Month: July 2013

By MoneyMorning.com.au

‘Inflation is the most capricious of economic variables and central banks are cursed with the responsibility for it. It has defied all predictions in the US during the past five years and, once again, inflation’s general perversity is complicating life for the Federal Reserve.‘ – Financial Times

The US Federal Reserve board members are wearing a puzzled look right now.

Despite the tens of billions of dollars the Fed has pumped into the market, prices aren’t rising as much as the Fed had hoped.

In fact, according to the FT, US inflation is only up 1.1% versus the Fed’s objective of 2%. And you thought it was a good thing when prices don’t go up.

Not if you’re a central banker.

But if the Fed board members are puzzled by the low inflation rate, new member of the Money Morning team Vern Gowdie isn’t. Later on, Vern reveals the reasons for the low inflation number and what it means for the markets.

To give you a clue, it starts with a ‘D’ and it’s bad news for banks. But before that we’ll take a different slant on the issue and explain why this news confirms our view that stocks are on the verge of another super-rally…

We’re sure you remember the hullaballoo about a bond market crash and rising bond yields.

It was only a few weeks ago. Not only did the bond market crash, but the stock market crashed too.

The reason? Most folks (but not your editor) thought US Federal Reserve chairman, Dr Ben S Bernanke was about to raise interest rates.

As most investors know, generally, higher interest rates are bad for stock prices. But why is that?

We Bought While Others Sold

There are two reasons why share investors don’t like higher interest rates.

First, higher central bank interest rates usually mean higher bank deposit rates. If banks can pay more interest on deposits it means investors may prefer the safety of a bank account compared to the comparative risk of a share investment.

And second, higher interest rates are bad news for companies with large borrowings. The more the company has to pay in loan interest repayments, the less there is to feed through to the company’s profits.

That’s why stocks collapsed a few weeks ago. The collapse came after the recent surge into dividend-paying stocks. Any chance of rising bank savings rates could have put paid to the dividend rally and therefore cause stock prices to fall.

Even though there’s absolutely no chance of the US Fed or the Reserve Bank of Australia (RBA) raising interest rates, investors weren’t about to take that risk. Hence falling stocks.

While it’s frustrating to see stocks fall for no reason, it also created an opportunity. We told Australian Small-Cap Investigator subscribers to ignore the fear-mongering and use the lower prices to buy good stocks – especially any beaten down dividend payers.

In fact, while most investors looked for an excuse to get out of the market, we explained to Australian Small-Cap Investigator subscribers that we were raising the buy-up-to price on eight of our stock tips.

Our reason was that stocks could surge again and we wanted to make sure they could get in on the action if we were right.

And so far, things have gone to plan. Stocks that took a pounding just a few weeks ago are now back to or near their pre-crash levels. We feel sorry for the worry-warts who didn’t stay the course and who probably sold right at the bottom.

But while they may feel bad about that after seeing the market rally, it’s not half as bad as they’ll feel if they don’t buy back in now…before it’s too late.

You Should Buy Stocks Now or You’ll Regret It

Our view on the direction of this market is the same as it has been since late last year. It’s a great time to buy stocks as the Australian market climbs towards 7,000 points.

But as we’ve also warned you, don’t expect the market to go up in a straight line. The market never does that. It always pauses, and sometimes falls before going higher.

That’s when nervous investors tend to bail out fearing the rally is over. Our guess is the Australian market is in that phase now. After the big rally from late June to mid-July, the market has gone sideways over the past week.

This is the bail out time for the impatient. But it’s also the perfect time to get in if you missed the recent run up. As we see it, there is absolutely no danger of interest rates going up anytime soon.

Remember, Japan has had zero percent interest rates for 20 years. What makes you think the Fed will start raising rates after just four years? The same goes for the RBA.

Most people haven’t figured that out yet. They think this is a short-term problem and that rates will go up again soon. That’s not happening, so get used to it.

So if we’re right about that, think of the logical conclusion. If higher interest rates are bad news for stock prices, then lower interest rates should be…good news for stock prices.

All it will take is for most investors to catch on that this low interest rate period will last for years and buyers should push the market to a record high before you know it.

OK, nothing is certain. That’s why we don’t want you investing every last cent in stocks. But we’ll be blunt. If you still don’t have exposure to stocks, or you’re not adding to an existing portfolio now, we fear you’ll come to regret it two years from now when the Australian market hits 7,000 points.

