Time to Buy Real Estate

If you can afford to invest in it now, it’s time to buy real estate. Housing may never be more affordable again in most markets. Mortgage rates are at record lows and based on a recent report, home prices are on the rise again. So, for those who have a safe store of wealth, strong job security and are not living in their own home yet, I suggest investing in real estate now. Those who are a bit better off, might wisely add income earning property to their portfolios. Even as the economy slows anew, threatening to stymie real estate demand, I see other factors that could price real estate out of bounds for most Americans in the future.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Buy Real Estate

The Federal Reserve’s efforts to stop the bleeding in housing and rejuvenate the critical sector have combined with international issues to drive U.S. interest rates down. Mortgage rates seem to strike a new record low each week, though the impact to housing demand has been diffused by ongoing economic sluggishness. Yet, those who can afford to buy a home should not let the inability of others affect their decision making now, or risk missing an opportunity to secure unprecedented low fixed mortgage rates.

Tuesday, S&P Case Shiller reported a 0.9% increase in its seasonally adjusted 20-city composite index for May. The increase followed a 0.7% surge in April. Economists were looking for a 0.5% price rise, with the range of forecasts stretching from 0.0% to 0.8%. The result therefore exceeded not only the consensus of forecasts but the entire range. And growth was widespread too, with 20 of 20 MSAs recording price rise in May. Also, on an unadjusted basis, both the 10-city and 20-city composites noted 2.2% increases.

These two factors, low rates and rising prices, should be drawing those interested in home purchase into the market. However, Bank of America (NYSE: BAC) just reported it funded 3.6% less residential mortgage loans in its second quarter. The nation’s major mortgage lenders, like BofA, Wells Fargo (NYSE: WFC) and Citigroup (NYSE: C), are burdened though by claims of mortgage security holders and insurers that improprieties effected faulty loans, and thus infected pools of securities. BofA and others are finding Fannie Mae (OTC: FNMA.OB) passing more loans back to them as a result. Until this pressure eases, the banks are going to be less free to lend, but that shouldn’t stop you from applying for a mortgage loan if you can qualify.

The news of many Americans gravitating to rentals, with vacancy rates on the decline, should neither scare those who can afford to buy a home to seek one. Billionaire Warren Buffet, Chairman and CEO of Berkshire Hathaway (NYSE: BRK-B), along with other market mavens have advised investors to buy into fear, and I advise the same now for those who can afford a house and qualify for a loan.

It seems seasonal spring sales strength has eased, with the latest New Home Sales and Existing Home Sales paces declining at last reporting. Major homebuilder shares have taken a hit recently as a result, with the SPDR S&P Homebuilders (NYSE: XHB) feeling more heat Tuesday, declining 2.1%. Individual homebuilder shares were struck even harder, with PulteGroup (NYSE: PHM), Ryland Group (NYSE: RYL), Toll Brothers (NYSE: TOL) and Hovnanian (NYSE: HOV) down between 1.7% and 2.9% Tuesday. I’ve been adamant about selling the cyclical homebuilder stocks ahead of the economic softness I see ahead. But buying real estate is not synonymous with buying homebuilder stocks.

Despite my concern that the softening economy must impact the real estate sector, I like real estate for investment now. I even believe the S&P Case Shiller data might soon reverse again, especially with the latest release of foreclosure property; and yet I still say buy real estate. I expect mortgage rates to decline further near-term, and yet I favor buying real estate now. Why? It’s because prices and rates are good enough now, and what lies ahead scares the heck out of me.

I see a real chance for a state of affairs where mortgage rates are too high for most of us to afford or to qualify for auto, home and other loans. I see dollar dilution and fiscal fallout, and possibly other external factors, leading U.S. treasury yields and other interest rates much higher. So rather than wait for potentially better housing affordability in the near-term, I recommend real estate now for those who can still afford it.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

It’s Consumer Spending I’m Worried About

Three consumer related economic data points reached the wire this morning, and one of them is especially concerning to me. Because of what is leading the market lower today, I believe they are playing a key role in the declines in the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) today (aka the market). Unfortunately, the popular press has not noticed, due to their preoccupation with one specific data point that served to divert their attention today.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Consumer Spending Matters

Getting right to the meat of the matter, its consumers I’m concerned about, and their spending patterns that trouble me. It’s the reason the consumer discretionary sector is leading the market lower today – the Consumer Discretionary Select Sector SPDR (NYSE: XLY) -0.7% and the shares of major consumer dependents, Amazon.com (Nasdaq: AMZN) -1.9% and Wal-Mart (NYSE: WMT) -0.2%, are down today.

At 8:30 AM EDT this morning, the government published the Personal Income & Outlays Report for the month of June. Personal spending was unchanged in June, despite price rise including and excluding food and energy, so without synthetic skew. Do you hear me? Consumers stopped their spending growth. Economists had forecast just a 0.1% increase for June, with the range of views extending from 0.0% to 0.3%, according to Bloomberg’s survey. So, the spending data came in at the low end of economists’ expectations. Those same economists are warning their in-house sector strategists about that information today, and eventually, your broker at Merrill Lynch (NYSE: BAC) will get the news to you with a change in their recommended stocks away from your old favorite consumer stocks like Apple (Nasdaq: AAPL) (I like Apple here) and into defensive ideas like Procter & Gamble (NYSE: PG) (but I like defensive names too). This data is a tangible measure of consumer spending, and one that everyone who matters watches. It’s the most important reason for stocks to sell off this morning.

The other bit of important news found in the report, as far as I’m concerned, is the Core PCE Price Index, the Fed’s favored inflation measure. It was forecast to rise 0.2% in the latest period, and it showed prices rose 0.2% excluding food and energy. The headline price measure, the PCE Price Index, also rose 0.1%, against expectations for the same. The most important information to gleam from here is that price change played an insignificant role in the spending patterns of consumers. So consumers really did stop spending – be afraid recession watchers, be very afraid.

