Month: July 2013

By MoneyMorning.com.au

Sir Isaac Newton’s third Law of Motion states:

‘When one body exerts a force on a second body, the second body simultaneously exerts a force equal in magnitude and opposite in direction to that of the first body.‘

This law of physics has been widely interpreted as ‘for every action there is an equal and opposite reaction’.

Newton’s laws of motion have been in existence since 1687. Therefore it’s reasonable to assume they’ve passed the test of time and are in the irrefutable category.

The law of gravity is also irrefutable. Sadly poor old Sir Isaac Newton forgot this one when he invested in the early 18th century South Sea Bubble.

Reports suggest Sir Isaac lost a £20,000 (£268 million in today’s money) fortune in the bursting of the South Sea Company share bubble. Reflecting on the catastrophic loss, he remarked, ‘I can calculate the movement of the stars, but not the madness of men.‘

Newton was obviously a seriously smart man but the ‘need for greed’ overrode rational thinking. Therein lies the lesson for those of us who have much lesser IQ’s. Don’t think you’re smarter than the market and don’t let greed blind your objectivity.

Newton could easily apply his theory and personal lessons to the economic malaise we find ourselves in today.

1. For every action there is a reaction
2. What goes up must come down
3. Smart people do dumb things

From 1980 to 2007, the western world (not just an isolated country) went through a credit expansion unmatched in the history of money.

Questions That Need Answering

The Great Credit Expansion of 1980 to 2007 lifted all boats. Share markets posted 1,500% returns; property values increased ten-fold (based on Melbourne median house prices); GDP rose; government revenues increased; household incomes rose; the financial sector ballooned.

When you hear economic commentators saying ‘we are waiting for a return to normal conditions’, they must truly believe the 1980 to 2007 period was ‘normal’.

If that’s true, then in 2040 the All Ords index will be 75,000 points (15x current level) and the average home in Melbourne will be worth over $5 million (10x current median value). That’s possible, but it’s not certain.

In some ways 27 years is a long time – for instance, a jail term or a marriage (in some quarters these are one and the same). However, in the context of life on earth 27 years is a blink of the eye.

The first Industrial Revolution in northern England began around 1750. The second Industrial Revolution (coming mostly from the US) started around 1870.

For the tens of thousands of years that preceded these dates, the global economy made glacial progress. In the pre-Industrial Revolution days, some estimates say it took up to 300 years for living standards to double.

Mechanisation and electricity were major game changers. Better sanitation led to longer life expectancies; electrical appliances allowed women to leave household chores and enter the workforce; and machinery enabled more food production, leading to population growth.

Was the 1980 to 2007 period simply the ‘cherry’ on a productivity cake that was 250 years in the baking?

For those looking for a return to ‘normal’ here are some questions to ponder:

1. Will the workforce get another productivity boost from women entering it?
2. Can the world’s resources support a global population rising at the rate of the past century?
3. Will we see another baby boomer generation or are families opting for fewer children?
4. If life expectancies continue rising, where will governments find the resources for healthcare and welfare?
5. Do governments have the capacity to increase public debt from current levels?
6. If robotics is in our future, what will this do to unemployment levels in the unskilled and semi-skilled workforce?
7. Each generation has wanted to educate their children to a higher standard. What happens when all youth have tertiary qualifications (and the debt to go with it)? Where to after university?

Perhaps we’ve seen the best of times as far as global growth is concerned – peaking with the baby boomers’ three decade long credit binge.

I concede there may be something in our future that turns all this on its head. Another Industrial Revolution type event that is such a game changer it enables the world to power ahead.

But even if there is, you can measure in decades the lead-time for the benefits of these rare and momentous events to eventuate.

According to historians it took well over thirty years for the economy to register the impact of the Industrial Revolution. Even with technology beginning in the 1980′s it’s only recently we’ve witnessed its impact on global commerce.

So unless the next big thing happens soon, all the pointers suggest global growth has run into severe headwinds. Nearly three hundred years of continuous growth may have reached an end.

This is where the equal and opposite theory kicks in.

The laws of physics tell us contraction follows expansion.

My belief is history will record the GFC as the official start of The Great Credit Contraction.