Cheers,
Kris+

From the Port Phillip Publishing Library

Special Report: The Sixth Revolution

Daily Reckoning: Australia’s Mysterious Natural Gas Shortage

Money Morning: Why You Must Avoid This Big Investing Mistake…

Pursuit of Happiness: Foreign Family in Taxpayer Rort…Or Royal Celebration?

By www.CentralBankNews.info
    New Zealand’s central bank maintained its official cash rate at 2.5 percent and repeated that it would hold the rate steady through the year, but warned that it would probably have to tighten policy in the future, depending on how much the housing market and construction sector fuels inflation pressures.
    The introduction of a tightening bias by The Reserve Bank of New Zealand (RBNZ) was not expected by economists, though the central bank has often voiced its concern over the strength of the housing market and the effect this may have on inflation.
    The RBNZ, which has held its its policy rate steady since March 2011, said inflation had been very low over the past year, helped by the strong New Zealand dollar and international and domestic competition, but it was now expected to trend upwards towards the midpoint of the bank’s 1-3 percent target band as growth accelerates over the coming year.
    “The extent of the monetary policy response will depend largely on the degree to which the growing momentum in the housing market and construction sector spills over into inflation pressures,” the bank’s governor, Graeme Wheeler, said in a statement.
    “Although removal of monetary stimulus will likely be needed in the future, we expect to keep the OCR unchanged through the end of the year,” he added.

By The Sizemore Letter

The US Food and Drug Administration announces it is considering banning or strictly regulating menthol cigarettes…and the share prices of the companies that make and sell those menthol cigarettes take a tumble.  Haven’t we seen this movie before?

Midday Tuesday, the share prices of Altria ($MO), Reynolds American ($RAI) and Lorillard ($LO) were down by 2.8%, 1.9% and 4.1%, respectively, on the news that the FDA was considering stiffening the regulation on menthol-flavored cigarettes.  Apparently, despite decades of anti-smoking educational campaigns and prohibitively expensive taxation in many American cities, the flavored cigarettes encourage non-smokers to pick up the habit.  Who knew.

Lorillard took a bigger beating from the market than Altria or Reynolds American because menthol-flavored cigarettes make up a much bigger chunk of sales.  Newport—Lorilard’s premium menthol-flavored brand—is the top selling menthol brand and the second-largest-selling cigarette brand overall.

Should investors be concerned about this?

I wouldn’t worry too much about a menthol ban, per se.  We went through this same song and dance back in 2011.  The FDA made noise about banning or strictly regulating menthol cigarettes, which depressed Lorillard’s stock price—and created the conditions for one of the best trades of my career.  The FDA’s case—that menthol-flavored cigarettes taste better and thus encourage more people to smoke—is a weak one.  By the same logic a screwdriver should be illegal because the orange juice masks the taste of the vodka.  It’s hard to see something like this holding up in court.

But don’t mistake my downplaying of the risk of anti-menthol regulations for bullishness on tobacco stocks.  The last “menthol scare” created a fantastic investment opportunity in Lorillard shares because it made them fantastically cheap.  They traded for less than 12 times earnings and yielded nearly 7% in dividends.  Today, Lorillard changes hands at 15 times earnings and yield a much less impressive 4.7%.  Altria and Reynolds American sport earnings ratios that are considerably higher—and higher than the S&P 500 average—while also yielding about the same as Lorillard in dividends.

And while I believe this menthol scare will pass, there are other regulatory challenges that are likely to linger for a while—including the move to plain packaging.

I wrote last week that plain packaging laws attack Big Tobacco’s most valuable asset:  its companies’ brands.

Cigarettes in Australia now come in plain boxes with identical plain-type fonts on the front and grotesque pictures of cancerous death on the back; no logos or branding is allowed.  Aussie smokers have complained that their cigarettes now “taste different,” and early indications are that the rules are reducing cigarette consumption at the margin.  Most of the developed world is considering implementing similar plain-packaging rules.

Does this mean imminent death for Big Tobacco?  Of course not.  This is an industry that has survived decades of regulatory attacks and lawsuits and yet still goes about its business profitably.  But at the margin, plain packaging rules will erode the value of Big Tobacco’s business.