Directly from the Report:
Real PCE -- PCE adjusted to remove price changes -- decreased 0.1 percent in June, in contrast to an increase of 0.1 percent in May. Purchases of durable goods increased less than 0.1 percent, in contrast to a decrease of 0.4 percent. Purchases of nondurable goods decreased 0.4 percent, in contrast to an increase of 0.2 percent. Purchases of services decreased less than 0.1 percent, in contrast to an increase of 0.1 percent.

And the news gets worse… Last month’s consumer outlays data was revised to reflect a decrease of 0.1% in consumer spending, which was a downgrade from the previously reported “no change” for May. So we have two months of consumer stall. Do you remember what I always tell you comes before recession? It’s the slowing and stopping of our behemoth of an economy, and that’s what is depicted here.

Now, the reason the market has not picked up on this important news yet is because of the day’s Consumer Confidence Index, which is an intangible measure of consumers versus the aforementioned tangible measure. The Conference Board’s Consumer Confidence Index release featured a headline that read, “…Consumer Confidence Increases After Four Consecutive Declines.” Unfortunately, that headline led fast writing reporters to focus on what seems important information. They are mistaken!

The Confidence Index rose in July, to 65.9, from a revised 62.7 in June. Economist had been looking for the index to fall to 61.5 in this latest check. Debunking this is relatively easy friends, as the Present Situation Index actually declined in July, while the Expectations Index leapt forward. The Director of Economic Indicators at the Conference Board, Lynn Franco, wisely stated, “… consumer confidence is not likely to gain any significant momentum in the coming months." She cautioned readers from the exact misunderstanding they digested anyway. If you examine the report, you find that the index sits at a historically depressed state, and really reflects a bad mood.

The third data point is relevant because it is tangible and because it is current. The International Council of Shopping Centers (ICSC) reported weekly same-store sales fell 1.7% in the week ending July 28. That was probably affected by weather, but the year-to-year sales pace, measured at +1.8% this week, continues to depict a pace of sales growth not exceeding inflation. The Core PCE Price Index increased 1.8% year-to-year in June. This means that my advice recently to be selective in your retail investment decisions continues to play true. Ideas like J.C. Penney (NYSE: JCP) and Sears (Nasdaq: SHLD) remain out of my favor, while I direct you to discounters like Dollar Tree (Nasdaq: DLTR), eBay (Nasdaq: EBAY) and Wal-Mart (NYSE: WMT).

This is just the latest in a series of recession signals found in regular economic data and corporate news over recent weeks. We are tracking them here, so simply continue to follow my feed through Wall Street Greek for my ongoing analysis of critical economic data points.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Bernanke Vs. Economy

The direction of the market today and moving forward will be determined by which factor the market views more critical. Will it be the prospect of new creative stimulus employed by the Federal Reserve Chairman, Ben Bernanke, or will it be the ominous slowing of GDP growth.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Bernanke Vs. GDP

At the hour of publishing here, I can only state expectations for economic growth of 1.2% for the second quarter, the slowest pace in a year, according to economists surveyed by Bloomberg. The range of views extends from 0.9% to 2.4% on a real basis, and represents a significant slowdown from the first quarter’s similarly slowing pace of 1.9%. The American economy is a big ship, and before she can stop or turn, she must slow. Well, the slowing is starting to get real for investors, and so all eyes are keyed on the pilot’s quarters.

Some say the efforts and the economic guidance of the Federal Reserve have helped to stave off a second great depression, and others argue that the efforts of the Fed are fruitless, and in fact lead us into bigger mess, ala the stock market and real estate bubbles of the last two decades. The next bubble appears to be in U.S. treasuries, but if that one blows, well then it all might be over. If interest in U.S. treasuries disappears, the depression that follows will be rivaled by no other time in U.S. history, in my view. In that case, with the dollar devalued, perhaps only gold will draw interest. Gold has in fact been my favorite investment idea for nearly 10 years now, and the performance of the SPDR Gold Trust ETF (NYSE: GLD) reflects the direction toward the disastrous end I just depicted.

I’ve been arguing that the Fed is out of bullets for five years now. What it has been fighting with is band-aids, but the wound has not healed behind its temporary cover. As a result, I see confidence in the Fed chief fading. You can see rally in the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (NYSE: QQQ) in anticipation of Fed speak. Still, when we look ahead, we see a cliff’s edge getting closer and closer. Our pace seems to slow at times, and it seems we might turn at times, but it’s all an illusion, because we continue to head toward that cliff.

Regarding cliffs, the Fed Chief rightly points to fiscal policy for the medication the economy and the market needs to heal. And as the “fiscal cliff” approaches, our doctors continue to quarrel about how the surgery should be performed. Americans should be demanding of their Congressmen today to resolve the issues that will otherwise be pushed forward to the midnight hour.

Fear of the fiscal cliff is keeping businesses and individuals from planning and spending today, and it will increasingly cause trepidation for stocks. We cannot expect our banks to do anything but sure up capital, and so they do. Yet, in Congress, our leaders prefer to criticize Bank of America (NYSE: BAC) and J.P. Morgan (NYSE: JPM), and to interrogate them on the issues that have plagued them recently. That is fine; but also fertilize the ground with sound fiscal policy and give them the tools to fuel economic growth. Otherwise, our nation’s greatest companies will suffer, because Europe and China will not be enough nor able to sustain them. So, General Electric’s (NYSE: GE) goods will find fewer buyers and Wal-Mart’s (NYSE: WMT) prices will not be cheap enough. The evidence of this is clear by the latest quarterly performances of Starbucks (Nasdaq: SBUX), McDonald’s (NYSE: MCD) and Yum! Brands (NYSE: YUM), which each disappointed investors due to shortfalls in their Chinese business.

So, in the battle royal pitting the latest GDP data against the Fed champion, GDP must win. Our only responsibility is to make him into a good champion.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Home Builder Confidence to Prove Fleeting

Earlier this week, the National Association of Home Builders (NAHB) reported that its Housing Market Index indicated builder confidence was significantly improved in July. It was still, deeply depressed, but improved nonetheless. Well, as the week progressed and the data flow continued, we couldn’t help but wonder if this new found builder confidence might prove fleeting.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Home Builder Confidence

Home builders like PulteGroup (NYSE: PHM) and K.B. Homes (NYSE: KBH), along with many more smaller builders, indicated newfound joy in a Housing Market Index (HMI) six point surge to a mark of 35. It was the most important monthly increase in almost a decade, placing the index at its highest point since March of 2007. You remember those days, when the Fed chief was saying the crisis would be contained to real estate.