The bell rang on credit fuelled consumption and investment in 2008. In the five years since the GFC, the private sector hasn’t strayed from its chosen path of debt reduction and/or saving.

Any GDP ‘growth’ in the past five years has been quantitative, not qualitative. The Botox of government deficits has masked the ugliness of the underlying economic numbers. The US Government runs an annual budget deficit over $1 trillion (money they don’t have by the way). This is 7% of their $15 trillion economy.

Take out the printed $1 trillion and the numbers look awfully saggy. The injection of $1 trillion is quantity NOT quality.

The Great Credit Contraction is a far more powerful force than a handful of central banks. It’s the collective decision making of hundreds of millions of people to not only change their consumption habits but also how they fund their reduced consumption.

How the Economic Landscape is Changing

A recent Boston Consulting Group survey on consumer habits prompted the following headline: ‘Retailers now facing jaded consumers’. The article went on to say: ‘Australian retailers are facing critical challenges as more and more people spurn commercialism and choose to save for retirement, research shows.‘

There are two things at play here that could worsen this already dire prognosis:

1. Each year, as wave after wave of baby boomers reach retirement, consumption numbers could soften further.

2. Another GFC-like (or worse) downturn (which on balance is a 50/50 bet) would make consumers even more cautious – worsening the already soft consumer numbers.

These altered spending habits aren’t unique to Australia. This is a global trend. Charles Gave of GK Research recently produced the following chart on US job creation – full-time and part-time employment – since 1976.

Since the Tech Bubble peaked in 2000, full-time employment has gone down and part-time employment has gone up.

Note the big peaks in US full-time employment came during the 1980 to 2000 US share market boom. That’s when the S&P 500 increased from 100 points to 1,500 points, and spread around the paper wealth. But as soon as the music stopped, the trend changed.

Click to enlarge

Guess what? Do you think part-time employees earn as much as full-time workers? Not on your nelly. This next chart tracks the net losses of full-time vs part-time (red line) and the decline in income levels (black and dotted lines).

Click to enlarge

While the headlines shout about an increase in US employment (again this is quantitative) the reality (qualitative) is different. More lower-paid employees don’t build the foundation for economic recovery.

And with statistics worse than the Great Depression, Southern Europe is an unemployment wasteland.

The Great Credit Contraction is altering the employment and remuneration landscape.

The central bankers are looking for consumer revival, when in reality it’s all about consumer survival at present.

That leads us to the second theory – what goes up must come down.

We’ll continue that tomorrow…

Vern Gowdie
Editor, Gowdie Family Wealth

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From the Archives…

Is This the Spark to Send Australian Property Crashing?
26-07-2013 – Kris Sayce

Why it’s Deflation…Not Inflation, that’s Heading Our Way
25-07-2013 – Vern Gowdie

Why You Must Avoid This Big Investing Mistake…
24-07-2013 – Kris Sayce

The Dark Side of Technology: Part 2
23-07-2013 – Sam Volkering

The Dark Side of Technology: Part 1
22-07-2013 – Sam Volkering

Article by Investazor.com

President Obama expressed his satisfaction regarding the evolution of the American economy and highlighted the importance of the wellness of the middle class in order to have the economy running at optimal parameters. Also, the creation of jobs represents the main concern, giving the fact that creating jobs is the nucleus of the American economy. If Americans work hard, every field of the economy will run smoothly. In order to rich this point, reforms are needed and consumers need to understand and accept further changes in this regard.

As the spotlight is the unemployment rate problem, further measures are considered: a revolution of the manufacturing industry, a new tax credit, plans for rebuilding the infrastructure, simplifying of the tax code , simplifying the procedures for investments and starting small businesses, large investments in renewable energy (wind and solar energy), rising the minimum wage.

On the other side of the planet, the interest rate of Australia is likely to be lowered again, the second time this year, as the latest inflation data doesn’t look disturbing (currently 2.4%, dropping from 2.5% in the second quarter of the year). The governor of RBA believes that there is still room for this move and further depreciation of the currency is not a surprise. The consumption still needs to be stimulated and the consumers need to trust their economy enough to start investing in more risky assets. As a measure of fighting the decreasing trend that the Australian economy is following lately, especially because its main exporter China is slowing as well, the Central Bank is willing to boost employment by residential constructions. Today, the building approvals were reported down to -6.9% a considerable drop that seems to darken the overall picture.