Tobacco stocks have had a great run over the past decade, beating the market on a total return basis by a wide margin.   But that outperformance was made possible by their cheap valuations and astronomically high dividend yields, and these conditions are not in place today.   If you want to buy Big Tobacco for its still higher-than-average dividend payouts, be my guest.  But be realistic and don’t expect the same kind of outperformance going forward.

SUBSCRIBE to Sizemore Insights via e-mail today.

By Investment U

Investors looking for a high-growth sector within the energy industry for the next 10 years need look no further than renewables. No sector is set up for explosive growth like renewable energy is.

As we discussed yesterday, renewable energy sources are being adopted by governments and businesses around the world at a pace that has vastly outstripped projections.

It’s true that renewable energy has had many detractors throughout its brief history. Many politicians believe renewable technologies are immature and require further research in order to be viable.

Not surprisingly, some of these views are pushed by the fossil fuel industry. After all, they stand to lose big if renewables are adopted much faster than anticipated. Here are a couple of examples…

Exxon Mobil (NYSE:XOM), in its recent 2012 Outlook for Energy to 2040, said, “advances in technology will be necessary to make [renewable] fuels more practical and economic… geothermal and solar will remain relatively expensive.”

Chevron Corporation (NYSE:CVX) said, “because of major technical hurdles such as scalability, performance, and costs as well as market-based barriers, broader adoption [of renewables] can’t happen overnight.”

What about cost?

Comments like “Renewable energy is too expensive” or “Public subsidies for renewables will be required for the foreseeable future” are typical. The reality is fossil fuel subsidies far exceed those for renewables.

The International Energy Agency (IEA) 2012 World Energy Outlook estimates global fossil fuel subsidies at more than $520 billion in 2011. This compares to approximately $90 billion for renewable energy.

What about environmental costs?

Those associated with nuclear and fossil fuels aren’t typically included when doing cost comparisons with renewables.

Then there is the risk associated with fossil fuel price swings. Some experts say that between 1-3 cents per kilowatt hour should be added to power costs associated with natural gas.

The bottom line on renewables is that their future growth is entirely underestimated by today’s investment community.

Shining Bright

I’m particularly bullish about solar energy. Who wouldn’t want to get rid of their gas and electric bill, and replace it with something that’s clean, natural and cheaper? The problem has always been equipping homes and business with solar panels and other necessary hardware – no small expense.

But some great companies are charging ahead to solve that problem. We discussed one of them, SolarCity Corporation (NYSE: SCTY), yesterday. Another is Canadian Solar Inc. (Nasdaq:CSIQ).

Canadian Solar, like SolarCity, is poised to become a “six-bagger” – a stock whose value jumps sixfold over a 10-year period.

Canadian Solar is a vertically integrated player in the sector. Starting with raw polysilicon, the company manufactures its own ingots, wafers, cells, modules, systems and solutions.

Based on 2012 shipments, Canadian Solar is the world’s fourth-largest solar manufacturer. Due to its vertical integration, Canadian Solar has one of the lowest installed costs of any module manufacturer.

The company covers the spectrum of the solar market. It offers residential system kits as well as commercial rooftop installations. In addition, it actively develops and constructs utility-scale power plants.

The company’s industry-leading cost structure means its all-in module cost was $0.57 per watt at the end of March. Right now, Canadian Solar has more than 5.0 GW of modules installed in more than 50 countries.

Business Is Good

Another big differentiator for Canadian Solar is its business model. In 2012 its system and solution business was approximately 13% of the company’s revenue. In 2013, that number is expected to grow to approximately 50%.

One of the largest growth opportunities for the company comes from its utility-scale projects. It has several in the works:

• It has expanded its utility-scale pipeline in the U.S. to 255 Megawatts (MW).
• Its Japanese market utility-scale projects total 125 MW.
• It recently won a contract to supply 91 MW of modules for projects in Thailand.

The deal that stands out to me is a plan signed on June 10 with Grand Renewable Solar LP to build a 130 MW utility-scale solar power plant. The company expects the deal to generate over $300 million.

With the addition of these two projects, Canadian Solar has nearly 1 GW of utility-scale projects in its pipeline. In Canada alone, it has identified 29 solar power plants it expects to complete between now and 2015, with a cumulative value exceeding $1.5 billion.

In the Japanese residential market, business is booming. The company started selling residential system kits there in 2009. After the Fukushima disaster, business surged. In 2012, the company booked $120 million in Japan.

