Month: July 2013

By Profit Confidential

I am watching the Chinese economy very closely, because any economic slowdown there could have an adverse effect on the already struggling U.S. economy.

And here’s what I’ve seen: the stock advisors are not mentioning how critical the Chinese economy really is, how companies based here in the U.S. can face hard times if it slows, and how that could ultimately lead to lower key stock indices.

Dear reader, the most important thing you need to know about the Chinese economy is that it’s an indicator of global economic health and demand. Currently, it looks as though its health is deteriorating. Exports from the Chinese economy to the global economy plunged 3.1% in June, a month in which they were expected to increase by four percent. (Source: Reuters, July 10, 2013.)

What that means is that demand in the global economy is declining—and that strengthens my belief that the global economy is headed toward an economic slowdown. In June, exports from the Chinese economy to the U.S. economy fell 5.4% and those to the eurozone fell 8.3%.

Customs spokesman in the Chinese economy, Zheng Yuesheng, said, “China faces relatively stern challenges in trade currently… Exports in the third quarter look grim.” (Source: “China warns of ‘grim’ trade outlook after weak exports surprise,” Reuters, July 10, 2013.)

The Chinese economy is now expected to slow to 7.5% this year. But not only exports are declining; the factory output and investment growth in China, the second-biggest economic hub, are also headed downhill.

I think these numbers might even be too optimistic considering the economic slowdown in the Chinese economy could become severe, as the credit market problems are starting to unfold. Businesses not being able to borrow money to run their daily operations can hurt demand in the country. Consequently, high unemployment will probably become an important issue going forward.

Economic slowdown in China means U.S.-based companies operating in the country will also see their profitability decline. We’ve heard from companies like Caterpillar Inc. (NYSE/CAT) that are showing concerns with their operations in the Chinese economy; meanwhile, other companies—like Wal-Mart Stores, Inc. (NYSE/WMT), which has significant operations in China—are facing troubled times as well.

And you can add to this list the exporters to China—any economic slowdown in China’s economy means they will be selling less to the country. As I said before, the strength of the Chinese economy is an indicator of overall global health.

As I continue to point out in these pages, the key stock indices are not reflecting the reality of the economic situation—it’s far worse than they would indicate.

I remain pessimistic toward the key stock indices, because I don’t see a lot of improvements; rather, I see risk piling up significantly. This irrational rally can only go on for so long. Eventually, it will all come back to where it should be. And problems in the Chinese economy might just be the spark that brings investors back to their senses.

Article by profitconfidential.com

By Profit Confidential

The Dow Jones Transportation Average has been powering ahead since the last week of June. It’s risen five percent since, and the percentage gains on up days are handily beating other stock market indices. That’s a very powerful signal indicating the appetite that institutional investors have to be buyers.

Powering the Dow Jones Transportation Average has been FedEx Corporation (FDX), which has been the subject of activist investor rumors, and Alaska Air Group, Inc. (ALK), which announced an 8.1% gain in revenue passenger miles in June and an 8.6% gain in capacity. It has been a very strong performance for an airline, and it’s been a major stock market winner.

Also helping are surprising earnings results. Bassett Furniture Industries, Incorporated (BSET) has 89 company- and licensee-owned mid-priced home furniture stores. According to the company, second-quarter sales grew a solid 20% to $81.2 million, marking the third consecutive quarter of 20% growth or better. The company cited an improvement in customer spending and increased market share.

In large-caps, stock market leadership within the Dow Jones Industrials over the last two weeks has been coming from The Walt Disney Company (DIS), 3M Company (MMM), The Home Depot, Inc. (HD), United Technologies Corporation (UTX), and Johnson & Johnson (JNJ).

Without question, I firmly believe that blue chips (including several Dow Jones components) remain the best place to be. The prospects for rising dividends remain strong, and so is the probability that earnings will meet expectations, especially in the Dow Jones components.

The broader stock market is displaying incredible resilience and there is a genuine optimism in the trading action among many big investors.