The post Obama Gives Hope to the Middle Class appeared first on investazor.com.

Source: Brian Sylvester of The Energy Report (7/30/13)

http://www.theenergyreport.com/pub/na/15483

Catalysts are a little like earthquakes: They shake things up. These announcements of drill results, production starts and resource estimates can influence stock prices, sometimes for the better, sometimes for the worse. In this interview with The Energy Report, Jocelyn August, senior analyst and product manager for Sagient Research’s CatalystTracker, explains which catalysts have the biggest effect on small- and large-cap companies and identifies upcoming events that could move the needle in the oil and gas and uranium spaces.

The Energy Report: Compared to oil and gas, do you think uranium is the best place to be among the small-cap energy commodities?

Jocelyn August: Not necessarily. Oil and gas is also an interesting space, particularly the small caps. Just in the last six months, there have been a lot of catalysts in that area. The large institutional investors are investing a lot in oil and gas and not in uranium.

TER: What are the most important catalysts for larger companies?

JA: Generally, earnings announcements, drill results, production decisions and go/no-go decisions. Anadarko Petroleum Corp. (APC:NYSE) and the Tweneboa-Enyenra-Ntomme (TEN) cluster is a good example. A production decision there will help it a lot. Another good example is Noble Energy Inc. (NBL:NYSE) and its Leviathan project in Israel. Announcements about that are big movers simply because of the project’s size.

TER: What are some patterns among large, private institutions investing in energy equities?

JA: During H1/13, private institutions invested in oil and gas and in alternative energy. There’s not much investment in the uranium space.

TER: What are the top catalysts for small-cap energy equities?

JA: Drill results, with about a 9.6% average stock movement, are number one. The second is the announcement of further drilling on a currently producing site; those announcements move companies about 8.8% on average. For smaller companies, the announcement that drilling is beginning brings 8% on average. Production starts are number four. They’re 7.5% for the small companies, but they generally don’t move the stock much for the larger energy stocks because they’re already baked into the stock price. Third, we notice that large movements occur around announcements of investments by a strategic partner or investment bank. That creates an average stock price change of about 8.5%. The last one is an earnings announcement, which moves prices almost 6% on average.

TER: Is the percentage of movement similar for small- and large-cap energy equities?

JA: Generally, the larger a company is, the less it will move. Percentagewise, stock prices move a lot more for those under $500 million ($500M) than for those over $500M. And the ones over $5 billion ($5B) won’t move very much.

TER: It will cost almost $60B to clean up the site of the Fukushima Daiichi nuclear disaster. Do you think news of that will push uranium equities prices even lower?

JA: Japan’s election of a new prime minister, who is a known proponent of nuclear energy and has plans to accelerate the startup of currently offline nuclear reactors, is positive news for the uranium industry. The amount of money it will take to clean up the Fukushima site is a negative, but we’ve had a shortage in the uranium supply, and there’s a rising demand for it. Weighing those factors, I think uranium is poised for an upswing. But companies that can keep their costs lower will be able to operate in all types of market environments.

TER: Do you see any catalysts in the uranium space beyond the election of the Japanese prime minister?

JA: In terms of specific companies, Uranium Energy Corp. (UEC:NYSE.MKT) has the Goliad project in Texas, which it expects to bring on-line soon, probably in August.

TER: That will add roughly 30 thousand pounds to its annual production?

JA: Yes, and its cash costs are estimated to be at $18/pound, which is good.

Lost Creek in Wyoming, which is Ur-Energy Inc.’s (URE:TSX; URG:NYSE.MKT) project, is expected to come on-line soon and to add 1 million pounds per year at its peak. The operation underwent its pre-operation inspection in June as required by the Nuclear Regulatory Commission.

TER: What small-cap oil companies have near-term catalysts?

JA: Ivanhoe Energy Inc. (IE:TSX; IVAN:NASDAQ) and its Tamarack oil sands project. A permit approval decision and field-testing results should happen within the current quarter.