Canadian Solar expects to ship between 1.6-1.8 GW of modules in 2013. In Q1 2013, 17.9% of module shipments went to the Americas, 24.7% to Europe and 57.4% to Asia and others.

We believe Canadian Solar will be another disruptor stock 10 years from now.

Good Investing,

Dave Fessler

Article By Investment U

Original Article: Six-Baggers for the Next Decade: Part 2

By www.CentralBankNews.info
    Major international banks continued to reduce their lending to European borrowers in favor of increased business with emerging economies, especially China, leaving the total stock of international claims steady at $28.6 trillion at the end of the first quarter of 2013, according to the Bank for International Settlements (BIS).
    Preliminary data for international bank lending showed that claims on banks and related offices in advanced economies fell by an annual 9 percent, or by $329 billion, from end-2012 to end-March, the sixth consecutive quarterly decline.
    Since the end of September 2011, the total drop in interbank lending to advanced economies amounts to $1.9 trillion, with most of the decline in the first quarter of this year to banks in the United Kingdom, Germany and the Netherlands, BIS said. Interbank lending with the United States and Japan also shrank, but only marginally.
    Meanwhile, internationally-active banks are finding plenty of borrowers in emerging markets, with claims up 9 percent, or by $265 billion, from the first quarter of 2012 to the end of March.
    Total outstanding cross-border claims on borrowers from emerging markets now amount to $3.4 trillion, of which Asia accounts for 45 percent, or $1.52 trillion, and Latin America for 20 percent. But that still pales in comparison to outstanding claims on all developed countries of $21.3 trillion.

    The expansion in lending in the first quarter was especially strong to borrowers from China, with loans up by $160 billion, a jump of 30 percent year-on-year, with loans concentrated in short-term maturities and to the bank sector, BIS said.
    “BIS reporting banks’ exposure to Asian credit risk has increased even more rapidly than their lending to Asian borrowers,” said BIS, which compiles statistics on international banking activity based on data from at least 31 different countries.
    Apart from showing the diverging trend in the pattern of global credit, the BIS data also reveal how banks transfer credit risk from one borrowing country to another.  
    Historically, banks have sought to transfer the risk from a loan to a borrower in an emerging country onto a guarantor in another country, limiting their exposure to countries that in some cases were characterized by social and political risks.
    But reflecting the rapid political and economic transformation in many emerging countries, BIS found a decline in credit risk transfers out of Asia in recent years. By the end of March the transfer of risk into the region for the first time exceeded the transfer of risk away from the region.
   The development was driven by credit to the large economies in emerging Asia, such as India, China and Korea.
    “A similar, if less pronounced, development is visible in the Latin American region, driven by credit to Brazil in particular,” BIS said.
    In contrast, major global banks continued to shift credit risk out of emerging Europe, Africa and the Middle East, though the trend had started to reverse for emerging Europe, particularly in the first quarter, BIS said.

By Profit Confidential

We are told by the “gold bears” that we are headed for a period of deflation ahead, so we should sell gold bullion because it doesn’t have any purpose in your portfolio. But these “gold bears” might be surprised to know that inflation in the U.S. economy is already much higher than what the official numbers tell us.

Long ago, I explained in these pages how the Consumer Price Index (CPI) doesn’t really take into consideration things that actually matter to consumers.

We need to look at alternative measures of inflation, like the Everyday Price Index (EPI) reported by the American Institute for Economic Research. It considers goods and services that Americans buy frequently.

The EPI, a better indicator of inflation, increased 0.5% in June, following an increase of 0.3% in May. (Source: American Institute for Economic Research, July 17, 2013.) Based on June’s inflation number, inflation is running at an annualized rate of six percent, according to the American Institute for Economic Research. (It feels more like 10% to me.)

I also read articles that say there is no demand for gold bullion. I don’t understand this notion. Look at the facts: the majority of the selling we witnessed in May was in the “gold” paper market. Looking at the physical market, demand has never been stronger.

So far this month, the U.S. Mint has sold 36,500 ounces of gold bullion in coins. Last year, for the entire month of July, the U.S. mint sold 30,500 ounces of gold bullion in coins. The month of July is not even over yet and the U.S. Mint has already sold about 20% more gold bullion than it did in all of July 2012. (Source: U.S. Mint web site, last accessed July 23, 2013.)