Each component index of the HMI rose, but the scent of hope, perhaps not well-founded, certainly skewed the news. The component index measuring current sales conditions improved six points to a mark of 37, still 13 points below so-so market conditions. A mark of 50 delineates where the majority of builders’ views would be positive versus negative. Thus, on all measures, they are still depressed. Continuing, the index measuring the traffic of prospective buyers gained 6 points to reach a mark of 29, still 21 points short of break-even. Finally, the index indicating hope, where builders provide their view for the next six months, saw confidence swing 11 points higher, to 44 (still 6 points under). So, as you can see, the good news would still make most people cry.

Regionally speaking, each segment of the national market reflected some sort of improvement. The greatest gain and market view was found in sunny California. The Western part of the nation had builders raising their confidence view 12 points, to 44. The next best real estate market was the good old Northeast, where the market is dense and mature. The Northeast gained 8 points to a mark of 36. The Midwest rose 3 points to 34, while the South increased 5 points to 32.

The Chairman of the NAHB, Barry Rutenberg, was clearly enthused, as he noted the benefits of home ownership at such affordable mortgage rates, record low in fact. The Chief Economist of the NAHB, David Crowe, might have to eat some soon. He said, “…this report adds to the growing acknowledgement that housing – though still in a fragile stage of recovery – is returning to its more traditional role of leading the economy out of recession.” I say, there will be no leading of anybody anywhere, but falling back into the pit of despair as the economy deteriorates under the weight of still vulnerable labor conditions, Europe and weakening global trade.

As the week progressed, the housing market news got a lot less cheery. The U.S. Department of Housing and Urban Development snapped some to their senses when it reported Housing Starts for June. Starts improved 6.9% above May’s accounting, to an annual pace of 760K, yes. But Permitting for housing starts, the forward looking indicator here, fell 3.7% in June, to 755K. Single-family project permitting only increased fractionally, while single-family starts rose 4.7%, to 539K.

Thursday, Existing Home Sales, granted - not the realm of home builders, fell 5.4% to an annual pace of 4.37 million in June. That sent the shares of the SPDR S&P Homebuilders (NYSE: XHB) and individual builders including Toll Brothers (NYSE: TOL), D.R. Horton (NYSE: DHI) and Beazer (NYSE: BZH) lower immediately after the report was released at 10:00 AM EDT. However, the group had recovered by the close of trading.

While these two relatively pessimistic data points, in my view, are not overwhelmingly so, they are indicative of the weight of nascent economic strife upon the important housing sector. Thus, even as housing gets some benefit from the lowest cost of homeownership in a long while, on home price decline and mortgage affordability, the weight of the broader economy is coming down on the market now.

I’ve been noting that the fate of all builders is not necessarily the same, with the future of smaller builders bleak against the large publicly traded group, including the likes of Hovnanian (NYSE: HOV), Lennar (NYSE: LEN) and Ryland Group (NYSE: RYL). They’re gaining market share from the poorly capitalized and suddenly struck smaller players, but the condition of the broader environment weighs on them as well. Still, I think if large builders were asked in isolation how they felt about the housing market, the HMI reading might sit above 50 today. That’s not the case though, and is all the more reason to believe the hopeful view of the home builders generally, will likely prove fleeting in the months ahead.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Bernanke’s Best Debbie Downer Imitation

Federal Reserve Chairman Ben Bernanke did his best imitation of SNL character Debbie Downer Tuesday morning, driving stocks immediately lower before the market laughed him off. Bernanke delivered the Fed’s semi-annual Monetary Policy Report to Congress including his personal testimony to the Senate Banking Committee Tuesday morning. As you can see by the action of the SPDR S&P 500 (NYSE: SPY), he had a significant impact.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Bernanke Downer

Stocks had actually gapped open higher on hope that Bernanke might speak of further quantitative easing or new mechanisms to spur employment and economic activity. The SPDR Dow Jones Industrial Average Index (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) acted in concert with the SPY.

The Federal Reserve Chief disappointed investors in his opening statements as he spoke of a likely slower rate of economic growth for the second quarter of 2012. The first reporting of second quarter GDP is set for Friday of next week. He went on the discuss the stall in the labor market over the course of the second quarter, with an average increase of just 75K jobs through the last three months. He talked about still tight borrowing conditions for businesses and households, something Bank of America (NYSE: BAC) may have something to say about Wednesday morning when it reports its earnings. He said the contribution of the housing market to the recovery was less than usual during these latest strange days. Still the shares of the SPDR S&P Homebuilders (NYSE: XHB) and major builders like Toll Brothers (NYSE: TOL) rose on the day’s news of improved builder confidence.

Reassuring his concerned national audience, Bernanke said headwinds should diminish over time, allowing the economy to grow somewhat more rapidly and the unemployment rate to decrease. However, he warned, given that growth is projected to be less than satisfactory to draw many new entrants into the labor force, the recovery will be labored.

The Fed chief also spent a good deal of time warning Congress about the risk of pushing expiring fiscal legislation to its famous cliff’s edge, now widely known as the “fiscal cliff.” Just allowing the issue to stew could stall economic activity, as it restrains business plans for expansion. Then there’s the risk of stirring the sleeping dragon, Standard & Poor’s (NYSE: MHP) of the infamous downgrade of U.S. sovereign debt. Paraphrasing, S&P’s reasoning for its downgrade last time around, it was due to our government’s inability to work responsibly for the better good. All these things work to destabilize the footing for stocks, and that’s exactly what they did Tuesday morning.

After curiously being questioned about the Libor scandal, Bernanke answered the misplaced query with more concerning speak, saying he could not guarantee Libor pricing was reliable today. Barclays (NYSE: BCS) and other global banks continue to be weighed by an ominous cloud that threatens to rain down expensive regulatory settlements and costs to the ongoing operations of banks.