Blue-chip leadership since the beginning of the year is pronounced with the Dow Jones Industrial Average outperforming the S&P 500 and the NASDAQ Composite. And that doesn’t include dividends or the downside outperformance either. It’s very much a stock market that is sticking with the safest names.

It’s also a stock market that can push much higher, since Wall Street analysts only expect S&P 500 companies to grow their earnings by 2.9% in the second quarter, according to Thomson Reuters. That modest expectation, if beaten, could result in substantial buying on the part of institutional investors having been caught in a marketplace where expectations are too low. (See “The Few Sectors That Will Continue to Gain in This Unpredictable Market.”)

Although the stock market has gone up substantially over the last couple of years, corporations have been very conservative with their earnings forecasts. There is a little stock market momentum right now, but we know some companies will beat the Street.

In terms of the Dow Jones Transportation Average, it underperformed the Dow Jones Industrial Average in 2012, but has beaten the industrials so far this year. This breakout of transportation companies on the stock market is, of course, a classic bullish signal.

But it’s up to companies and their earnings results to carry equities. The stock market can go higher still if companies perform the way their stocks indicate.

Article by profitconfidential.com

By Profit Confidential

The battle in the video streaming market is on, and based on recent developments, it will intensify, which ultimately is better for the consumer. As my stock analysis indicates, now is the time to take advantage.

No longer is Netflix, Inc. (NASDAQ/NFLX) safe as the current market leader, but the aggressive moves made by Amazon.com Inc. (NASDAQ/AMZN) to drive its streaming video business is already changing the landscape. (Read “Online War Begins: Netflix vs. Amazon.com.”)

And if you don’t believe me, consider that there is currently a bidding war for video-streaming provider Hulu and its three million subscribers. The company will sell for over $1.0 billion on bids from the likes of private equity AT&T Inc. (NYSE/T) and DIRECTV (NASDAQ/DTV).

My stock analysis suggests that while Hulu is interesting, the company is still largely a U.S.-only business with no international exposure, unlike Netflix and Amazon.com. Hulu is much smaller than Netflix, which has more than 36 million subscribers worldwide (source: Netflix, Inc. web site, last accessed July 10, 2013), and Amazon.com, which has 10 million users. (Source: Thomas, O., “Amazon Has An Estimated 10 Million Members For Its Surprisingly Profitable Prime Club,” Business Insider, March 11, 2013.)

But in the event of a takeover, Hulu will gain access to significant capital, with which it could expand its services to markets within and outside of the U.S. And if the AT&T partnership or DIRECTV bid wins, Hulu will have instant access to tens of millions of subscribers, based on my stock analysis. DIRECTV has about 35 million subscribers in the U.S. and Latin America.

The price points are similar on a monthly basis between the three services, but Amazon.com offers the cheapest annual fee. The emergence of a stronger Hulu would likely increase price competition down the road, and that could drive down the monthly fees.

But according to my stock analysis, what will be the real determinant on which service consumers will base their decision will be program offerings, especially those shows made exclusive to one service. We are already seeing moves by Netflix and Amazon.com to offer proprietary programming, and I expect this strategy to continue—similar to the model set by HBO.

Over the next year, my stock analysis is expected to see the three streaming companies try to align themselves with the makers and distributors of TV shows and movies for more programming deals.

And since there is no commitment to enter into service contracts, consumers can switch services at any time. This will make the competition to retain viewers fierce.

My stock analysis indicates that while Netflix is the market leader right now and is still the company to beat, don’t count out upstart Amazon.com or even Hulu, especially if it aligns with AT&T or DIRECTV.

Article by profitconfidential.com

By Profit Confidential

Quantitative easing was supposed to bring economic growth to the U.S. economy, but it is failing at its job. Just look at the chart below to see how badly things have turned out.

The chart shows the velocity of money in the U.S. economy. For the uninitiated, velocity is a measure of how many times each dollar must be used to buy specific goods and services. It’s a strong indicator of economic growth. When velocity increases, it suggests there’s heightened activity in the economy.

