Month: August 2013

By Investment U

This is a follow-up piece on the EU recovery segment from last week. If you missed it you might want to go back and review the numbers.

The EU is producing all kinds of positive numbers. The most recent: the EU Composite Output Index, which moved from 48.7 last month to over 50 this month. But many investors are still jittery about jumping into equities in a market that has been as badly beaten up as the EU.

The safer alternative is to own U.S. equities, whose performance has been superior in North America, but have still been held back by their exposure to the slump in Europe. Barron’s listed three in a recent article and all of them look very good.

Ford (NYSE: F) has had a great run over the last few years but has given up $0.25 in losses from its EU operation for every $1 in pre-tax profits in its American operations.

Despite paying down debt, being raised to an investment grade credit rating and paying a dividend again, the slump in its European operation has had a huge negative effect on share performance.

And, Ford stock is selling at a P/E of 11. That’s cheap.

Ford’s earnings per share are expected to grow by 17% next year and that will be even greater with less of a drag from its EU operations.

Owens Illinois (NYSE: OI) is next. It has huge exposure to the EU. It is the largest glass container maker in the world and has seen a big drop in its numbers since the Great Recession.

OI caters to the beer and wine industry, which is expected to recover as conditions improve in Europe. And following a wave of consolidation, OI expects to see a significant contribution to its bottom line from its EU operations.

And, it sells for a measly P/E of 10.

DuPont (NYSE: DD) earns about 20% of its revenues in Europe, so any improvement there could add significantly to its bottom line. Add to that the possibility of Dupont selling its chemical division for an estimated $11 billion for better growth prospects in other faster growth areas and you have a solid 3.1% dividend payer with very good prospects.

When you add up the ECB’s pledge to support the euro no matter what, improving consumer sentiment, the improving numbers from last week’s segment and the potential for big bottom line increases in these three big name companies, this play looks like a solid and safer way to play the EU.

ObamaCare Bulls

Next, there are actually Wall Street bulls behind ObamaCare.

Supporters of ObamaCare on Wall Street are few, but Larry Robbins of Glenview Capital Management is the exception and one to pay attention to.

According to Barron’s, he has earned 13.4% per year for his investors over the last 10 years and much of it is due to his focus on healthcare stocks – 40% of his holdings are in companies like Tenet Healthcare (NYSE: THC), Health Management Associates (NYSE: HMA), Community Health Systems (NYSE: CYH), Humana (NYSE: HUM) and McKesson (NYSE: MCK).

Robbins expects ObamaCare to be a boon for certain parts of the healthcare system. His reasoning is that currently a hospital is only reimbursed about 4% of the cost for care provided to the uninsured. Under Obamacare, Robbins says this could jump to as high as 100%.

That’s a lot of money to the bottom line.

Robbins says growth in healthcare averages about 6% a year. He expects the growth rate to jump to the mid-teens by as early as next year. And, if immigration reform gives new citizens access to healthcare, he says it amounts to a free call on healthcare stocks.

Robbins also expects a significant increase in stock buybacks in healthcare.

He sees the entire hospital industry as underleveraged by as much as four times. Tenet for example had so much cash and was so underleveraged in 2012 that they could have bought back every share of stock in 19 months.

Most of us may still be very leery of ObamaCare and its long term effect on this country, but, from an investment perspective, it is hard to argue with the short-term numbers.

Take another look at healthcare.

Finally, the “Slap in the Face” Award: Chump Traps

This week the award was easy to choose and comes to us from a MarketWatch article from last week.

It goes to the SEC and hedge funds.

MarketWatch listed the 10 ways Wall Street plays us for chumps. It included all the usual: high returns without higher risk is just stupid, your success has never been dependent on a smart or a smarter advisor, Wall Street gets rich at your expense, active fund managers do not outperform anything, the average guy cannot and has not ever been able to pick stocks successfully and a few other obvious ones.

But, the finale, No. 10, is the big winner.

Hedge funds have been consistently shown to be the most overpromising and underdelivering of all of Wall Street’s scams of recent times. Most are just that – legal scams – and are now allowed by the SEC to advertise to get your money, too.