Still, solid earnings reports from Coca-Cola (NYSE: KO) and Goldman Sachs (NYSE: GS) reassured a worried market. The Consumer Price Index (CPI), which was reported this morning, served to scare nobody, though we warned that inflation may return. The SPDR Gold Shares Trust (NYSE: GLD) showed no fear of that, though, retreating a half point on the day. The iPath GSCI Crude Oil TR Index (NYSE: OIL) gained 0.8% on the day, though, as the U.S. Navy fired upon a threatening vessel in the Persian Gulf, killing one individual Monday. Integrated energy company, Exxon Mobil (NYSE: XOM), was up 0.8% on the day in concert with oil.

Industrial Production growth was reported stronger than expected in June, up 0.4%, against economists’ expectations for a 0.3% increase, based on Bloomberg’s survey. However, the prior month decline was revised lower; that allowed the same level of activity as expected to result in a higher growth rate. Still, the market seemed to miss that point, driving the shares of industrials higher on the day, with the Industrial Select Sector SPDR (NYSE: XLI) up 0.4%, and shares of GE (NYSE: GE) and Caterpillar (NYSE: CAT) up 0.7% and 0.9%, respectively.

On Wednesday morning, Chairman Bernanke will do it all over again, this time testifying before the House Financial Services Committee. The Fed remains ready to act, but the question is, can its bullets do any more damage. In conclusion, it may be exactly that potential damage that many market participants increasingly fear. Whether the Fed might do damage in the end if there are unintended consequences to its actions down the road (aka inflation) is a question gaining more volume as the days pass.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Team USA Olympic Uniforms Made in China

Just a couple weeks ahead of the start of the Summer Olympics of 2012, controversy surrounds the USA Olympic Team. Team USA’s parade uniforms, produced by Ralph Lauren (NYSE: RL), were made in China. That has congressmen like Harry Reid saying they should be burned and replaced by American made clothing, even if that means they are t-shirts with painted-on graphics. He said that would be better than outsourcing the uniforms that will represent our entire nation on the world stage. The position crosses political parties of course, as “American made” is something both Republicans and Democrats can stand behind, at least on the surface. Obviously, views vary on how to handle trade with China and what to do for American manufacturing. On the patriotic topic at issue, House Speaker John Boehner sincerely commented, “You’d think they’d know better.”

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

USA Olympic Uniforms Made in China

Still, I found myself nodding as I listened to the wisdom of an anonymous C-SPAN caller this morning. The unknown American on the line said the Congressional uproar was hypocrisy at its highest. He said most congressmen should be required to wear corporate and other logos across their sharp suits. That way we could see where they were made – those are my words. Instead of Perry Ellis (Nasdaq: PERY), we would probably find the backs of our representatives weighed down by China and a slew of companies that need a little extra support in DC to carry a heavy conscience.

You know who I’m talking about, people like big oil, insurance companies, pharmaceutical makers, the food block etc. Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) don’t need government subsidies while they rake in record profits. Neither does Aetna (NYSE: AET), CIGNA (NYSE: CI) or any of the other health insurance giants need a legal loophole to deny health insurance to needy Americans. Pfizer (NYSE: PFE) and Merck (NYSE: MRK) shouldn’t have extra support to address “national initiatives” like the fight against obesity if that means lowering FDA standards. Neither does Monsanto (NYSE: MON) have free reign to bully farmers into using their seeds, as alleged by some farmers. Food producers like Tyson Foods (NYSE: TSN), Hormel (NYSE: HRL) and Smithfield (NYSE: SFD) should not be abusing nature for the sake of productivity. There’s no excuse for unethical or immoral behavior, and neither is there for congressmen who support it because of campaign financing or even for the sake of local economies. And that’s from a capitalist, but one who cares about doing the right thing.

You know, Ralph Lauren shouldn’t be singled out. The USA Basketball Team will be wearing Nike (NYSE: NKE) gear made beyond our borders, and others will be wearing Adidas (OTC: ADDYY) products – that’s a German company. You know who else will be wearing Chinese made uniforms? The Chinese Olympic Team will. A survey of the Team USA Shop website shows that a great majority of the products for sale were not made in America. I could find only one American Olympic Team outfitted with American made uniforms. The U.S. Rowing Team will be wearing uniforms made by Philadelphia-based Boathouse Sports. Both deserve credit for that seemingly obvious decision that turned out to be admirable because of its uniqueness.

Now I have to ask you a question though. Things are made in China, India and where labor is cheaper so that American companies can provide cheaper goods to Americans who demand them. Sure, profit margins have expanded, but truth be told, the American consumer benefits. It’s clear by the growth of Wal-Mart (NYSE: WMT), Target (NYSE: TGT), Costco (Nasdaq: COST) and the dollar stores like my favorite, Dollar Tree (Nasdaq: DLTR), that America demands these things. Would you pay more money for American made goods? In the past, you have not, and that’s why the American textile industry diminished. So maybe we have ourselves to blame for this embarrassing turn of events.

While watching a local TV news broadcast, I noted another view. A man on the street interview turned up a pure capitalist, who pointed out that these goods were still the products of American companies, not Chinese. He said that the design and the production specifics were still dictated by Americans, and that’s what we do best now. So should we be embarrassed or not that we do not manually produce goods we design and engineer? Maybe we can even be proud of our advancement, and direction of human capital toward higher level business activity. After all, made in China doesn’t necessarily mean Chinese. It can also mean made by American companies at a lower cost, with fattened profits for the companies we own in our retirement accounts and other investments. Yet, some Americans are made for manufacturing, and are left unemployed or working behind a checkout counter or stocking shelves instead of a production line. So, it turns out, there’s more than one way to look at this issue. What do you think?

Visit us at Wall Street Greek for more insight like this. This article should interest those invested in socially responsible themed funds including Legg Mason Inv Counsel Social Aware A (SSIAX), VALIC Company II Socially Responsible (VCSRX), Neuberger Berman Socially Responsible Inv (NBSRX) and Vanguard FTSE Social Index Inv (VFTSX).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

China & JP Morgan Clear – What’s Next?