China, the second-biggest gold bullion-consuming nation after India, hasn’t seen a change in demand as the precious metal prices have come down. According to Stifel Nicolaus, a brokerage and investment banking firm, China has already imported 20 million ounces of gold bullion this year. In 2012, for the whole year, the country imported 26.7 million ounces and for 2011, it imported 13.8 million ounces of the precious metal. (Source: Financial Post, July 13, 2013.)

If the import of gold bullion into China keeps at this pace, then this year, China will consume 50% of global mine production or 35% of total supply of the precious metal in the global economy.

All of this shouldn’t be a surprise to my readers. I write about these facts as I see them happening, and will continue to do so. I remain bullish on the yellow precious metal’s price.

Quietly, gold bullion prices are increasing. After making their lows below $1,200, they are now above $1,300 again. Have the precious metal prices bottomed? It is still too early to ask that question, but this bull remains unfretted.

Michael’s Personal Notes:

I completely disagree with the notion that the housing market in the U.S. economy is improving.

No doubt, we have seen home prices increase, but the price increases have been minor and restricted to certain geographical areas—but by no means do the price increases suggest there are actual improvements in the real estate market. In fact, the housing market may face even more trouble ahead.

For the housing market to see real recovery, we need to witness increased participation from home buyers. While an increase in home prices may suggest to some that there are actual home buyers coming into the market and pushing prices higher, the truth is the opposite.

When I say “home buyers,” I don’t mean institutional investors who have been buying homes in the U.S. housing market to rent. I mean those individuals who actually buy a house to live in it—they are not there to speculate.

In June, first-time home buyers accounted for 29% of all the existing-home sales in the U.S. housing market—down more than nine percent from the same period a year ago. According to the National Association of Realtors, in a healthy housing market, first-time home buyers should account for 40% of all existing-home sales. (Source: National Association of Realtors, July 22, 2013.)

I can see the number of real home buyers decline even further.

The national average commitment rate for 30-year mortgages, reported by Freddie Mac, was 4.07% in June. In the same period last year, it was 3.68%. As mortgage rates continue to rise—and they will as the Federal Reserve prepares to “taper” quantitative easing—it will become more difficult for home buyers to afford a home.

Consider this: the Housing Affordability Index, from January to May of 2013, has fallen 18%. It stood at 172.7 in May and was 210.7 in January. (Source: Federal Reserve Bank of St. Louis web site, last accessed July 23, 2013.)

I wish I could say the U.S. housing market is witnessing a recovery, but the statistics suggest otherwise. I will consider the housing market to be improving when I see real home buyers returning to the market and buying homes. As it stands, with interest rates on the rise, I can’t see them returning for years.

The yield on the U.S. 10-year Treasury stands at 2.55% this morning—116 basis points higher than one year ago. As rates continue to rise, the dynamics for institutional investors change. At one point, they will become sellers of homes, not buyers. And this will put more pressure on the housing market.

Article by profitconfidential.com

By Profit Confidential

I completely disagree with the notion that the housing market in the U.S. economy is improving.

No doubt, we have seen home prices increase, but the price increases have been minor and restricted to certain geographical areas—but by no means do the price increases suggest there are actual improvements in the real estate market. In fact, the housing market may face even more trouble ahead.

For the housing market to see real recovery, we need to witness increased participation from home buyers. While an increase in home prices may suggest to some that there are actual home buyers coming into the market and pushing prices higher, the truth is the opposite.

When I say “home buyers,” I don’t mean institutional investors who have been buying homes in the U.S. housing market to rent. I mean those individuals who actually buy a house to live in it—they are not there to speculate.

In June, first-time home buyers accounted for 29% of all the existing-home sales in the U.S. housing market—down more than nine percent from the same period a year ago. According to the National Association of Realtors, in a healthy housing market, first-time home buyers should account for 40% of all existing-home sales. (Source: National Association of Realtors, July 22, 2013.)

I can see the number of real home buyers decline even further.

The national average commitment rate for 30-year mortgages, reported by Freddie Mac, was 4.07% in June. In the same period last year, it was 3.68%. As mortgage rates continue to rise—and they will as the Federal Reserve prepares to “taper” quantitative easing—it will become more difficult for home buyers to afford a home.