Now, as MarketWatch put it, you too can lose money, hand over fist, as fast as the super-rich have been doing for the last 20 years.

Isn’t nice to finally be allowed into the inner circle?

The best way to avoid the Street’s chump traps; use the good common sense your parents taught you. It is always too good to be true.

Article By Investment U

Original Article: The Safer Way to Play Europe

A record of spotting major market turns most investors miss

By Elliott Wave International

Elliott Wave International is dedicated to helping subscribers anticipate the next major market turn. No, we don’t always “get it right” – yet the examples below speak for themselves.

1. In 2005, EWI called the 2006 real estate turn.

Some say real estate can’t go down because far too many people are concerned about a real estate bubble, a worry that is now even greater than it was for stocks at the March 2000 NASDAQ peak … it is actually another sign of a top when participants are dismissive of the warnings.

The Elliott Wave Financial Forecast, July 2005

House prices peaked in July 2006. By April 2012, the Associated Press reported, “Home prices have fallen 35% since the housing bust.”

2. In 2007, EWI called the stock market turn.

Aggressive speculators should return to a fully leveraged short position now. We may be early by a couple of weeks, but the market has traced out the minimum expected rise, and that’s enough to act upon.

The Elliott Wave Theorist, Interim Report, July 17, 2007

Those aggressive speculators were rewarded. From an Oct. 9, 2007, high of 14,164, the Dow Industrials tumbled to 6,547 by March 9, 2009.

3. In 2008, EWI called the crude oil turn.

Less than six weeks before the $147 high in the price of oil, the June 2008 Financial Forecast observed that “The case for an end in oil’s rise is growing even stronger.” The chart below was published in that issue:

Note that the sentiment index on the chart shows bullish sentiment reaching 90%.

By December 2008, the price of oil had declined 80%.

4. In 2011, EWI called the retracement high in the CRB Index.

The CRB index has reached the upper end of its corrective-wave trend channel while simultaneously reaching a Fibonacci 50% (1/2) retracement of the 2008-2009 decline, as it completes an A-B-C rally. This index should soon begin another wave down that takes it below the 2009 low.

The Elliott Wave Theorist, January 2011

The CRB index topped less than four months later.

5. In 2012, EWI called the turn in gas prices.

The rush to extrapolate [rising prices] is all we need to conclude that the odds of … gasoline prices going to the moon are extremely low.

The Elliott Wave Theorist, April 2012

Gasoline prices topped during the same month that issue published.

6. In 2009, EWI called the turn in stocks.

The majority of investors thought that the period from October 10 to year-end 2008 was a major market bottom. But over the past four months The Elliott Wave Theorist, The Elliott Wave Financial Forecast and the Short Term Update have repeatedly stated, without equivocation, that the market required a fifth wave down. There were no alternate counts. The Wave Principle virtually guaranteed lower lows, and now we have them.

I recommend covering our short position at today’s close.

The Elliott Wave Theorist, Special Investment Issue, Feb. 23, 2009

The Dow Industrials hit a major low just 10 days later!

7. In 2012, EWI called the trend change in bond yields.

Investors’ waxing fears will cause them to start selling bonds, which will lead to lower bond prices and higher yields. ….

If rates do begin to rise as we expect, most observers will probably be fooled.

The Elliott Wave Theorist and Financial Forecast, Special Report, June 2012

On July 5, 10-year bond yields climbed to 2.72%, its highest level since July 2011.

In each of these forecasts, the consensus opinion was on the opposite side. Most investors never saw these major trend changes coming. Again, we’re not perfect — no forecasting service is.

Come see what we see.