As market trade got underway Friday, the drivers of the ship were clear. The closing bookend of the week, following a disappointing opening driver from the Federal Reserve FOMC meeting minutes, was composed of China and its second quarter GDP report and J.P. Morgan Chase (NYSE: JPM) and its second quarter EPS report. It seems that after the big build up, it’s time to buy the news after selling the rumor on these two. The SPDR S&P 500 (NYSE: SPY) is looking up a point on the relief rally tied to the two key data points. The SPDR Dow Jones Industrials Index (NYSE: DIA) is higher by the same, benefiting from J.P. Morgan and other components’ moves. That despite more data from the June Producer Price Index indicating the price of crude goods fell 3.6%. The PowerShares QQQ (NYSE: QQQ) is gaining as well, after a recent scare about the semiconductor sector.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

After JP Morgan & China - What's Next?

Report after report hinted at the demise of the Chinese economy, but the measurement mavens in Beijing managed 7.6% growth in Q2. In doing so, they precisely met the economists’ consensus view for economic growth. Still, the expansion was lower than the first quarter’s 8.1% gain. For now, the market will focus on the lack of a disaster. The iShares FTSE China 25 ETF (NYSE: FXI) is upward of 1% this morning after the Hang Seng gained 0.35%. Still, the skeptical Shanghai Shenzhen CSI 300 was about unchanged.

China’s Industrial Output increased 9.5% year-to-year, slightly short of the 9.8% increase expected by the consensus, but concern was somewhat mitigated by an offsetting Retail Sales rise of 13.7%, versus economists’ expectations for 13.5%. China Petroleum & Chemical (NYSE: SNP) benefited from the still solid industrial data, rising 1.1% and the E-Commerce China Dangdang (Nasdaq: DANG) gained 1.2% on the retail surge. But China was not alone in its provision of positive surprise.

JP Morgan Chase (NYSE: JPM) beat analysts’ expectations, earning $1.21 per share against the analysts’ consensus for $0.76. JPM said its infamous bad trade cost it about $5.8 billion, much more than the company’s iconic CEO had initially reported ($2 billion). However, Jamie Dimon indicated it was contained now, and JPM shares recovered 3.8% in early trading Friday. Add to that, Wells Fargo’s (NYSE: WFC) penny beating of the Street’s $0.81 expectation, and you have a 1.6% gain in the Financial Select Sector SPDR (NYSE: XLF) this morning.

But where will the market go from here? Next week’s full earnings schedule will have a lot to say about that, with reports due from Citigroup (NYSE: C), Bank of America (NYSE: BAC), United Rentals (NYSE: URI), Yahoo (Nasdaq: YHOO), Yum! Brands (NYSE: YUM), Honeywell (NYSE: HON), Xilinx (Nasdaq: XLNX), Microsoft (Nasdaq: MSFT), Nucor (NYSE: NUE) and Schlumberger (NYSE: SLB). The mix might offer some answers to questions about key sectors of market interest, including China, financials, industrials, construction, technology, semiconductors and energy. Next week, we’ll also receive new manufacturing and housing data, retail sales and the Fed’s Beige Book. Ben Bernanke will also provide important congressional testimony. In other words, there’ll be plenty of news to trade and opportunity for the market to find direction. So, for now, I expect stocks to settle in as they anticipate that full slate. However, I think the direction is clearly higher for gold.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Jobless Claims Gains Askew

Before you get too excited about the latest Weekly Jobless Claims Report, read this. Jobless claims fell by 26,000, to 350K, perhaps raising an eyebrow or two since it was the best such data since March of 2008, and at the strangest time for it. Before long, though, pundits and the press were attributing the improvement to another factor, which was at least partly to blame.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Jobless Claims

Jobless claims improved because plant operators like Ford (NYSE: F) and General Motors (NYSE: GM) pushed forward their regular summer shutdowns. Since the Jobless Claims data is seasonally adjusted, it accounted for the seasonal shutdowns without some of them occurring and perhaps erroneously deflated the jobless count in the process. When combined with the impact of a strangely placed Independence Day holiday in the center of the week, it sent the data askew. For that reason, wait a while before celebrating the latest jobless claims dive.

The best sign that something was wrong could be found in the movement of the employment services group. The shares of Robert Half International (NYSE: RHI), Korn Ferry International (NYSE: KFY), Kelly Services (Nasdaq: KELYA), Monster Worldwide (NYSE: MWW) and Manpower (NYSE: MAN) were lower from 0.6% to 4.5% on the day Thursday.

The rest of the report showed the weekly decrease impacted the four-week moving average as well, as it fell 9,750, to 376,500, for the week ending July 7. For the week ending June 30, the insured unemployment rate held at 2.6%. For the week ending June 23, the total number of people receiving benefits of some sort, including through the extensions program, rose by 17,011, to 5.874 million.

As far as the weekly flow of jobless claims go, you can expect more noise to enter the picture when the plant operators actually do shut down and it goes unaccounted for. So, in other words, this data point could get messy again this summer.

For your information:
The highest insured unemployment rates in the week ending June 23 were in Puerto Rico (4.1), Alaska (3.9), Pennsylvania (3.8), Connecticut (3.5), California (3.4), New Jersey (3.4), Rhode Island (3.3), Illinois (3.1), Oregon (3.1), Nevada (3.0), and the Virgin Islands (3.0).

The largest increases in initial claims for the week ending June 30 were in New York (+4,473), Kentucky (+2,252), Michigan (+1,742), California (+1,045), and Oklahoma (+843), while the largest decreases were in Florida (-3,724), Texas (-2,196), Pennsylvania (-2,113), Massachusetts (-1,325), and Maryland (-806).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

International Trade Data for Dummies

This month’s International Trade report required an intensive study to understand the many dynamic factors it contained. On the surface, the play of the trade deficit contrasted with what would normally reflect a healthy American economy today. Few, save perhaps we econo-nerds, could see what was wrong and finally what was not so bad with it after all. It was full of information, so much so that no one specific theme could define our analysis here. We expect we can add some value to your perspective and entertain you in the process.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

International Trade Report

The trade deficit narrowed to $48.7 billion in May, meeting the consensus of analysts’ views. I suppose that’s where most market mavens moved on to the next news item, but while doing so missed some important information about the American economy and sectors within it. Of course, that information will affect the value of financial securities, so you patient and loyal followers just keep on reading and glean your reward.