Clearly, the velocity of money shows the U.S. is going through severe tumult, and at the very best, economic growth has been questionable. It is continuously plunging and currently stands at historically low levels.

The primary goal of quantitative easing was to print money to buy bad assets from the banks so they could start lending again, which should lead to increased consumer spending and, eventually, economic growth. But if quantitative easing was actually working, the velocity chart wouldn’t look like it’s taking a nosedive.

Don’t get me wrong; I don’t disagree that the first round of quantitative easing was needed. If not for QE1, the financial system would still be in great jeopardy. However, continuing it is not leading to any real economic growth.

But the quantitative easing goes on anyway. The Federal Reserve continues to print $85.0 billion a month. Even now that there’s speculation that it will start to taper off, you need to realize that it will still be printing more money—“taper” doesn’t mean stop; it means to slow the rate.

If there was any real economic growth in this nation, then we would see a jobs market recovery, but we haven’t. There are still almost 12 million Americans who are actively unemployed, and a significant number continue to leave the labor force.

Many Americans are working part-time because they can’t find any full-time jobs. As a matter of fact, part-time work looks like it’s becoming the new norm. Since the Great Recession ended, the number of people working temporary jobs has increased 50%—the most since the government started to record that statistic in 1990. (Source: USA Today, July 7, 2013.) That doesn’t look like economic growth to me.

But the jobs market is just one sector of the economy that shows how anemic economic growth has been in the U.S.—other statistics, like consumer spending, suggest the same.

Americans realize what really powers the U.S. economy. Continuously printing money only does one thing—it reduces the buying power of already struggling Americans. It certainly doesn’t bring economic growth.

The only place quantitative easing has really shown any positive effect is in the stock market. But I continue to be cautious, because when reality strikes the market—when investors realize the key stock indices are far from their real values—there will be panic, and they will slide.

Michael’s Personal Notes:

The mainstream media continues to report that the housing market in the U.S. economy is hot again, but I don’t share their optimism for a second. The fact of the matter is that the U.S. housing market may be headed toward a period of decline after just a few months of glory.

As I have mentioned before in these pages, the housing market will only improve when real home buyers buy homes. That hasn’t been happening in the U.S. economy. Real home buyers—those who plan to live in their homes—are shying away from the housing market.

For the week ended June 28, the number of completed mortgage applications in the U.S. economy plummeted 12% from a week earlier—the biggest drop in two years. The applications filed for refinancing a home decreased 64%—the lowest since May of 2011. (Source: Wall Street Journal, July 3, 2013.) Regular Americans just can’t afford to buy a house.

So who is actually buying homes in the U.S. economy and driving the housing market higher?

It’s the institutional investors who are buying homes, because this real estate provides them with a greater return than many other investments. It shouldn’t be too surprising—yields on stocks are low and the bond market is in a dangerous territory, edging toward a collapse.

Institutional investors have spent $17.0 billion on more than 100,000 homes in the housing market over the last two years, and they’ve become the biggest buyers in some parts of the U.S. economy. (Source: Bloomberg, July 8, 2013.)

Here’s how institutional investors work the housing market: Say they have $10.0 million. To keep things simple, if we assume they buy each home for $100,000 and rent it for $1,500 per month, they will receive 1.5% of their capital invested every month. Over a one-year period, they receive 18% of their capital. And if the housing market keeps going higher, they see capital appreciation as well. Those are high yields in any economy.

As we move forward, I just don’t see real home buyers rushing to the housing market. We might just see more of the same—institutional investors buying up residential homes in the U.S. economy.

Consider this: The Blackstone Group L.P. (NYSE/BX) has spent $5.0 billion to buy residential properties in the U.S. housing market. It has accumulated 30,000 homes. And if that’s not enough, the firm is starting a lending service that provides loans to other institutional investors who want to buy even more homes.