Learn to Think IndependentlyYou’ll get some of the most groundbreaking and eye-opening reports ever published in Elliott Wave International’s 30-year history; you’ll also get new analysis, forecasts and commentary to help you think independently in today’s tumultuous market. Download Your Free 50-Page Independent Investor eBook Now >>

By www.CentralBankNews.info
    This week 14 central banks took policy decisions, with three banks (Albania, Egypt and Macedonia) cutting rates in response to weak economic growth while 11 banks held rates steady, including India and Tunisia where weak currencies limited their ability to ease policy.
    The currencies of most emerging markets, especially those with large current account deficits, weakened sharply in May and June as capital flowed out in response to the Federal Reserve’s plan to reduce asset purchases.
    The immediate consequence was that rate cuts were off the agenda as Indonesia, Turkey, India, and to a lesser-degree Brazil, tightened policy in recent weeks to protect their currencies and prevent the pass-through of higher import prices to inflation.
    The Reserve Bank of India (RBI) was candid and direct in explaining how the weak rupee and the current account deficit was making it impossible to continue a policy of easing to stimulate economic growth, the same unfortunate situation that the South African Reserve Bank is facing.
    The Central Bank of Tunisia also mentioned the “worrying level” of its current account deficit and a further decline in the dinar against the euro against along with sluggish growth that is threatening this year’s growth targets in its argument for holding rates steady.

    The Central Bank of Egypt’s 50 basis point rate cut was the surprise of the week as it comes only four months after rates were raised and rising inflation, the very reason that rates were raised in March. At that time, Egypt’s central bank had also warned that it would not hesitate to adjust rates further to ensure price stability.
    But the removal of Egyptian President Mohamed Mursi from power in early July, along with fresh aid from Gulf Arab states, has been accompanied by a new determination to get the struggling economy back on track.
    The rate cut implies that the central bank does not expect a further weakening of the pound, a major concern in the past because the central bank wanted to ensure that funds flowed into the country.
    The Egyptian pound has been weakening since early 2010 with the depreciation picking up speed early this year. But since early June the pound appears to have stabilized and in fact strengthened slightly after the rate cut, quoted at 6.99 to the U.S. dollar today compared with 7.02 at the start of July. Over the year, however, the pound is still down 9 percent against the dollar.
   
    But this week’s policy meetings by the U.S. Federal Reserve, the European Central Bank (ECB) and the Bank of England (BOE) dominated global financial markets though there was not much new information generated.
    The other central banks that maintained rates this week include those from Israel, Angola, the Czech Republic, Zambia, Ghana and Bulgaria.
    As expected, there were no fireworks from the Federal Reserve, which didn’t give further hints about when it may start to taper its asset purchases, the main issue that has roiled global financial markets since late May. The Fed was not scheduled to hold a press conference this week, one of the reasons that financial markets were not expecting major policy initiatives.
    But one of the changes in the Fed’s statement was the use of the word “modest” to describe the economy’s expansion in the first half of the year compared with “moderate” that was used in previous months to describe the economy’s pace.
    Another change was a reference to the risk to the economy from persistently low inflation, but this was largely interpreted as a nod to St. Louis Fed President James Bullard who has often voiced his concern over low inflation and repeatedly spoken in favor of continued asset purchases until inflation is around the Fed’s 2.0 percent target.
    The Fed’s preferred inflation measure, the personal consumption expenditure index, rose to 1.3 percent in June from 1.1 percent in May.
    The BOE also held off from changing policy this week, keeping its asset purchase target unchanged, as expected. But next week promises to be interesting as the BOE, under the new stewardship of Mark Carney from the Bank of Canada, will publish its view on thresholds and forward guidance.
    Last month the BOE adopted a form for forward guidance – essentially an outlook for policy rates – by saying the recent rise in market interest rates, and the implied rise in its own policy rates, was not warranted. Next week this policy is likely to become formalized with a change in policy rates is linked to certain thresholds, whether this will be unemployment or inflation, as in the United States.