Consider this: the Housing Affordability Index, from January to May of 2013, has fallen 18%. It stood at 172.7 in May and was 210.7 in January. (Source: Federal Reserve Bank of St. Louis web site, last accessed July 23, 2013.)

I wish I could say the U.S. housing market is witnessing a recovery, but the statistics suggest otherwise. I will consider the housing market to be improving when I see real home buyers returning to the market and buying homes. As it stands, with interest rates on the rise, I can’t see them returning for years.

The yield on the U.S. 10-year Treasury stands at 2.55% this morning—116 basis points higher than one year ago. As rates continue to rise, the dynamics for institutional investors change. At one point, they will become sellers of homes, not buyers. And this will put more pressure on the housing market.

Article by profitconfidential.com

By Profit Confidential

What’s old is new again, and the current cycle is very much about specific sectors that can be thought of as “old economy.”

Transportation, freight, energy production, and transmission—it seems that basic infrastructure corporations are the new stock market darlings. It’s not uniform and not all old economy industries are participating, but many of these stocks are soaring, breaking the indifference that institutional investors had shown toward the markets for so many years.

Nothing exemplifies the old economy resurgence better than the stock market strength of Union Pacific Corporation (UNP).

In the last secular bull market, Union Pacific did virtually nothing on the stock market, except pay its dividends. This old economy company wasn’t stagnant in terms of growth; rather, investors just weren’t interested in the seemingly boring business of hauling freight by rail.

It wasn’t until the secular bull market ended that shares in the company began to really accelerate, as the marketplace wanted safety and predictability. Sentiment toward reliable, old economy names with realistic earnings forecasts changed on a dime.

Union Pacific’s long-term stock chart is featured below:

Chart courtesy of www.StockCharts.com

It really is a stunning reversal of fortunes among sectors with industrial, old economy names seemingly taking the place of the previous fad in fast-growing technology stocks.

As tastes and expectations among investors change over the long-term, so does investment risk. Just before the financial crisis of 2008/2009, Chinese equities became a hot-ticket item. Then alternative energy stocks, specifically solar panel companies, rocketed higher. Then the enthusiasm quickly disappeared.

Safety took over as the number-one issue and dividend-paying blue chips, including old economy industrial companies, became the primary focus of institutional investors.

With sustainability in the blue-chip rally, investors slowly began to loosen their tolerance for risk and expanded their willingness to speculate in other stock market sectors over Dow components. The rally broadened out to the NASDAQ and small-caps, and the last two years produced a powerful performance in biotechnology stocks, with annual Food & Drug Administration [FDA] approvals at a high.

Playing investment themes is a very difficult business to be in. Like timing the stock market, you can’t foresee what shocks, geopolitical events, or smooth sailing might be on the horizon.

But in this slow growth environment, I do see a market where existing winners will continue to produce solid returns plus dividends. Old economy names that have already done well should keep doing so. This really is a “hold” type of market.

I’m definitely not an advocate of loading up on new positions. The stock market is still due for a substantial correction. But the certainty that the Federal Reserve recently provided (right or wrong) is a major vote of confidence for institutional investors who most definitely will keep buying this market if earnings don’t disappoint.

In terms of investment themes, the old economy has staying power, as the outlook for basic infrastructure is improving.

One longer-term theme that I think is worthy of consideration as part of a portfolio strategy is the cycle in natural gas. (See “This Is an Investment Theme Worth Paying Attention To.”)

Prices are down now, but the natural gas build-out is happening. It definitely is an old economy energy infrastructure theme with excellent up-cycle potential.

Article by profitconfidential.com

By Profit Confidential

I love watching Chef Gordon Ramsay blowing a gasket in one of his many cooking shows, including Master Chef and Hell’s Kitchen.

While the outbreaks are often quite hilarious, the popularity of cooking shows has grown over the past years since we first saw Iron Chef come on air over a decade ago.

The restaurant sector is big business, and it’s set to pick up again following the recession that has generated a buying opportunity.

The chart of the Dow Jones US Restaurants & Bars Index below shows the run-up in the sector since early 2011. The chart is highlighted by several breakouts (blue horizontal lines), based on my technical analysis, and a potential buying opportunity.

Chart courtesy of www.StockCharts.com

And as the economy continues to forge ahead, the housing market drives up property wealth, and jobs growth picks up, I expect the restaurant sector to pick up steam and create a buying opportunity.