TER: Ivanhoe recently put out a release saying that one of the First Nations in that area, the Mikisew Cree First Nation, wouldn’t object to the project’s development. Is an announcement like that a significant catalyst or just a nonfactor?

JA: It’s definitely a factor. We generally add that information to our coverage of the specific permitting catalyst. This project has been delayed significantly; the original date range was H2/12. Now it has successfully negotiated letters of nonobjection from four of the seven stakeholders who previously filed statements of concern, and it’s trying to resolve the final three statements of concern.

TER: Ivanhoe’s Tamarack is a heavy oil play north of Fort McMurray in Alberta, Canada, but a lot of investors have gotten out of the heavy oil sands plays. Would a catalyst for Ivanhoe have had more impact a few years ago than now?

JA: A couple of years ago, when the price of oil was higher, it would have had a larger impact. Investors have gotten out of the heavy oil plays because it costs more to get that heavy oil out of the ground than to get some of the lighter oil out.

TER: Would the approval of the Keystone XL pipeline be a big catalyst for Canadian energy plays?

JA: Obviously, you need some way to distribute the oil. Having more distribution options and another way to get the oil from Canada to the United States will help companies lower their costs.

TER: What small-cap gas names have some near-term catalysts?

JA: FX Energy Inc. (FXEN:NASDAQ) can have large-moving catalysts, whether positive or negative. FX had a positive catalyst in May. Good news on production tests at the Tuchola-3K well put it up almost 19%. A negative catalyst in July, some test results for Plawce, sent the stock down 15.5%. There were basically noncommercial levels of gas.

We’re looking for more drill-test results in the Fences area, where these are located, including those for the Lisewo-2 and Szymanowice-1 wells. We’re also looking for results this quarter from a couple of its wells in Poland.

TER: What other companies in the energy space with either near- or medium-term catalysts would you like to share with us?

JA: We have a couple of catalysts for projects in the North Sea. We have one for Endeavour International Corp. (END:NYSE.MKT) for the West Rochelle project. Its partners are Nexen Inc. (NXY:TSX; NXY:NYSE) and Premier Oil Plc (PMO:LSE). It had some problems with the Rochelle project; a big storm in February did some major damage to the first well, which was the East Rochelle well. Now, it’s working on West Rochelle. We expect a production-start catalyst this quarter for West Rochelle.

We expect Sterling Resources Ltd. (SLG:TSX.V) to have a production start for phase two of its Breagh gas project, also in the North Sea, in August.

TER: What other tips regarding catalysts for energy companies do you have for investors?

JA: You should continue to watch uranium and keep an eye on what’s going on with it in Japan and the United States. Keep an eye on the reactors in Japan and the projects coming on-line in the United States.

TER: You mentioned Anadarko and Noble Energy as being big companies with near-term catalysts. Any others?

JA: We’re obviously still looking for information on Davy Jones, which is a project of McMoRan Exploration Co. (MMR:NYSE) and Energy XXI (EXXI:NASDAQ). It’s in ultradeep water in the Gulf of Mexico. We’re waiting for some flow-test results, which could happen as close as August, definitely by the end of the year.

TER: Would that be a production decision?

JA: It’s more a testing-result decision. It was so close to production and then had that blowout last year. At this point, we’re looking for information as to whether it can proceed. The flow-test results will be a deciding factor. It’s an interesting project because no other companies have tried to go that deep in the Gulf of Mexico; it has pretty big implications for that type of drilling.

TER: Leave us with one great piece of insight into this space.

JA: If you’re interested in long-term investment opportunities and long-term growth, look at some of the larger-cap companies because their share prices aren’t as volatile. But if you want to make more money in the short term or pursue short-term opportunities, some of the smaller-cap companies are doing good things and have upcoming opportunities for making money on short-term catalysts.

Jocelyn August is currently the senior analyst and product manager for CatalystTracker, a proprietary research product focused on identifying and analyzing the future events that will materially impact publicly traded companies. In her five years at Sagient, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the “Catalyst Impact Study: Natural Resources Sector.” Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. August received a master of business administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a bachelor of arts degree in sociology.

Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

DISCLOSURE:

1) Brian Sylvester conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Energy Report: FX Energy Inc. and Energy XXI. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Jocelyn August: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.

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By ActiveTradingPartners.com

By Profit Confidential

To predict future prices of any good or service, Economics 101 dictates that we must measure the demand and supply of the good or service in question. Today, I’m applying those time-proven measures to the state of gold bullion.

On the demand side, we continue to hear about the increased demand for gold bullion from China. The managing director of investment for the World Gold Council (WGC), Marcus Grubb, said late last week, “China will probably be the world’s biggest gold consumer this year for the first time on an annual basis… That will be driven by both jewellery and investment demand. Jewellery will be the biggest overall demand segment, but investment will grow fastest.” (Source: Harvey, J., “UPDATE 1-Chinese gold demand could hit 1,000 T this year-WGC,” Reuters, July 25, 2013.)

The WGC expects demand for gold bullion in China to be between 950 and 1,000 tonnes in 2013.

Similarly, the demand for the precious metal in India is robust, regardless of the efforts by the government and central bank to curb this demand. A new way of bringing gold into the Indian economy is emerging: smuggling. In the second quarter of this year, 270 million rupees (India’s currency) worth of gold bullion was seized from smugglers—an increase of more than tenfold from a year ago. (Source: Wall Street Journal, July 25, 2013.)

Sure, it’s a minute amount compared to the overall consumption of gold bullion in the Indian economy. Nonetheless, it should be noted as an indicator of precious metal demand. According to India’s anti-smuggling department of the Central Board of Excise and Customs, the number of cases of gold bullion smuggling increased to 205 from just 21 in the same period a year ago.

On the supply side, as gold prices have fallen, gold miners have cut back on their spending on exploration for more gold bullion.

Mining giants like the Agnico-Eagle Mines Limited (NYSE/AEM, TSX/AEM) have started to slash their exploration spending. In its second-quarter earnings, Agnico-Eagle reported its budget for exploration this year has been reduced by 22% to $72.0 million; going forward, in 2014, this budget will be cut further to about $50.0 million—significantly lower than the company’s historical spend level of $100 million annually. (Source: Agnico-Eagle Mines Limited, July 24, 2013.)

Other gold mining giants are making similar moves, cutting back on their exploration spending.

Dear reader, the demand for gold bullion is clearly increasing, while the prospects of supply are declining. Hence, the rules of economics at the most basic level would suggest the price of gold bullion will increase.

Outside of old-fashioned economics, we are seeing too much negativity towards gold bullion. And when investor negativity towards any investment is so great, the price of the investment usually goes in the opposite way.

I remain bullish on gold bullion. I don’t see any reason to be even slightly bearish at these low prices.

Article by profitconfidential.com

By Profit Confidential

You have to like the water heater business. Until I came across A. O. Smith Corporation (AOS), I never knew the mature business of hot water could be so lucrative. It’s just another esoteric, old economy–type industry with stability and consistency.

The company reported solid top-line growth of $549.1 million for a gain of 13% over the second quarter of 2012. This is way better than more nimble, seemingly faster-growing businesses, even in technology.

The company’s second-quarter earnings were $42.1 million, or $0.45 per share, compared to $35.0 million, or $0.38 per share year-over-year.

Like many corporations, part of the earnings gain was due to cost control and consolidation of production. Unlike many corporations, double-digit top-line growth in such a mature industry is a reality.

Company management cited improving economic conditions in the North American market and, more specifically, the recovery in new housing as reasons for the solid revenue gain.

Second-quarter sales in North America grew six percent to $389 million, versus $366 million comparatively.

A. O. Smith’s company-branded sales in China grew 35%. Sales for China, India, and Europe increased 33% to $169.5 million. Total sales in China grew $37.0 million to $143.6 million. Growth in that market was due to increased demand for premium water heating and water treatment, according to the company.

A. O. Smith’s cash position improved by $100 million to $366 million. Long-term debt fell, and shareholders’ equity rose.

All in all, for such a mature company and industry, the enterprise reported an excellent quarter once again.