The deficit narrowed from $50.6 billion in April, revised from $50.1 billion reported initially. That seems like good news to the naïve or to the idealists, but truth be told, we like the deficit here today, because it signifies a healthy American state of affairs. You see, we’ve come to accept the fact that America has grown into a fat consumer of goods and a provider of services and nonsense. As it’s still hard to sell services and nonsense to frugal and suspicious third-worlders who can more easily copy those anyway, and since the Europeans can’t afford anything any longer, we live and love our deficit.

What troubles me, though, is that as exports rose by just $0.4 billion, imports decreased by $1.6 billion, driving the deficit expansion. That means we bought less stuff, or the prices of the stuff we bought declined. Take note of that last point, because that’s part of what happened. Anyway, the narrowing deficit is not often representative of a healthy American consumption economy, nor does it reflect good news about Europe. Most recently, in a healthy American state, our imports tend to exceed exports in growth, driving widening deficits.

The long-term American dream, though, is that eventually our manufacturing sector might benefit from China’s growth by serving its burgeoning middle class. Unfortunately though, we cannot control how many illegal copies of American Idol winner Phillip Phillips’ Home MP3 are made and sold in Shanghai. As far as the benefit of the deficit, well we already enjoy low priced goods available at Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) made in China and thanks to importing.

Unfortunately, we left some workers behind who only knew how to make something we then outsourced to India or China. And the patriotic that stayed behind with their unionized labor ended up putting their firms underwater when they couldn’t compete with Chinese men, women and children working 24/7 for a quarter and a shoelace. We gave up some quality as well I suppose, and occasionally our kids chew on lead laden lollipops, but net-net, we’re happy campers chomping on McDonald’s (NYSE: MCD) and buying stuff we don’t need from Sears (Nasdaq: SHLD) or wherever else... right?

Guess what? We managed to sell some services and nonsense to third-worlders in May, like seminars on how to flip a foreclosure property; exports of services rose $0.3 billion in May. We bought some advice too, as service imports increased $0.1 billion; maybe we needed more yoga gurus around town so we could sell more lululemon (Nasdaq: LULU) gear.

But never fear, because a big reason why imports declined and the reason the trade deficit narrowed was probably not indicative of new trouble. In recent articles, I’ve recommended investors sell their industrial and basic materials shares, like Alcoa (NYSE: AA), Rio Tinto (NYSE: RIO), BHP Billiton (NYSE: BHP), Freeport McMoRan (Nasdaq: FCX) and Vale (Nasdaq: VALE). I was right by the way. So, what drove the decline in imports was a $3.6 billion decrease in the imports of industrial supplies and materials. I think that reflects the drop in industrial commodity prices, so never fear.

Looking at the trade with specific partners, the trade deficit with China expanded to $26 billion from $24.6 billion; okay, good enough. The deficit with the European Union expanded to $10.5 billion from $8.7 billion, but that was probably because of decreased European purchases of American exports rather than our buying of more imports. The deficit with OPEC narrowed to $11.2 billion from $11.5 billion, probably partly due to the isolation of Iran and declining oil prices. We’ll see more of that in June’s data, based on what we’ve just reported on in the Import and Export Price data. The increase in advanced technology imports ($3.1 billion) far surpassed the increase in technology exports ($1.1 billion) in May.

Clearly, things are changing fast, with fuel price decline speeding up in June and agricultural prices on the rise. China’s economic growth is likely slowing and as the unofficial EU recession seems to be getting even worse. U.S. economic data is showing signs of catching the EU cold, and so clearly delineated lines in trade data are going to be hard to find, as the global community slides together.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Employment Report Shows Deterioration by My Analysis

The Department of Labor (DOL) hardly reported any change in the job market today when it issued its Employment Situation Report for the month of June. Still, the data fell short of economists’ expectations and was a letdown after ADP’s Private Employment Report offered some hope Thursday. As a result, the broader stock indexes were lower through midday trade Friday, with the SPDR S&P 500 (NYSE: SPY) down 1.3% and the PowerShares QQQ (Nasdaq: QQQ) off 1.7%. My analysis shows that the market’s discounting reflects an accurate assessment of an employment environment that is in fact already deteriorating. So, while some are concerned about a possible storm forming, I feel the wind already picking up.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Employment Report

The Labor Department’s Employment Report showed the unemployment rate held at approximately 8.2% for the third straight month, meeting economists’ expectations for the same malaise. The worst thing about this data point is that a trend of improvement existed but has now come to a halt. The civilian labor force grew by 0.1%, but as the number of employed rose 0.09%, the number of unemployed Americans increased by 0.2%. It wasn’t enough of a change to reflect deterioration in the unemployment rate, but it is moving in the wrong direction now. The employment-population ratio stuck at 58.6%, so it was hard to see the minute change for the worse. Further along this report, I offer more evidence of a deteriorating trend.

What bothers me most is that the lagging unemployment rate may today reflect corporate managers’ concern about developments in Europe, China and here at home. Europe is in recession; the data that would have confirmed that was only fractionally short of showing two quarters of euro zone economic contraction. Data since the last quarter GDP report for the euro zone has only deteriorated amongst the PIIGS while infecting the previously healthy cornerstones of the EU, France and Germany. Chinese data after data point supports the case for a serious slowdown in the economic growth of the important global player. China has offered a sort of nitrogen boost to the global economy, keeping the crisis in the U.S. from driving a global recession and depression for some. My feeling now is that the globally interconnected economy, with China still too dependent on its western business partners, is headed for a simultaneous hit.

Managers may not be laying off many more employees than they had been when the Weekly Jobless Claims flow was flirting with 350K, but they do appear to be laying off more folks. Hiring, likewise, is restrained, even as workers complain of being overburdened, though economists mostly consider slave-workloads as part of worker productivity. The truth is, we’ve been squeezing the last drops of juice out of our labor force for too long and people are probably burning out. The average workweek edged higher again in June, yet employment hardly changed.

