has not spent near as much to stimulate their economy; however, the spending they did do is equal to about 13% of their GDP. Because the US GDP is so much larger than everyone else in the world, we have to spend a whole lot more to get the same stimulation impact as China. Since China has spent more than double the amount we have, as a percentage of GDP, we can expect a faster and more timely recovery in China, not to mention the other emerging markets. This is why smaller economies will rebound faster than the US. Their is money to be made in the US, but cash money to be made in emerging markets, specifically China. Do your research and take advantage of all the world has to offer.
The answer is no. Emerging markets have rallied more than the US. Specifically, China is leading the way. Don't get me wrong. The US has seen a tremendous rally that is likely to continue for a while as the economy improves and companies revert back to their profit making ways. If you want to outperform anyone and everyone, you have to incorporate China into your portfolio. Many mutual funds that are solely focused on China have returned 40% YTD returns. Emerging market mutual funds and ETFs have returned a double digit monthly averages for the past few months (percentages are compliments of the mutual fund section in Money Magazine). This shows emerging markets are not only outperforming but are the highest in timeliness.
So, why China? Consider the stimulus plans that are considered the driver to a economic rebound. The US has spent trillions to stimulate the economy. The amount of money spent is only equal to about 5% of our GDP. China has not spent near as much to stimulate their economy; however, the spending they did do is equal to about 13% of their GDP. Because the US GDP is so much larger than everyone else in the world, we have to spend a whole lot more to get the same stimulation impact as China. Since China has spent more than double the amount we have, as a percentage of GDP, we can expect a faster and more timely recovery in China, not to mention the other emerging markets. This is why smaller economies will rebound faster than the US. Their is money to be made in the US, but cash money to be made in emerging markets, specifically China. Do your research and take advantage of all the world has to offer.
Monday, August 3, 2009
Is Cash for Clunkers Saving Ford?
Cash for clunkers is a stimulus program that offers government vouchers toward a new car for consumers. The program is designed to allow consumers to trade in older vehicles with 18 mpg or less and receive a voucher for a new vehicle with better gas mileage. A 4 mpg increase is good for a $3500 voucher. An increase of 10 mpg is good for a $4500 voucher.
The program is supposed to help stimulate the economy and bring business back to the automakers by encouraging new car sales. Automakers would then be able to increase output and see more revenue come in which could slow the job loss efforts in Detroit. So far the program has helped. Ford has seen business spike as July gave Ford its first year over year increase since November 2007. Sales have risen in all of its brands.
The program could be halted should the Senate fail to approve a $2 billion funding effort. Failing to keep this program funded could cause a return to the previous pessimism we felt toward automakers for the first half of the year. This is one of the fast acting stimulus programs we have been able to see. It also seems to be one of the only programs that is actually having a direct impact on consumers. Should we really stop this program now after we have seen it grow and inject money into the economy?
Failing to refund this program could be more devastating than we think for the automakers. Some are barely hanging on. Taking away incentives will only prolong the inevitable for the smaller companies out there. If Congress comes through and is able to make a smart decision, an investment in the automakers could make you some quick cash money; however, that would be pure speculation. Be patient and do not act prematurely on a trade like that. Wait for Congress to give full support.
The program is supposed to help stimulate the economy and bring business back to the automakers by encouraging new car sales. Automakers would then be able to increase output and see more revenue come in which could slow the job loss efforts in Detroit. So far the program has helped. Ford has seen business spike as July gave Ford its first year over year increase since November 2007. Sales have risen in all of its brands.
The program could be halted should the Senate fail to approve a $2 billion funding effort. Failing to keep this program funded could cause a return to the previous pessimism we felt toward automakers for the first half of the year. This is one of the fast acting stimulus programs we have been able to see. It also seems to be one of the only programs that is actually having a direct impact on consumers. Should we really stop this program now after we have seen it grow and inject money into the economy?
Failing to refund this program could be more devastating than we think for the automakers. Some are barely hanging on. Taking away incentives will only prolong the inevitable for the smaller companies out there. If Congress comes through and is able to make a smart decision, an investment in the automakers could make you some quick cash money; however, that would be pure speculation. Be patient and do not act prematurely on a trade like that. Wait for Congress to give full support.
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