Management expects its Chinese business to grow by 18% this fiscal year. The company increased its 2013 full-year guidance for generally accepted accounting principles (GAAP) earnings to between $1.62 and $1.68 per share. Adjusted earnings are expected to be between $1.84 and $1.90 per share.

For the next several years, the company is targeting organic top-line growth of approximately seven percent per year.

On the stock market A. O. Smith has been a huge winner the last while, and the market is paying for its consistency. (See “Super Stocks—Great Companies for Any Stock Market Portfolio.”) Every equity market portfolio needs to have an old economy business similar to this. It’s not exciting, it’s not fancy, but it’s a good business that earns.

And what I also like about a business like this is the way it’s expanding internationally. It hasn’t gone wild in emerging markets. So many companies have run into problems with new operations in China. Management has slowly and deliberately expanded in faster-growing markets, employing baby steps. This minimizes risk and costs.

Wall Street upped its earnings estimates on the company across the board this year and next. The stock currently boasts a dividend yield of approximately 1.2% and the company’s forward price-to-earnings ratio is around 19.

Being a substantial stock market winner, it’s odd to think of a water heater business as being a momentum play. But that’s what it is in this market—a market that pays for consistency.

In any case, A. O. Smith is worth putting on your radar screen. New home building and emerging markets underpin solid fundamentals for this old economy industrial goods company.

Article by profitconfidential.com

By Profit Confidential

America was built and linked by the railroad that spans the nation, connecting the Pacific and Atlantic oceans. The railroad has great importance, as people use it for travelling and companies for transporting their goods. Without the railroad, commerce wouldn’t have been able to grow as much as it did heading into the 20th century.

An ocean away in China, we have also been seeing an economic revolution that may be stalling but, in my view, continues to be one of the top growth markets in the world longer-term.

While there are many that would argue this, I’m not in that camp. (Read “How to Buy Blue Chip Chinese Stocks on the Cheap.”) Yes, the near term could pose issues in China as far as its stalling GDP growth, but I simply cannot ignore the massive potential there, given the country’s population and increasing trading partners and global markets.

One area of major growth has been China’s expansion of its transportation network, whether it’s roadways, air space, or rail. Just like America, China needs to expand its transportation network to allow its companies to flourish and to connect its 1.3 billion citizens.

China’s Premier, Li Keqiang, said that he wants to increase the rate of development of China’s railway network via a specific development fund, according to Bloomberg.

A mid-cap Chinese railroad stock that I have been following for a while is Guangshen Railway Company Limited. (NYSE/GSH). The company trades in the U.S. via its American depositary shares (ADS).

The company’s key focus at this time is its passenger services. This network includes the Guangzhou–Shenzhen inter-city train service, long-distance passenger, and the Hong Kong Through Train passenger service that is operated with MTR Corporation in Hong Kong. (I have personally ridden the popular Guangzhou-Shenzhen and Hong Kong lines.)

                                                Chart courtesy of www.StockCharts.com

The freight business moves full-load cargo, single-load cargo, containers, bulky and overweight cargo, dangerous cargo, fresh and live cargo, and oversized cargo.

The heart of its rail network is its 299-mile Shenzhen–Guangzhou–Pingshi railway that transports both people and freight. In fact, the route is found in China’s key economic development zones.

Growth has been stellar with revenues increasing in each year from $409.95 million in 2002 to $2.42 billion in 2012.

While the stock is well up from its 52-week low of $13.97, I still see above-average growth opportunities for the aggressive investor with a longer-term view. But be careful, as the chart shows a near-term decline and possible upcoming weakness that could be a buying opportunity.

Article by profitconfidential.com

By Profit Confidential

The amount Americans are “saving” is dropping like a rock…

Personal savings as a percentage of disposable income continue to drop in the U.S. economy. In the first quarter of 2013, Americans only saved 2.5% of their disposable income. This was a whopping 30.5% lower when compared to the same period a year ago! (Source: Federal Reserve Bank of St. Louis web site, last accessed July 26, 2013.)