What the optimists in the mainstream media don’t realize is that this sort of thing can’t go on for very long. Institutional investors are constantly working to improve their bottom line, and since they currently believe the housing market is hot, they are buying houses and renting them out. But once the yields on investments like stocks and bonds start to edge higher, and rent drops due to an overabundance of rental homes, they will be in trouble—shareholders will ask for higher returns, and institutional investors might be forced to sell what homes they have accumulated.

Certainly, without real home buyers—who provide liquidity to the housing market—the home prices will edge lower once institutional investors begin to sell.

We need real home buyers to see real recovery. Until they make a comeback, I continue to question the housing market and the optimism surrounding it. Just look at homebuilder stocks; they are in decline—and that affirms my views on the housing market.

Article by profitconfidential.com

By Profit Confidential

The mainstream media continues to report that the housing market in the U.S. economy is hot again, but I don’t share their optimism for a second. The fact of the matter is that the U.S. housing market may be headed toward a period of decline after just a few months of glory.

As I have mentioned before in these pages, the housing market will only improve when real home buyers buy homes. That hasn’t been happening in the U.S. economy. Real home buyers—those who plan to live in their homes—are shying away from the housing market.

For the week ended June 28, the number of completed mortgage applications in the U.S. economy plummeted 12% from a week earlier—the biggest drop in two years. The applications filed for refinancing a home decreased 64%—the lowest since May of 2011. (Source: Wall Street Journal, July 3, 2013.) Regular Americans just can’t afford to buy a house.

So who is actually buying homes in the U.S. economy and driving the housing market higher?

It’s the institutional investors who are buying homes, because this real estate provides them with a greater return than many other investments. It shouldn’t be too surprising—yields on stocks are low and the bond market is in a dangerous territory, edging toward a collapse.

Institutional investors have spent $17.0 billion on more than 100,000 homes in the housing market over the last two years, and they’ve become the biggest buyers in some parts of the U.S. economy. (Source: Bloomberg, July 8, 2013.)

Here’s how institutional investors work the housing market: Say they have $10.0 million. To keep things simple, if we assume they buy each home for $100,000 and rent it for $1,500 per month, they will receive 1.5% of their capital invested every month. Over a one-year period, they receive 18% of their capital. And if the housing market keeps going higher, they see capital appreciation as well. Those are high yields in any economy.

As we move forward, I just don’t see real home buyers rushing to the housing market. We might just see more of the same—institutional investors buying up residential homes in the U.S. economy.

Consider this: The Blackstone Group L.P. (NYSE/BX) has spent $5.0 billion to buy residential properties in the U.S. housing market. It has accumulated 30,000 homes. And if that’s not enough, the firm is starting a lending service that provides loans to other institutional investors who want to buy even more homes.

What the optimists in the mainstream media don’t realize is that this sort of thing can’t go on for very long. Institutional investors are constantly working to improve their bottom line, and since they currently believe the housing market is hot, they are buying houses and renting them out. But once the yields on investments like stocks and bonds start to edge higher, and rent drops due to an overabundance of rental homes, they will be in trouble—shareholders will ask for higher returns, and institutional investors might be forced to sell what homes they have accumulated.

Certainly, without real home buyers—who provide liquidity to the housing market—the home prices will edge lower once institutional investors begin to sell.

We need real home buyers to see real recovery. Until they make a comeback, I continue to question the housing market and the optimism surrounding it. Just look at homebuilder stocks; they are in decline—and that affirms my views on the housing market.

Article by profitconfidential.com

By Profit Confidential

One company that I use as a benchmark stock in manufacturing is Fastenal Company (FAST). The Street is looking for just a 6.5% gain in quarterly revenues and a three-penny improvement in comparable earnings. The company reports today.

Many corporations have reported similar guidance. Among many investors, there is little expectation in the way of revenue growth and even less in terms of earnings growth.

In an unscientific read of countless forecasts, Wall Street seems to be lumping the bulk of corporate profits into 2014. This year is still very much a recovery year in terms of the bottom line. It’s all about getting back to pre-recession levels.