A couple of my favorite non-fast-food restaurant stocks that are a potential buying opportunity are Chipotle Mexican Grill, Inc. (NYSE/CMG) and Texas Roadhouse, Inc. (NASDAQ/TXRH).

I enjoy the Mexican-style foods at Chipotle, which for many restaurant goers is a much better alternative than eating the cheap burritos and tacos at Taco Bell.

For Chipotle, there was an excellent buying opportunity in October 2012 when the stock fell to a 52-week low of $233.82; it has since rallied 75%. (Read “Big Mac, Burritos, Fried Chicken: My Favorite Fast Food Stocks.”) At its current price, Chipotle is fairly valued, but it’s worth more of a look on weakness, as was the case in 2012.

Chart courtesy of www.StockCharts.com

If you prefer steaks and beer, a restaurant stock to consider is Texas Roadhouse. The network includes over 400 restaurants across 48 states and two countries.

If you are looking for a nice, relaxed sit-down meal, Texas Roadhouse is for you. The menu is similar to what you would find at other comparable restaurants, such as steaks, burgers, seafood, salads, and other common menu items.

Chart courtesy of www.StockCharts.com

The company is a model of consistency, reporting higher sequential revenue growth over the past 11 years, from $159.91 million in 2001 to $1.26 billion in 2012. The growth is estimated by Thomson Financial to continue into 2013 and 2014.

Texas Roadhouse has also delivered on the earnings end, reporting higher earnings growth in 10 of the last 11 years and continuing into 2013 and 2014, which could present a buying opportunity.

Other restaurant stocks that are a potential buying opportunity include The Cheesecake Factory Incorporated (NASDAQ/CAKE) and Ruths Hospitality Group, Inc. (NASDAQ/RUTH).

Article by profitconfidential.com

By Profit Confidential

By now, we all know Detroit, once a notorious manufacturing hub in the U.S. economy, filed for bankruptcy. The city defaulted on its municipal bonds simply because it didn’t have the money to give its creditors. The city had three main reasons for filing bankruptcy: out-of-control budget deficits, declining revenues, and staggering pension liabilities.

Municipal bonds investors beware.

Detroit isn’t the first city to file for bankruptcy due to a budget deficit and default on its municipal bonds. We have already seen multiple cities in California and Jefferson County, Alabama do the same thing. Unfortunately, we might see similar troubles going forward—more cities are headed into a downward spiral due to budget deficits and pension liabilities, resulting in severe scrutiny for municipal bonds investors.

A senior fellow at the Brookings Institution (a public-policy not-for-profit research organization), Alan Mallach agrees with this notion. He said, “None of the other cities are far along, but there are dozens, if not hundreds of cities that have similar issues… Every other industrial city has problems that could send them down the same path.” (Source: Selway, W., “Detroit’s Bankruptcy Reveals Dysfunction Common in Cities,” Bloomberg, July 21, 2013.)

Chicago just witnessed a downgrade in its municipal bonds by credit reporting agency Moody’s Investors Service. The main reasons for the downgrade? Its budget deficit and rising pension liabilities. Analysts at the credit rating firm said, “The current administration has made efforts to reduce costs and achieve operational efficiencies, but the magnitude of the city’s pension obligations has precluded any meaningful financial improvements.” (Source: “UPDATE 1-Moody’s cuts rating on Chicago’s bonds, cites pensions,” Reuters, July 17, 2013.)

Keep in mind, dear reader, that the size of the municipal bonds market in the U.S. economy has increased significantly. In 1980, only $399.4 billion worth of municipal bonds were outstanding. Fast-forward to the first quarter of 2013, and there were $3.72 trillion worth of municipal bonds outstanding—an increase of more than 833%. (Source: Securities Industry and Financial Markets Association web site, last accessed July 22, 2013.) But all this could be on the line if we hear more of the same from other prominent cities in the U.S. economy.

The mainstream often forgets one thing: when cities, states, or even countries for that matter, register a budget deficit, they need to borrow money to pay for those expenses—thus, they issue bonds. Sadly, if the municipal bonds market declines and the cost of borrowing increases, the struggling cities will have troubles raising money to pay for their expenses.

This takes me back to my original belief. As cities struggle, they will eventually seek help from the federal government, which has already registered trillion-dollar budget deficits for each of the past four years. But have no fear, because the stock market is rising, right?

Article by profitconfidential.com