Stocks Suffer Despite Consumer Income Rise

black friday salesIt is the week of all weeks for retailers. In fact, I find it comical to browse around online retailers to see that the norm has now become "Black Friday Week." Retailers are riding the black friday train as long as they can. Some, like Amazon, keep the party going a whole week after. For many, 40-50% of their profits will be earned in the next two months. That can be a big gamble if consumers are tightening spending a bit, which recent data is showing.


First, lets discuss the drops in stocks. This was initiated by the failure of Congress to pass a bill to cut into the Federal Deficit, which has caused for a lot of concern on Wall Street with some speculating another future downgrade in US debt. The one received earlier caused quite the shake in markets.

Coupled with politics, is the recent spending data which was released this week that showed despite consumer earning more income this past month, their spending rate decreased. Sure, October can be an exhaust month in anticipation of the holidays, but many see it as consumers being concerned about economic uncertainty.

In addition, jobless claims ticked up by 2,000 this week, which didn't help.

A lot of eyes will be on Black Friday spending to see how consumer sentiment is going into the holidays. Don't be fooled by coupons being sent in the mail. Many retailers are cutting back on holiday savings, due to recent declines in sales despite large discounts on items (big ticket items especially).

As for now, I have a straddled position in the market, hedging many of my longs with shorts. To offset the rest, I am bullish on commodities and gold as I continue to believe uncertainty amongst investors will push up those markets. Happy Trading.

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China and Stocks

chinese stocks and armiesIt is continually the big elephant in the room. On one hand, because of China, interest rates continue to remain at record low levels due to the large supply of treasuries they continue to buy (and the Fed). On the other hand, China's aggressive currency valuation and manufacturing is definitely starting to be felt in US businesses and has been for quite some time. So what is the answer?

Yesterday, President Obama announced that the US would be beefing up the military presence in Northern Australia, that man believe sends a message to China that the US still owns the Pacific.

Recently, I have been able to get two sides of the story as well as two perspectives and how we should go forward with our relationship with China.

First, I attended a presentation given by Joshua Cooper Ramo of Kissinger Associates, who has been nearly a diplomat of China and has lived there for over 10 years. He has recently written a book called "The Age of the Unthinkable," which talks about China in more detail.

Essentially, Ramo talks about the rising power of China and how, because of the population and buying power of the upcoming middle class, a mutual beneficial relationship cannot be ignored. He addressed many of the concerns and preconceived prejudices that many Americans have of China, as well as tried to dive into the culture of China and why they react a certain way to things.

Ramo feels that the next generation of China brings much more diversity and "free thinking" than does the current Communist party. He feels that as China continues to accept capitalistic companies into the country and with the help of social media, these barriers will continue to break down. He feels that if the US can make a mutual relationship work with China, it will be the best decision the US ever made.

However, there are always two sides to a story.

Next, I have listened to the words of Peter Navarro, a professor of Finance at The University of California Irvine and the author of the book, "Death by China." In this book, Navarro breaks down the manipulation and fraud of Chinese leaders in which directly effects both the health and economic well being of the US. He talks of the hacking, spies, and theft that occurs daily as well as the military threat as China continues to build their forces.

He also discusses the fault of the government for allowing many of the problems to happen. China allows almost no imports into the country, but exports more than half of the world's goods. Many factories in Detroit, Chicago, and Kansas City have been closed down and replaced with factories in China.

Navarro believes that unless something is done to regulate how China conducts business, especially within the US, we will suffer many consequences, as will our children.

You decide. How does the US go forward with their relationship with China? The fact of the matter is, that China does hold the largest middle class population and will have only more consumer buying power in years to come. As China continues to develop and become more urbanized, without a debt there will be extremely large opportunities there. The question is will US companies be able to take advantage of it. Some already have. This is why I continue to be bullish in Chinese companies. Happy Trading.

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Bulls and Bears Stand Divided

bulls vs bearsRepublicans and Democrats are not the only people drawing lines in the sand and not wanting to budge. We are seeing a pretty divided stance on the near term movement of markets. I have been to several economic forecast meetings in which very highly respected economists discuss their near term outlook of the economy and it surprises me that I have heard many different stories from all of them.

This perfectly explains the volatility of the markets. In fact, some people change their minds day to day. Whatever it may be, their currently exists major differences of opinions among highly regarded economists and corporate CEOs.

For some, the debt crisis in Europe, combined with the monumental debt piling up in the US is only delaying the inevitable. That being another dip in markets. For others, record low interest rates, strong earnings among manufacturers, and more liquid banks is priming the market for more of a rebound. The one thing that most will agree, is even if we do trend upwards, that will be a very slow growth.

I am encouraged with recent earnings from manufacturers, however am discouraged with many of their "restructuring" plans for 2012. With the latest earning reports, many US manufacturing companies released a restructuring plan for 2012 in which they will be looking to scale down operations as well as cut certain jobs. All seem to have the same answer when asked why. Because they are unsure of near term outlook. They would better be prepared than be caught by surprise.

What worries me most is how sluggish the current economy is, while enjoying record low interest rates. In fact, without such interest rates, I believe it is safe to say we would be head deep in a depression as of now. They are the lifeline that has kept us a float, barely. However, this cannot last forever. How long will the government extend this benefit while stockpiles of debt continue to grow? That of course, will be the big question as we go into 2012. The government has made it clear by both words and actions they will take ANY action necessary to keep markets flowing. Whether or not that will come back to haunt us is a big subject of debate.

At any rate, I see commodities finishing strong to end the year. As risk and uncertainty continues to rise, commodities will go stronger. I see a lot of opportunity in some of the emerging market sectors, but I will go into much more detail about that in a later post. Happy Trading.

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