As a publicly traded company, I find Fastenal to be expensively priced given its growth prospects. With a trailing price-to-earnings ratio of approximately 31 and a forward (2014) price-to-earnings ratio of approximately 25, this company isn’t cheap.

Alcoa Inc. (AA), another benchmark, reported numbers that were a little better than the first quarter. To me, Alcoa is not as much of an important benchmark as it used to be, but the company is still viewed by the Street as an important barometer of manufacturing.

The company slightly beat consensus by reporting sales of $5.85 billion and adjusted earnings per share that beat by a penny at $0.07. But what was truly notable about Alcoa’s numbers was the resilience the company saw in key markets, particularly in aerospace applications.

Over the last month or so, forward-looking earnings estimates for Alcoa have come down across the board. But that may change.

In terms of sales, the company has been treading water since 2011. And earnings have been all over the map.

Expectations for corporate earnings this season are low, and the numbers are likely to fit in the weaker global economic news we’ve seen, especially abroad. Big investors definitely aren’t expecting much, but once again, it’s likely that they will be rewarded with consistency from the safest names.

Another benchmark, WD-40 Company (WDFC) reported very solid financial results. For the fiscal third quarter (ended May 31, 2013) sales were $93.1 million. The company generated a solid seven-percent gain in revenues. Year-to-date fiscal revenues also grew seven percent.

Earnings gained 12% over the comparable quarter, reaching $10.3 million. Year to date, they reached $31.7 million, for an increase of 19% comparatively.

So basically what we have so far from benchmarks are modest, but decent, earnings results, with the exception of NIKE, Inc. (NKE), whose numbers were strong. (See “The One Stock That Always Seems to Keep on Rising.”)

The stock market has been due for a correction (which would be a very healthy development) for a number of months, but it’s all about financial results now.

Weak second-quarter earnings could be the catalyst. But the numbers so far are strong enough for institutional investors to stay in the game.

Article by profitconfidential.com

By Profit Confidential

As many of you know, I’m a big supporter of equities as an investment over the long run, especially with small-cap stocks.

But I’m also pragmatic and feel you should always look to take some money off the table—especially after such strong advances in the stock market as we saw in the first half of this year.

But there are also those bulls like Ron Baron of Baron Capital who estimates the Dow Jones Industrial will reach 30,000 in 10 years and 60,000 in 20 years. (Source: LaRocco, L.A., “Dow Will Hit 60,000 in 20 Years: Ron Baron,” CNBC, July 8, 2013.)

While the estimates by Baron appear to be crazy at first glance, they are actually achievable at a compounded rate of 7.73% per year for the next 10 years and 7.46% annually to reach 60,000 within 20 years. For this to happen, everything related to economic growth needs to play out positively.

But in reality, there will continue to be ups and downs in the stock market.

While Baron doesn’t really believe in trading the market and advises a buy-and-hold strategy, I’m leaning more toward taking some profits on strong advances and buying on stock market corrections.

The current situation points to another possible buying opportunity to come in the stock market.

After a correction that drove the S&P 500 down more than five percent from its May peak, the stock market has rallied to narrow the decline to a mere 2.74% from the peak.

I really had hoped for and expected more of a correction in the stock market as a buying opportunity. I still feel there will be another chance to buy coming soon.

Take a look at the chart of the S&P 500 below. Note the ovals indicating the selling pattern, and the recent selling that was associated with the mini correction in the stock market.

Chart courtesy of www.StockCharts.com

My concern is that the S&P 500 has trended lower from its May peak, characterized by two straight corrections. If the index fails to rally back to between 1,660 and 1,680 in the coming weeks, we could see another relapse to below 1,600, based on my technical analysis.

I view another move below 1,600 as a potential buying opportunity; but be careful, as the index could falter to as low as 1,540.

While there will likely continue to be volatility in the S&P 500, the overall indicators remain bullish and I see stocks moving higher—but not at the same torrid pace as we saw in the first half.