    The issue of forward guidance was also of keen interest during the ECB’s press conference after rates, as expected, were maintained. Another topic of interest was the publication of minutes of ECB council meetings with a formal proposal to be presented in the fall.
    As the Fed, the ECB tweaked its language about the economy, adding that confidence had shown some improvement from low levels and this “tentatively confirm the expectation of a stabilisation in economic activity.”
    Hardly a ringing endorsement of a sudden resurgence of growth but the euro zone has a long way to go with the economy this year projected to shrink by 0.6 percent and expand by 1.1 percent in 2014.
    But ECB President Mario Draghi’s press conference was dominated by details over forward guidance, which the ECB also adopted last month, when it said “the Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time.”
     The ECB clearly broke with tradition by giving such a guidance, though it will not define what it means by “extended period of time,” making its guidance much less specific than other central banks, for example Sweden’s Riksbank which releases likely rate paths.
    It was almost as if the ECB regretted using forward guidance last month, saying it may not actually repeated this outlook each month if financial markets and journalists understand that the guidance is valid until further notice.
    Omitting the guidance would thus not imply a change in the ECB’s outlook, only when the wording of the guidance is changed. And any change in the guidance would be linked to the ECB’s description of inflation, the state of the economy and monetary dynamics.
   Draghi’s argument was that it if the guidance was repeated every month, markets would infer that “extended period” referred to one month and that was not the council’s intention.
    Financial markets and economists will certainly face a new set of challenges when trying to grasp the ECB’s outlook in coming months.
   
    Through the first 31 weeks of this year 24.3 percent, or 73, or this year’s 300 policy decisions by the 90 central banks followed by Central Bank News have led to rate cuts, largely steady from last week’s 24.1 percent decisions, but down from 24.6 percent the previous week.
    Only 4.7 percent, or 14, of this year’s rate decisions have led to rate rises.

LAST WEEK’S (WEEK 31) MONETARY POLICY DECISIONS:

   
    Next week (week 32) 10 central banks are scheduled to hold policy meetings, including Romania, Australia, Rwanda, the Philippines, Japan, South Korea, Serbia, Peru, Russia and tentatively Sri Lanka.
    In addition, The Bank of England is scheduled to release its inflation report along with its assessment of using forward guidance and thresholds on Aug. 7.

 
  www.CentralBankNews.info

By Profit Confidential

This morning we got news that 162,000 jobs were created in July in the U.S. economy—the worst showing in the past four months. (Source: Bureau of Labor Statistics, August 2, 2013.)

And when we look closely at the July U.S. jobs market report, it gets worse.

First off, the previous months’ numbers keep getting revised downward; the number of jobs added to the U.S. economy in May was revised down from 195,000 to 176,000, and June’s numbers were revised down from 195,000 to 188,000—combined, that’s 26,000 jobs that never really happened.

The underemployment rate, a statistic I consider to be a better measure of jobs market conditions, remained staggeringly high at 14% for the month of July. The big blow: it was higher than what it was during the months of March, April, and May, and only slightly lower than June. The underemployment rate takes into account people who have given up looking for work and part-time workers who can’t get full-time work.

There are close to one million discouraged workers in the U.S. jobs market, and the number of individuals working part-time because they are unable to find full-time jobs remained unchanged at 8.2 million in July.

Of course, one must ask: where are we seeing growth in the jobs market? If you guessed low-wage-paying sectors, then you are right. In July, a combined 85,000 jobs were added in the retail, trade, leisure, and hospitality sectors—more specifically, in food services and drinking places. This is 52% of all the jobs created during the month!

Employment in industries like construction, transportation and warehousing, mining and logging, and government sectors were essentially unchanged. Employment in manufacturing remains dismal, and over the past year, it has remained unchanged as well.

And the labor force participation in the U.S. economy presents an even bleaker view of the jobs market. A record amount of individuals are leaving the jobs market. The labor force participation rate in July stood at 63.4%—a historically low level. (The labor force participation rate is simply the percentage of working-age individuals taking part in the jobs market.)

When I look at jobs market conditions in the U.S. economy, I can’t help but question the theme of economic growth that’s driving key stock indices higher. It all smells fishy to me, as I continue to believe there is no economic growth in the U.S. economy.

What July’s jobs market report did provide was another excuse for the Federal Reserve to continue creating more paper money with no added value to the U.S. economy.

Michael’s Personal Notes:

While I continue to hear politicians and the mainstream media tell me the U.S. economy is in a full-fledged recovery, I totally disagree with the notion.

I believe the truth of what’s going on with the U.S. economy is the total opposite of what we are being fed by both politicians and the mainstream media.