The truth remains that our unemployment rate understates the true depth of decline in the labor market. In the latest reported period, the situation deteriorated if we include the underemployed and the so-called “marginal” into the count. In June, Americans working part-time for economic reasons, or those people who would rather be working full-time jobs then part-time hours at McDonald’s (NYSE: MCD) or Wal-Mart (NYSE: WMT), increased 1.4%, to 8.2 million. Those Americans who are considered only marginally attached to the labor market, because they have not sought work for more than 4 weeks, increased 2.5% to 2.48 million. In calculating “underemployment,” if we add back the excluded 2.483 million displaced workers to the labor market, and include the 8.21 million underemployed part-timers in the unemployed count, adjusted unemployment reaches ((12.749M + 2.483M + 8.21M) / (155.163M + 2.483M)) * 100 = 14.9%. Last month, the rate was ((12.720M + 2.423M + 8.098M) / (155.007M + 2.423M)) * 100 = 14.8%. This confirms that the situation is deteriorating, and not stagnant. Therefore, stocks were correct in their reconsideration of what was painted as mixed news by the popular press and talking heads with stakes in the game.

Establishment Data
Total nonfarm payrolls increased by 80,000 in June, up from the revised 77,000 increase seen in May. The DOL reports that the average monthly net job addition of the second quarter was 75,000; that’s not hot. As a matter of fact, it compares pretty poorly to the average monthly gain of 226K seen in the first quarter of 2012.

The public sector bleed of the last few months eased in June, as government jobs declined by only 4,000, versus 28,000 in May. The private sector should better reflect the economy and it disappointed. Private nonfarm payrolls increased by 84K, down from the 105K increase in May. Take note of that point, as it reflects what I believe is a young trend’s start. Private Services Industries, a critical driver of the economy, reported a 71K job increase in June, versus the larger 126K increase in May. A 47K increase in Professional and Business Services jobs outweighed declines in Retail Trade, Information and Transportation and Warehousing.

Here’s my problem with the gain in Professional and Business Services: it was greatly driven by a 25K position increase in Temporary Help Services. Some pointed to this data as a positive, but I see it differently. While I agree that temporary help additions are a positive sign when the economy is exiting recession, I believe that while we are in a more stable environment, a hiring surge in temporary help is a bad sign. I believe it shows employer unwillingness to hire full-timers. In other words, that conservatism only reflects the caution of employers, which could be the forerunner of a layoff surge. Ironically, temporary help provider Kelly Services’ (Nasdaq: KELYA) shares are down 2.1% at this hour. Other employment services firms like Robert Half International (NYSE: RHI), Korn Ferry International (NYSE: KFY) and Manpower (NYSE: MAN) are all lower 2% or more Friday.

The Manufacturing Sector added 11,000 positions in June, driven by the support of the automakers (+6.7K) Ford (NYSE: F), GM (NYSE: GM) , Toyota (NYSE: TM) and others producing in the U.S. Durable Goods makers added 14K jobs in June, so I suppose give thanks to Boeing (NYSE: BA), which had twice as many orders as expected recently, and maybe producers like Northrop Grumman (NYSE: NOC), Lockheed Martin (NYSE: LMT), General Electric (NYSE: GE) and Deere (NYSE: DE). Though, I have my doubts about industrial sector shares, given the latest ISM Manufacturing data and peripheral indications from regional Fed districts. I do not expect the same result for manufacturing in coming months, including basic materials producers of industrial commodities like Alcoa (NYSE: AA).

In conclusion, I believe the market is correct to discount stocks today. I believe I’ve shown that a new trend of deterioration seems to be developing, and it would more likely gain steam than subside given the decline of our interconnected trading partners. Without a doubt, we also stand on unsteady ground, where any system shock would easily drive us into recession. Those risks loom; one of which is hinged to the risk of some sort of escalation of issue with Iran. Today, the noose is tightening on Iran, as sanctions against its oil trade hit home. The Iranian regime is cornered, and a cornered dog is a desperate one. Europe has not mitigated its crisis as yet, as yields remain elevated for Spain and Italy and as the German economy shows small cracks. Fiat currency continues to flow as freely as central banks can pour, so that even while deflation weighs, inflation may loom – or even worse, stagflation. So, as you can tell, I’m anxious about our future and your money.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Should I Buy Apple (Nasdaq: AAPL)?

If you are asking the question, "Should I buy Apple (Nasdaq: AAPL)?" - you are not alone. Valuing Apple is probably one of the nation’s favorite pastimes, save buying Apple gear and talking and reading about Apple’s next generation products and new innovations. It’s certainly an interesting time to engage in the endeavor, a day after the stock jumped $15, which for AAPL is just a 2.6% move.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Buy Apple (Nasdaq: AAPL)

The stock today, at $584 per share, is 9% short of its high for the last 52-weeks, and so may entice some investors who might be following the stock for a best entry point. That said, it’s hard to call it under-appreciated, after having gained 74% in capital appreciation from its low for the year, which was marked about a full year ago.


Chart from Yahoo Finance

With a market capitalization of $546.08 billion, Apple is the largest company in the world by market cap, followed by Exxon Mobil (NYSE: XOM) at $400.14 billion, Microsoft (Nasdaq: MSFT) at $256.98 billion and Wal-Mart (NYSE: WMT) at $235.9 billion. Thus, the most relevant question to ask about Apple is, can it continue to grow even larger. Math dictates that it gets harder to grow off larger numbers. The company’s growth prospects would also seem limited, with Apple iPhone already well penetrated into the mobile phone market, having severely disrupted competitors Research in Motion (Nasdaq: RIMM), Nokia (NYSE: NOK), Palm – owned by Hewlett-Packard (NYSE: HPQ), Motorola Mobility, owned now by Google (Nasdaq: GOOG), Samsung and others. The competition has copied Apple’s style now, with full glass facades and “app” offerings now commonplace. So, perhaps mobile market share will get harder to come by as we move forward.

