Stocks & Equities

U.S. Consumers: Still Key to the Outlook

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Posted by John Mauldin

on Tuesday, 01 May 2012 11:24

What I like most about Gary Shilling's economic analysis is that it's thorough. In the piece that follows – an excerpt from Gary's monthly INSIGHT – he ranges from the importance of US consumer spending and the unemployment rate, to the actions of the Fed, to business cost cutting and productivity, to the housing crisis and household debt, to state and local government fiscal issues, to US exports – Etc.! So by time he gets ready to deliver conclusions, you know they're well-supported. And Gary's overall conclusion here, regarding the rest of 2012, is a strong one and maybe not quite what you'd expect.

As part of the deal with Gary to send you his material, he has asked me to offer you the chance to subscribe to his letter. If you like his work as much as I do, I suggest you consider it. Outside the Box readers can subscribe to INSIGHT for the special rate of $275, and you'll receive 13 reports instead of the normal 12, plus a free 10-page Special Report outlining Gary Shilling's investment strategies for 2012. (This offer is available to NEW subscribers only.) To subscribe, call them at 1-888-346-7444 or 973-467-0070, and be sure to mention Outside the Box to receive your special rate and free report.

Your home at last but not for long analyst,

John Mauldin, Editor
Outside the Box


U.S. Consumers: Still Key to the Outlook

(Excerpted from the April 2012 edition of A. Gary Shilling's INSIGHT)

In the Dec. 2011 issue of my Insight newsletter, I wrote: "In the U.S., major new fiscal stimulus is on hold, and monetary policy is impotent. State and local spending, housing, inventory investment, capital equipment investment and commercial construction are likely to remain subdued. U.S. exports are curtailed by sluggish foreign economies. So U.S. growth in 2012 will be decided by consumer spending, 71% of GDP. With declining real wages and incomes and low confidence, continuing strength in outlays is unlikely. A 2012 U.S. recession is probable, but milder than the 2007-2009 nosedive, unless another financial crisis unfolds."
Four Months Later

Well, here we are, four months later. Do the economy and financial markets in the ensuing times substantiate our forecast? The chorus of bullish investors bellows, "No!" as they point to the 29% rise in the S&P 500 index from its October 2011 low (Chart 1). They even believe that a continued sluggish economy is good news.




Stocks & Equities

Identifying Earnings Season Overreaction Opportunities

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Posted by Alan Brochstein

on Sunday, 29 April 2012 15:51

I love earnings season. Don't you? Sure, it can feel like trying to stand in front of an open fire hydrant, but so many opportunities can arise for both short-term traders as well as long-term investors due to the volatility among individual stocks. Time is scarce - institutional investors react swiftly, often buying or selling before they have time to fully digest the news.

Earnings season is particularly busy for me, as I try to keep up with the 100 stocks on my watchlist as well as pay attention to important ones that aren't. This past week, for instance, 30 of the 100 reported, many hosting conference calls at the same time. One morning, I caught four straight live calls, but I tend to end up reading the transcripts for many of them. For those not aware, Seeking Alpha provides free transcripts, which are available on many companies.

When a company reports, there are many possible reactions. The report can can be viewed as "Good", "Neutral" or "Bad", but it's not that easy. To me, it's almost always about the future rather than the recent past. Ultimately, my key question that I want to answer is this: How does the news impact the future earnings? Presumably, if the future is brighter, the stock goes up. If it is dimmer, it goes down. If only it were that easy!

So, when I am judging the quarter, I am looking ahead, but I certainly recognize that many others focus on the short-term. For example, one of the stocks I will address below, Mattel (MAT), missed earnings by 50%. OH MY GOD! The reality is that this was their smallest quarter in terms of earnings typically, and the "huge miss" was rather inconsequential relative to the full year.