Look at the chart below of the change in the real U.S. gross domestic product (GDP) since the fourth quarter of 2011.

If we were witnessing recovery, or a period of economic growth, would we be seeing the GDP collapsing? The rate of change in the GDP has actually been declining since the first quarter of 2012. This by no means should be taken lightly, as it indicates a recession may be following because economic activity isn’t flourishing.

In fact, I see even more indicators favoring a recession ahead.

Consumers in the U.S. economy are struggling—their pockets are getting emptier. Jobs are being created in the low-paying retail and service sectors. Meanwhile, prices for goods are increasing. Thanks to higher oil prices, I suspect prices for goods will continue to see an uptick.

Dear reader, current estimates of GDP growth are too optimistic—but this will change. Consider this: The Federal Reserve expects U.S. GDP to grow 2.3%–2.6% this year. Currently, in the second quarter, we are only running at an annual GDP growth rate of 1.7%. This is 26% below the Federal Reserve’s lower estimates. Will our economic activity jump by 26% for the balance of this year? I highly doubt it.

This all brings me to one conclusion: the effects of the money printing can only go so far. Eventually, its utility diminishes. I am not surprised to see the signs of a recession emerging while politicians and the mainstream sing a different tune.

The National Bureau of Economic Research defines “recession” as a period in which “a significant decline in economic activity spreads across the economy and can last from a few months to more than a year.” (Source: National Bureau of Economic Research web site, last accessed July 31, 2013.) Aren’t we experiencing this right now?

Article by profitconfidential.com

By Profit Confidential

While I continue to hear politicians and the mainstream media tell me the U.S. economy is in a full-fledged recovery, I totally disagree with the notion.

I believe the truth of what’s going on with the U.S. economy is the total opposite of what we are being fed by both politicians and the mainstream media.

Look at the chart below of the change in the real U.S. gross domestic product (GDP) since the fourth quarter of 2011.

If we were witnessing recovery, or a period of economic growth, would we be seeing the GDP collapsing? The rate of change in the GDP has actually been declining since the first quarter of 2012. This by no means should be taken lightly, as it indicates a recession may be following because economic activity isn’t flourishing.

In fact, I see even more indicators favoring a recession ahead.

Consumers in the U.S. economy are struggling—their pockets are getting emptier. Jobs are being created in the low-paying retail and service sectors. Meanwhile, prices for goods are increasing. Thanks to higher oil prices, I suspect prices for goods will continue to see an uptick.

Dear reader, current estimates of GDP growth are too optimistic—but this will change. Consider this: The Federal Reserve expects U.S. GDP to grow 2.3%–2.6% this year. Currently, in the second quarter, we are only running at an annual GDP growth rate of 1.7%. This is 26% below the Federal Reserve’s lower estimates. Will our economic activity jump by 26% for the balance of this year? I highly doubt it.

This all brings me to one conclusion: the effects of the money printing can only go so far. Eventually, its utility diminishes. I am not surprised to see the signs of a recession emerging while politicians and the mainstream sing a different tune.

The National Bureau of Economic Research defines “recession” as a period in which “a significant decline in economic activity spreads across the economy and can last from a few months to more than a year.” (Source: National Bureau of Economic Research web site, last accessed July 31, 2013.) Aren’t we experiencing this right now?

Article by profitconfidential.com

By Profit Confidential

While corporate earnings, especially among international blue-chip companies, continue to be mediocre at best, the hospitality industry, which is a solid reflection on the U.S. economy, is announcing very good numbers.

Hyatt Hotels Corporation (H) beat the Street significantly on earnings and revenues. The stock moved significantly higher after the news, and the company’s metrics were solid.

The company reported second-quarter revenues grew 7.7% to $1.09 billion, up from $1.01 billion in the comparable quarter.

Operating margins at owned and leased hotels increased 230 basis points in the second quarter of 2013 compared to the second quarter of 2012. The company opened sixteen properties during the quarter. As of June 30, 2013, the company’s contract base consisted of approximately 200 hotels, totaling 45,000 rooms.

Earnings attributable to Hyatt Hotels on an adjusted basis were $70.0 million, up from $39.0 million in the same quarter last year. This increase in profitability is a solid indicator of business activity for the company.