Giving credit to Amazon.com (Nasdaq: AMZN) for its eReader break-through, Apple’s pioneering effort in tablet computing, with the iPad establishing an entirely new category in electronics, has drawn competition from rivals in mobile and computing, as well as from Microsoft (Nasdaq: MSFT), Google (Nasdaq: GOOG) and others. Within computers, Apple’s Mac line has had its place rivaling PCs made by Dell (Nasdaq: DELL) and others for years now. So how will Apple keep growing? Because it will have to in order to justify valuation in years to come.

I am certain that this question is the reason for Apple’s very low P/E-to-growth ratio of 0.6, which is based on its P/E ratio of 12.5X and 5-year growth forecast of 21.8X, based on Yahoo Finance data. If the market were more confident in Apple’s growth outlook, this ratio would be upward of 1.0. The P/E ratio calculated here is based on the $46.84 FY 2012 (Sept.) analysts’ consensus EPS estimate. It’s therefore even more conservative a valuation, as September is just a quarter away. If we base the PEG on the FY 13 consensus EPS estimate of $54.23, we get a value of 0.5. Thus, if you believe AAPL can actually manage 21.8% EPS growth over the next five years, as analysts seem to, then AAPL is a screaming buy.

It’s also likely that the stock’s price limits retail investor participation and holds down the valuation and market capitalization. Corporate managers like Berkshire Hathaway’s (NYSE: BRK-B) Warren Buffet believe this also manages stock volatility by keeping gamblers out and sincere equity investors in. If Apple wanted to lift its valuation and stock price it might split the shares 5-for-1 or more.

AAPL’s current P/E ratio based on its trailing twelve months EPS is 14.2X. That compares well to AAPL’s historical P/E ratio of the last five years. The average high P/E ratio of the last five years has been 26.6X, while the average low P/E ratio has been 13.6X. Based on that historical data, now would seem as good a time as any to take a position in AAPL shares. Still, I think you have to believe in its growth prospects to do so. I do, but I’ll explain why in a future article, so follow my column at the Wall Street Greek blog to keep up.

Analysts are overwhelmingly recommending AAPL shares for purchase today, but as we know, analysts often fall into a trap with popular stocks and make the safe call. However, I happen to agree with them this time, because I believe in AAPL’s growth prospects. Different data providers show slight variations in their details of the information, but there is a heavy overweighting of analysts either rating the stock buy or strong buy. As for target pricing, Yahoo Finance shows the analysts’ mean target price for AAPL at approximately $715, while MarketWatch.com has it at $743. The mean of those two resources is $729, giving AAPL upside potential of 25% over the coming year. In conclusion, and answering your question, "Should I buy Apple?" - I would buy AAPL today based on its tame valuation and my view that its growth expectations will be supported. Stay tuned, as I cover more about why I think so in my next two AAPL reports.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

The Report that Changed Everything

The market wanted to open higher Monday, but a 10:00 AM stunner forced an about face. ISM’s Manufacturing Report on Business showed the sector contracted in June. Surprising as it may seem to Wall Street Greek readers, some market mavens had not even considered the possibility. However, we wrote Europe is Already Hurting the U.S. Economy in January, and first began warning of a slowing manufacturing sector in August of 2011. We hope you will get on board so as to not miss our latest forecasts.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The World Shook

Ala Muhammad Ali, ISM’s Manufacturing Index shocked the world. The Purchasing Managers Index fell to 49.7%, down from 53.5% in May. It certainly shook up economists, who had forecast the index to slip only to 52.0%, based on Bloomberg’s survey. The most negative forecast did not even predict contraction, viewing downside at 51.0% for the index. On the high end, one economist thought the PMI would mark 53.4%. At least none of them had forecast an expansion of manufacturing activity, but who could, given the poor data coming out of regional Fed districts over the past few months. The SPDR S&P 500 (NYSE: SPY) had resurfaced by late afternoon, but the SPDR Dow Jones Industrial Average (NYSE: DIA) was having a harder time getting its head above water. Indeed, major components of the Dow were dazed, with Boeing (NYSE: BA) down near 2%, Caterpillar (NYSE: CAT) cut 1.6%, and Exxon Mobil (NYSE: XOM) and United Technologies reduced by a half point. The Industrial Select Sector SPDR (NYSE: XLI) was hurt 1.3% near the close.

The details of the report were downright dire, with the New Orders Index shredded 12.3 points to 47.8. Order Backlog was likewise reduced 2.5 points to 44.5. It looked near certain that international demand was weighing, with the Exports Index down 6 points to 47.5. The report indicated that comments from the panel ranged, with some purchasing managers expressing continued optimism and others focusing their concern on slowing activity in Europe and China.

One positive aspect was that if exports weigh on manufacturing, it doesn’t necessarily kill our service driven domestic economy. Manufacturing only makes up 10% of American economic production. That said, no new layoffs here at home could be absorbed by an already ailing labor market. The employment component lagged as is typical for employment, with the related index down only fractionally to 56.6. Consumer spending and consumer confidence are already showing significant damage, and so we could easily be led into economic recession.

Prices fell sharply for the second straight month, with the Prices Index down 10.5 points to 37.0. This measures the prices paid for raw materials. Commodities reported down in price included: Aluminum; Aluminum Products; Brass Products; Copper; Corn; HDPE; Oils; PET Resin; Plastic Products (2); Polypropylene Resin; Propylene; Soybean Oil; Steel (4); Steel — Carbon Sheet; Steel — Cold Rolled; and Steel — Hot Rolled. That has got to impact the operations of companies like Alcoa (NYSE: AA), BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RTP), Vale (NYSE: VALE) and Freeport-McMoRan (NYSE: FCX). I would be selling the names now if I held industrial metals and materials producers to begin with.

It’s the first time the manufacturing sector has contracted since July of 2009 or roughly three years. The reasons are clear, economic contraction and slowing production from Europe, and also from China now as well. The interconnected global economy is feeling the effects of contraction in the EU, the world’s largest economy. It’s infecting everything, and so the world woke up today, though it looks to me like stocks are missing the point I’m making as they recover into the close. I hope at least the readers of my column take heed, because this is the best reason you’ve had yet to believe. You don’t have to be shocked with the world when GDP contracts and stocks retrace ground; you can start hedging today.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.