The reason Americans are saving less has to do with a reduction in their earnings from the U.S. economy…

The median weekly earnings of full-time wage and salary workers (on a constant 1982-1984 dollar basis) decreased from $337.00 in the second quarter of 2012 to $334.00 in the second quarter of this year. (Source: Bureau of Labor Statistics, July 18, 2013.)

Meanwhile, inflation is rising in the U.S. economy…

What Americans could have bought for $1.00 in 2007 now costs them $1.13. That’s a decline in buying power of 13% in just a matter of a few years. (Source: Bureau of Labor Statistics web site, last accessed July 25, 2013.) Unfortunately, our “buying power” will continue to erode as the Federal Reserve continues to print $85.0 billion a month in new paper money in the U.S. economy.

And with all this, Americans are pulling back on spending once again…

Last month, manufacturers of durable goods in the U.S. economy reported an increase of 0.2% in their inventories (from a month earlier) to $378 billion. This was the highest level ever recorded. (Source: U.S. Census Bureau, July 25, 2013.) Durable goods manufacturers in the U.S. economy are adding to their inventories as consumers are struggling; this tells me demand is low, as consumers are buying less.

Dear reader, during periods of economic growth, we should not be seeing declines in the savings rate, weekly earnings, and buying power of our currency.

The sad reality is that the U.S. economy is still in a dire state, despite what the politicians and mainstream media tell us.

Michael’s Personal Notes:

Here’s how a gradual slowdown in the global economy, something very few American or Canadian politicians are talking about, looks:

South Korea reported that in the first half of this year, exports of ships fell 25.3%, steel exports fell 12% percent, auto exports are down 1.7%, petroleum products are down 2.1%, and computer exports fell 3%. (Source: South Korea Ministry of Trade, Industry & Energy, July 2, 2013.)

The central bank of Thailand has lowered the growth forecast for its country, citing weakness in the global economy. The Bank of Thailand expects growth of 4.2% this year compared to its previous prediction of 5.1%. (Source: Bank of Thailand, July 19, 2013.)

Singapore, one of the most active container ports in the world, is facing similar issues. The country’s non-oil exports to the global economy fell 8.8% in June from a year ago. Shipments to the U.S. from Singapore declined 15.9%, and to the European Union, they plummeted 33.6%. (Source: International Enterprise Singapore, July 17, 2013.)

The situation on the other side of the global economy hints at an economic slowdown as well.

The United Nation’s Economic Commission for Latin America and the Caribbean (ECLAC) predicts Latin American countries will only grow at three percent this year—a slower rate of growth than its previous estimates of 3.5% in April. The ECLAC cited two main reasons for slower growth: Europe and China. The region is overly dependent on exports to these two economies. (Source: Economic Commission for Latin America and the Caribbean, July 24, 2013.)

On the surface, this may not sound like a big deal to many, but the reality is that an economic slowdown in the global economy will have an impact on U.S.-based businesses that are operating globally.

McDonalds Corporation (NYSE/MCD) is a great example of an American company witnessing the slowdown in the global economy firsthand. For the second quarter of this year, the company reported its global sales rose only one percent from a year ago—and it expects global sales to remain challenging throughout the year. (Source: McDonalds Corporation, July 22, 2013.)

It’s only a matter of time before we start to hear more about the economic slowdown in the global economy. Currently, the reality is hidden by extreme optimism. I am watching all of this very carefully, and I caution investors—beware: the global economic slowdown will eventually hit the earnings and stock prices of the 40% of S&P 500 companies that export abroad.

Article by profitconfidential.com

By Profit Confidential

Here’s how a gradual slowdown in the global economy, something very few American or Canadian politicians are talking about, looks:

South Korea reported that in the first half of this year, exports of ships fell 25.3%, steel exports fell 12% percent, auto exports are down 1.7%, petroleum products are down 2.1%, and computer exports fell 3%. (Source: South Korea Ministry of Trade, Industry & Energy, July 2, 2013.)

The central bank of Thailand has lowered the growth forecast for its country, citing weakness in the global economy. The Bank of Thailand expects growth of 4.2% this year compared to its previous prediction of 5.1%. (Source: Bank of Thailand, July 19, 2013.)