In the latest quarter, Hyatt Hotels bought 4.77 million of its own common shares at an average price of $41.10 per share. This year, the company plans to open more than 40 new hotels. Occupancy in the 2013 second quarter grew 1.3% to 75.7%.

Wall Street immediately bumped the Hyatt Hotel’s earnings estimates higher for the rest of the year. The company’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

On the stock market, Hyatt Hotels hasn’t really done much. I view the position as expensively priced currently. But the hospitality industry is a good barometer on the U.S. economy, and hotel bookings seem to be more robust.

We’ve had a real mixed bag of earnings and, as mentioned, many companies haven’t been able to beat the Street on one financial metric.

On a global basis, I still see the U.S. economy as the leader and recent economic data has shown better economic activity; albeit, price inflation is a part of the equation. (See “2Q Earnings Reports Proving Market Uptrend Still Intact.”)

Occupancy and operating margins are key to the hospitality industry, and Hyatt Hotels delivered. A number of other hotel chains are reporting now, and I’ll be reviewing their earnings results for confirmation of an improving trend within the industry.

Much is made about beating Wall Street estimates; this will never change. But it is important to consider that comparable figures and percentage changes can be misleading, especially after a major shock like the Great Recession.

Like many industries, hospitality financial metrics are only now getting back to where they were before the financial crisis. While growth is absolutely the key, comparable growth does have to be taken with a grain of salt. Memories on Wall Street continue to be very short.

Hyatt Hotels reported a solid second quarter, and the stock is ripe for a bounce higher. I’m not a fan of investing in mature hotel chains, as competition in this sector is fierce.

In Hyatt Hotels’ case, the stock is expensively priced and so is its forward price-to-earnings ratio. In terms of opportunities related to the hospitality industry, restaurants stocks offer a much greater bang for your investment buck.

Article by profitconfidential.com

By Profit Confidential

There may be some slowing in the fast food sector, but I look at this as more of a buying opportunity than a time to sell. The trick is simple: you need to make sure you have the right stocks.

As many of you know, my top buying opportunity in the fast food sector is McDonalds Corporation (NYSE/MCD). The restaurant, with its “golden arches” that are easily recognizable from miles away, is—and in my estimate, will continue to be—the “Best of Breed” in its sector. There will obviously be challengers, but I highly doubt any company will be able to vault over McDonalds. (Read “The Secret to Success in the Fast Food Sector.”)

Below, the chart of McDonalds shows the company’s impressive and steady share price appreciation from less than $20.00 in 2003 to more than $98.00 today. (What a great buying opportunity that was a decade ago!)

As you can see in the chart, the stock (red candlesticks) has also outperformed the S&P 500 (green line), based on my technical analysis.

Chart courtesy of www.StockCharts.com

Of course, there will be those companies that will try to emulate the success that made McDonalds what it is today—a $100-billion worldwide fast food empire and a good long-term buying opportunity.

Take Burger King Worldwide, Inc. (NYSE/BKW), for instance, which is about 14-times smaller than McDonalds based on market capitalization. The seller of the “Whopper” has expanded its menu offerings, but based on the results so far, it is not a threat to the “Big Mac.”

In its second quarter, Burger King reported an abysmal 48.5% decline in its revenues to $278.3 million—well below the Thomson Financial consensus estimate of $322.3 million. The company blamed its plunge in revenues on the business climate and competition.

Heck, while I’m not much of a fast food eater, I would be more inclined to go to McDonalds than Burger King. But another one of my top fast food stocks is Chipotle Mexican Grill, Inc. (NYSE/CMG), which may also offer an attractive buying opportunity.

A few months back, I also talked about Denny’s Corporation (NASDAQ/DENN), the maker of the “Grand Slam” breakfast, as a potential buying opportunity. (Read “Denny’s Serves Up Grand-Slam Returns.”) Denny’s is no match for McDonalds, but it’s not meant to be, as it’s in a different class of restaurants with a focus on dine-in and higher-cost food and services.

Article by profitconfidential.com