Article by profitconfidential.com

Article by Investazor.com

The press conference of Bank of Japan announced its optimistic view concerning the next 2 years period. In this matter, the latest data about Japan came better, together with the successful implemented quantitative easing, promise to keep Japan safe. Thereby, an increase in exports and public investments along with a moderate increasing in industrial production and accommodative financial conditions have great potential to lead in maximum 2 years to the targeted 2% inflation. The monetary stimulus activity has been shown to have great results so far and is being maintained for the moment with the possibility of adjustments. Moreover, the International Monetary Fund rised its forecast for Japan from 1.6% to 2% growth this year, becoming the only bright economy from the Group of Seven industrialized economies.

On the other hand, the slowing economy of China is posing serious problems, as well as the weak Europe, the fragile United States and the weakening of the commodity-exporting economies.

The post Should We Believe in Japan’s Recovery? appeared first on investazor.com.

By The Sizemore Letter

Listen to Charles discuss Fed Chairman Ben Bernanke’s recent comments and what they mean for the stock and bond markets with Mike Robertson and Peggy Tuck on Straight Talk Money Radio.

Article by Investazor.com

In this article you will find 6 essential hints scalpers use in order to end up with profitable trading sessions. As it is the second episode of our trading strategy guide, we invite you to  read the first article on forex scalping.

In the previous article we defined forex scalping as being a small steps strategy, in which short opened transactions are meant to bring profit. However, it is important to know that a good scalper will not manage to be profitable only by using his/her intuition and that luck is not enough for maintaining long term positive results.

Furthermore we are going to give you some hints in order not to restrict your trading strategy, but to improve it by giving evidence of some main untold secrets.

1) Analysis, Forecast and Money management are the key

In order to have a positive outcome and to constantly maintain the incomes, scalpers use strategies and analyses that attract the probability on their side. For this purpose technical and fundamental analysis techniques are used, together with money management. Of course personal intuition and scalper’s flair is important but always guided by strong analysis and long term strategies.

2) Learn about the instrument you are trading

It is mandatory for the scalper to be acquainted with the characteristics of the instrument that is traded. Knowing its volatility, its movement force, the conditions that facilitate the moves and the factors that contribute to the movements of the traded instrument are some basic notions that a good investor must know.

3) Hunt sharp price movements

It is recommended to base your trading sessions on sharp movements and not on slow movements that happen in the markets. This is not only the case of the currency market, but also of the commodities  and equities markets and is directly related to volatility. The challenge is to be aware of the trade opportunities created by the shortages of liquidity that lead to imbalances in the market.

4) Use Leverage

Leverage is a mechanism through which a brokerage house offers to the investor the opportunity to use a bigger amount of money than the initial investment. It depends on the broker you work with, but normally it is of 50:1, 100:1, 200:1 or even 800:1 and more, but these values are not quite recommendable. In relations with our strategy, this mechanism of leverage has been proven as being useful in order to overcome small profits obtained with little amount of money and repeated short transactions. The level of leverage remains a tender spot of the discussion, because the risks increase proportionally with the leverage amount.

5) Use fundamental analysis

It is often said that fundamental analysis is not useful for scalpers. We can only partially agree with this affirmation and we are to explain why. Indeed, fundamental analysis at a global level offers a general image on what can happen to an economy and with the evolution of a financial instrument over a longer period of time. However, it is proven to be useful for the scalper in the sense that it can be used also on isolated events such as the release of some macro-economical indicators, that lead to sudden moves, often fairly powerful of the market. Therefore, together with technical analysis, fundamental analysis can offer to the scalper a strategy with high probability of success.

6) Correctly choose the strategy that suits you

Even though is considered a trading strategy good for the beginners and novices, we want you to know that it is a complex method of trading. It is very important to know that there are some auxiliary tools and automated systems that ca contribute to successful transactions. Only by having a complete image on all the possibilities offered by a trading strategy you are going to be able to choose the one that fits you. Of course, experimented investors can also choose to trade only manually, without using other tools.

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