Singapore, one of the most active container ports in the world, is facing similar issues. The country’s non-oil exports to the global economy fell 8.8% in June from a year ago. Shipments to the U.S. from Singapore declined 15.9%, and to the European Union, they plummeted 33.6%. (Source: International Enterprise Singapore, July 17, 2013.)

The situation on the other side of the global economy hints at an economic slowdown as well.

The United Nation’s Economic Commission for Latin America and the Caribbean (ECLAC) predicts Latin American countries will only grow at three percent this year—a slower rate of growth than its previous estimates of 3.5% in April. The ECLAC cited two main reasons for slower growth: Europe and China. The region is overly dependent on exports to these two economies. (Source: Economic Commission for Latin America and the Caribbean, July 24, 2013.)

On the surface, this may not sound like a big deal to many, but the reality is that an economic slowdown in the global economy will have an impact on U.S.-based businesses that are operating globally.

McDonalds Corporation (NYSE/MCD) is a great example of an American company witnessing the slowdown in the global economy firsthand. For the second quarter of this year, the company reported its global sales rose only one percent from a year ago—and it expects global sales to remain challenging throughout the year. (Source: McDonalds Corporation, July 22, 2013.)

It’s only a matter of time before we start to hear more about the economic slowdown in the global economy. Currently, the reality is hidden by extreme optimism. I am watching all of this very carefully, and I caution investors—beware: the global economic slowdown will eventually hit the earnings and stock prices of the 40% of S&P 500 companies that export abroad.

Article by profitconfidential.com

By Profit Confidential

It is earnings season and corporate numbers are plentiful. Blue chips are mostly reporting decent financial metrics, but I want to address the other side of the equation.

Investment risk in many capital market assets is still very high. And the reason why it’s very high is the fiscal and monetary experiments taking place around the world.

PepsiCo, Inc. (PEP) announced another good quarter that beat expectations, and while the outlook for the beverage and snack market is decent, this is only part of the picture facing equity market investors.

It is still important for investors to be extremely cautious (and conservative) in this environment. The sovereign debt crisis has not abated in the eurozone. U.S. monetary stimulus through artificially low interest rates and quantitative easing is not re-inflating assets to the degree wished for by the Federal Reserve. The U.S. fiscal situation remains a mess at all levels of government.

I’m the biggest believer in enterprise and taking a constructive view of equity market trading action. But there is this whole other universe out there of unquantifiable risk precipitated by undercapitalized banks, no fiscal flexibility, and exponential money supply stimulus that, so far, hasn’t created real, unassisted economic growth.

I’m not a “doom-and-gloomer,” but investment risk is equally, if not more important than potential returns with paper assets. And the world (including regulators) still can’t quantify the risk exposure within the global derivatives market.

This is still very much a perilous environment, as private economic deleveraging butts heads with public economic re-leveraging. Risk hasn’t gone away; it’s only being masked by the equity market. (See “The Only Way to Protect Your Investments from the Turmoil in China.”)

I absolutely believe that all equity market participants need to re-evaluate their portfolios for risk exposure. A long-term or retirement portfolio should include only the most solid companies, with dividends being paramount. I also see nothing wrong with holding cash, as there is no rush to buy in an equity market that’s already had a great run and is due for a serious correction.

Memories in the investment business are short, and the daily news (earnings season reports) in this equity market easily masks the previous reality that hasn’t changed.

Some financial metrics on the U.S. economy are showing improvement. But this is only with the certainty of the stimulus provided by monetary policies. The Federal Reserve does what it does best, and that’s printing money. But this equity market is still very fragile and investor sentiment, while glimpsing the end of quantitative easing, realistically can’t handle it yet.

There is no rush to take on or add to new positions in stocks. And it’s not that the best companies and trades aren’t out there; rather, it’s because of the other side of the return equation—investment risk. The equity market almost came apart just recently as bond yields spiked on a misinterpretation of Federal Reserve chairman Ben Bernanke’s words.

Near-term, things will probably tick along the current status quo in the equity market. September is the next big catalyst, with a huge Federal Reserve policy meeting for Ben Bernanke—the last time that he will have the chance to decide to either keep or taper quantitative easing before being replaced by his successor.

Article by profitconfidential.com