The real opportunities that stand out to me are the following combos:

    * Good news, mild reaction
    * Bad news, terrible reaction

While I am not addressing it today, often a company will report what I view as very favorable news, but the market, for whatever reason, doesn't fully appreciate it. These situations can be tricky, requiring a judgment about why the stock isn't moving. The flip-side, though, seems to happen more frequently: A company "misses" and the stock is pounded silly.


big pic


Stocks & Equities

Large Cap Miners Underperforming the Juniors and Silver Stocks

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Posted by Jordan Roy-Byrne

on Friday, 27 April 2012 09:27

Jordan Roy-Byrne
While the precious metals sector has consolidated and struggled to find a bottom, an important development has taken place. First, lets harken back to 2007-2008. Large cap mining stocks peaked in March 2008, yet the speculative sides of the sector "gave out" far earlier. The juniors and silver stocks actually peaked in April 2007. That was about a full year ahead of the large gold stocks. As the 2007-2008 crisis unfolded, juniors and silver stocks led the way down and displayed extreme relative weakness even as metals prices were firm.

Today, we have an entirely different and bullish development. As you can see in the chart below, the speculative areas of the sector have been outperforming the large gold producers (GDX). If this were really an end to the bull market or another collapse, the juniors and silver stocks would not be showing this kind of relative strength. In fact, the silver stocks have actually managed to hold near their 2010-2011 lows even as gold stocks have broken to new lows. We also see that the CDNX has been outperforming GDX since October while GDXJ has been outperforming since December.

GDX (Market Vectors Gold Miners) NYSE


Given the recovery of the past few days, we are likely witnessing the start of the next cyclical bull market for the gold and silver stocks which have essentially been in a cyclical bear or correction since December 2010. The above analysis implies that the more speculative areas of the sector, the juniors and silver stocks will be the leaders.



Stocks & Equities

Are The Markets At A Logical Bottom?

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on Thursday, 26 April 2012 16:40


As we mentioned Tuesday, the reaction to Wednesday’s Fed statement is important to the market’s intermediate-term direction. However, Apple’s (AAPL) strong earnings have provided investors with a reason to step up to the buyer’s plate. From Bloomberg:

    Apple Inc. (AAPL) profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks.

Since Europe continues to be the possible “fun sponge” for the bullish party, and Germany tends to pay the uncomfortable European clean-up tabs, the German DAX Index has served as a good proxy for the tolerance for risk assets. Germany has had a strong start to trading on Wednesday. Later in this article, we review the longer-term technical backdrop for the German stock market.

Picking market tops and bottoms is difficult at best. It is better to think in terms of a probabilistic bottom or top. One way to help discern if it is probable for a market to move higher is to look at long-, intermediate-, and short-term trendlines on both an absolute and relative basis.

When reviewing the charts below ask yourself, “Does this market seem to be at a logical point where a reversal could take place?” If the answer is “yes”, then we become more open to a possible buying opportunity. A few weeks ago we identified 1,363 as a possible point of inflection for stocks. The S&P 500 has been testing 1,363 for two weeks. On April 10, the S&P 500 closed at 1,358, which thus far has represented the lowest close during the current pullback. While we want to see some real conviction from buyers, the chart below seems to have a reasonable probability of producing a reversal to the upside.




Stocks & Equities

It is passed time for a MAJOR disappointment!

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Posted by Jack Crooks

on Wednesday, 25 April 2012 08:06

Jack Crooks

 “I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said.”

- Alan Greenspan

Are there no limits whatsoever to monetary policy?  It is beyond pathetic that a rising stock market seems the only substitute for real policy from our “best and brightest.”  Why doesn’t it matter to them that it isn’t working?  Are they that intellectually bankrupt and corrupt?  Is it odd that very smart people outside the government continue to bet on QE 3,4,5,6…?  Or is it the only bet?  What in the world is going on here?   

Orders for U.S. durable goods fell in March by the most in three years, indicating manufacturing will contribute less to growth this year.  

Bookings for goods meant to last at least three years dropped 4.2 percent, the biggest decrease since January 2009, after a revised 1.9 percent gain the prior month, data from the Commerce Department showed today in Washington. Economists forecast a 1.7 percent decline, according to the median estimate in a Bloomberg News survey.  

Now, would throwing more money into the banking system “help” this problem of slowing US growth momentum? 


042512 fed reserves-resized-600.jpg


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