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Worries about U.S. economic growth–see those emails from Wal-Mart–couldn’t be coming at a worse time for stocks

posted on February 22, 2013 at 8:30 am

Call it Wal-Mart-gate.

Bloomberg’s publication of emails from Wal-Mart’s (WMT) vice-president of finance and logistics won’t bring down a President, but they were certainly enough to rattle the stock market on February 15.

And I think those comments continue to hang over stocks and explain a good part of recent weakness and volatility. Especially since they’ve been echoed in the company’s fourth quarter earnings results released on February 21.

In fact, I think the issue represented by these emails is the single scariest thing hanging over the stock market right now.

Emails from Wal-Mart? Scarier than the Federal Reserve minutes casting doubt on the U.S. central bank’s commitment to bond buying? Scarier than the currency wars launched by Japan that have now spread to the pound? Scarier than economic numbers that show the EuroZone sinking into recession? Scarier than the bloated balance sheets of the Federal Reserve or the off-balance sheet debt of China’s banks?

Well, in the long run—say the next year or two—absolutely not. The issues that I’ve noted above are the ones that could sink national and global economies in that time frame.

But in the shorter term—say the next few weeks or couple of months? Absolutely. Especially for U.S. stocks. Right now, with U.S. stock market indexes near five-year or all time highs, markets are poised between a consolidation that builds a base for a run higher and a correction that could take stocks down 7% to 10% in a replay of the spring and fall 2012 corrections of that dimension.

Why could news from Wal-Mart be that important in the short-run? Because some very big short-term worries could all line up in the next few weeks. Wal-Mart is just one part of that pattern. Let me explain. Read more

Wal-Mart’s earnings today point to slow growth in the U.S. economy in 2013

posted on February 21, 2013 at 4:13 pm

I’m much more interested right now in Wal-Mart as an economic indicator than I am in Wal-Mart as a stock to invest in.

Let’s take the indicator apart, shall we?

Wal-Mart (WMT) shares are up 2.6% as of 1:45 p.m. New York time today.

Before the market open in New York this morning, the company reported fourth quarter earnings for the fiscal 2013 year that ended in January 2013 of $1.67 a share, 10 cents a share above Wall Street projections and an 11.3% increase from the fourth quarter of fiscal 2012. Revenue climbed a relatively meager 3.9% year over year to $127.92 billion versus the $127.76 billion Wall Street estimate.

That good news was balanced by very modest guidance for the first quarter of 2013. Comparable store sales, which grew by 1% in the fourth quarter, will be flat in the first quarter. That’s not unexpected after Bloomberg published Wal-Mart emails last week that called February sales the worst in the last seven years. For the first quarter, the company told analysts to expect earnings of $1.11 to $1.16 a share versus the $1.18 Wall Street estimate. For the full fiscal 2014 year that ends in January 2014 Wal-Mart projected earnings of $5.20 to $5.40 a share versus the Wall Street consensus of $5.37.

I detected a little bit of whistling-past-the-graveyard in some of the company’s comments, however. Read more

Government spending falls off a cliff in the fourth quarter, taking GDP slightly negative

posted on January 30, 2013 at 9:40 pm

Well, now we know how much the fiscal cliff crisis hurt the economy in the fourth quarter.

Figures released today, January 30, by the Bureau of Economic Analysis showed that the U.S. economy contracted in the fourth quarter of 2012 with U.S. GDP falling 0.1%. Economists surveyed by Briefing.com had forecast a 1% increase in GDP for the quarter. This is the first drop in U.S. GDP since the second quarter of 2009.

The big killer was a 6.6% drop in government spending. The worst part of that decline came at the national level where spending by the federal government dropped by 15%. The decline in government spending at all levels took about 1.3 percentage points out of GDP.

It wasn’t all roses on the private side of the economy—inventories cut 1.3 percentage points out of the GDP growth rate—but the private economy showed solid strength with consumption up 2.2% in the quarter (an increase from the 1.6% growth in consumption in the third quarter) and fixed investment accelerating sharply to grow by 9.7% (compared to just 0.9% in the third quarter.)

You could conclude that without the drag of lower government spending fourth quarter GDP growth would have come in just fine. Read more

The next U.S. budget crisis is serious–here’s why and how to navigate it

posted on January 8, 2013 at 8:30 am

You ain’t seen nothin’ yet.


The cliffhanger of a fiscal cliff deal was just a dress rehearsal for the late-January/early-February battle over raising the debt ceiling.

This one could really move global markets. And move them fast and hard in the not so distant future.

This time it’s worse for three reasons.  Read more

Lessons from 2012 for profiting in the recent rally

posted on January 4, 2013 at 8:30 am

So now what?

We’ve had a December sell down on fears that the United States would go off the fiscal cliff—the Dow Jones Industrial Average was off 2.48% in the fourth quarter.

We’ve had a huge pre-New Year’s move—the Standard & Poor’s 500 Stock Index climbed 1.7% on December 31 on hopes that the crisis would get resolved and an even bigger January 2 move on an actual “solution. The total gain comes to 4.3% for the two sessions.

But where does the market go from here? I think you can guess, right? After all we did go through this pattern of sharp rallies and deep retreats in 2012.

So with the benefit of that experience, let me give you my seven steps for the first half of 2013. Read more

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