The Chinese economy, the second-biggest in the world, witnessed a contraction in manufacturing in May. The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) registered 49.6 for May, declining from 50.4 in April. (Source: Markit, May 23, 2013.) Any number below 50 represents contraction in the manufacturing sector.

The Chinese economy exports a significant amount of what it produces to the global economy. Contraction in Chinese manufacturing shows exports are falling—the global demand for goods is falling.

Similarly, Germany’s Flash Manufacturing PMI showed continuous contraction in the manufacturing sector. The index stood at 49.0 in May. (Source: Markit, May 23, 2013.) The German economy is important to observe, because it’s the largest economy in the eurozone and an economic slowdown in the nation can send the common currency region into another downward spiral, again affecting the global economy.

Looking at other key indicators, they are pointing to an economic slowdown ahead in the global economy. Consider the copper market. Demand for copper is suggesting activity in the global economy is sluggish, even deteriorating.

Copper prices are down more than 10% since the beginning of 2013, and stockpiles of the brown metal, tracked by the London Metals Exchange (LME), are up a staggering 95% this year! (Source: Bloomberg, May 23, 2013.)

Other industrial metal prices, such as aluminum, lead, nickel, and zinc, are in decline as well.

How can the U.S. economy possibly improve when the global economy is in trouble?

The U.S. is highly affected by any shift in demand in the global economy.

After the financial crisis of 2008, U.S.-based companies were able to show growth because of robust demand in the global economy. Some say the growth in the global economy pulled the U.S. out of recession in 2008.

Now, the economic indicators clearly point to diminishing global demand. Will U.S.-based multinational companies be able to show profit growth under the scenario of global manufacturing contraction? Of course not! (Someone tell stock market investors!)

During the first-quarter earnings reporting season, some of the biggest big-cap companies in the key American stock indices displayed concerns regarding the crisis in the eurozone. I expect more companies to start blaming the economic slowdown in the global economy as they report lower second-quarter corporate earnings.

Michael’s Personal Notes:

As I have been writing in these pages, economic growth in the U.S. economy won’t happen by printing more paper money—it’s a short-term fix that creates more long-term problems.

According to data compiled by Bloomberg, 2,267 non-financial constituents of the Russell 3000 index saw their cash holdings increase by 13% to $1.73 trillion in the first quarter of ... Read More

In these pages, I have written rigorously about how the main economic hubs of the global economy are witnessing an economic slowdown, with the eurozone and Japan in an outright recession. The Chinese economy is slowing down, and emerging market economies are now starting to show concerns, as their troubles are quickly brewing.

This week, the central bank of South Korea cut its interest rates to 2.5% from 2.75%. The main reason for this cut in rates was deteriorating exports. In March, industrial output for the country declined 2.6% from February—the biggest decline in a year.

Similarly, central banks from countries like India, Taiwan, and the Philippines may do the same and cut interest rates to boost their exports and economies.

Emerging market economies export to developed nations in the global economy. If these emerging markets experience an economic slowdown, it will mean that demand is weak in the developed countries.

Other key indicators, like industrial metal prices, are reaffirming the economic slowdown.

Consider the price of aluminum, a metal used in many different technologies. On the London Metal Exchange (LME), aluminum traded for about $2,100 per ton at the beginning of 2013. Fast-forward to today, and the price has declined almost 12% to around $1,850 per ton. (Source: London Metal Exchange web site, last accessed May 9, 2013.)

Likewise, other industrial metals, such as copper, are signaling an economic slowdown or even a recession ahead in the global economy. The price of copper has declined roughly 13% since the beginning of the year.

The decline in corporate earnings and gross domestic product (GDP) in the U.S. may be one thing, but I am worried about higher unemployment and more misery for Americans who are already struggling.

The recession we witnessed in 2008 was a result of a U.S. domestic banking system on the cusp of collapse because of our housing bust. But this time around, the problems are coming from the global economy. Be very careful if you are heavily involved in the stock market.

What He Said:

“I see a deal when it’s a deal. And right now there’s a good ‘for sale’ sign flashing on gold bullion and gold producer shares. In fact, after peaking at the $690 an ounce level earlier this year, gold could be a bargain at its current price of around $650 per ounce. As a reader, you are undoubtedly aware of my negative stance on the ... Read More

There are still almost 12 million individuals in the U.S. economy who are jobless, and a significant portion of them have been unemployed for more than six months.

So far this year, 783,000 jobs have been added to the U.S. jobs market. While this number sounds good, in the same period last year, there were almost 900,000 jobs added to the jobs market. In 2011, it was 774,000 jobs. (Source: Wall Street Journal, May 8, 2013.)

In addition to all this, there are threats to the jobs market ahead, such as sequestration—$85.0 billion in spending cut from the U.S. federal government. These cuts are expected to hit the jobs market in the summer. The Congressional Budget Office (CBO) estimated that the cuts in government spending will result in a reduction of 750,000 jobs. (Source: CNBC, May 1, 2013.)

I am looking at the recent declining number of jobless claims as a positive sign, but the jobs market is still in a dismal state. Until the jobs market really picks up, my negative opinion on the U.S. economy won’t change.

Michael’s Personal Notes:

Economic conditions in the U.S. economy may be improving slightly, but the global economy is on the verge of witnessing an economic slowdown—and a possible recession. Key indicators are flashing red signals and warning of trouble ahead for the global economy.

In these pages, I have written rigorously about how the main economic hubs of the global economy are witnessing an economic slowdown, with the eurozone and Japan in an outright recession. The Chinese economy is slowing down, and emerging market economies are now starting to show concerns, as their troubles are quickly brewing.

This week, the central bank of South Korea cut its interest rates to 2.5% from 2.75%. The main reason for this cut in rates was deteriorating exports. In March, industrial output for the country declined 2.6% from February—the biggest decline in a year.

Similarly, central banks from countries like India, Taiwan, and the Philippines may do the same and cut interest rates to boost their exports and economies.

Emerging market economies export to developed nations in the global economy. If these emerging markets experience an economic slowdown, it will mean that demand is weak in the developed ... Read More

Keith's broad and deep knowledge of the global financial markets - he splits his time between residences in the U.S. and Japan and sees far more than your U.S.-locked analyst - gives him a unique perspective on how the macroeconomic patterns affect the micro environment in which individual investors make their decisions.

He recently returned from Europe and was featured on Fox Business with Stuart Varney. We caught up with Keith just as he returned from the studio with our own questions about his trip, and asked him to share his insights with Money Morning readers.

Keith sat down with Private Briefing's Executive Editor Bill Patalon over the weekend.

Here's what Keith had to say...

To continue reading, please click here…

Keith's broad and deep knowledge of the global financial markets - he splits his time between residences in the U.S. and Japan and sees far more than your U.S.-locked analyst - gives him a unique perspective on how the macroeconomic patterns affect the micro environment in which individual investors make their decisions.

He recently returned from Europe and was featured on Fox Business with Stuart Varney. We caught up with Keith just as he returned from the studio with our own questions about his trip, and asked him to share his insights with Money Morning readers.

Keith sat down with Private Briefing's Executive Editor Bill Patalon over the weekend.

Here's what Keith had to say...

To continue reading, please click here…

We broke 15,000 on the Dow Jones Industrial Average yesterday. I hear traders in the pits are wearing hats that say Dow 15,000. Recently, we even wrote about how central banks and bond mutual funds are buying stocks now, too.

Looks like everyone is getting back on the stock market bandwagon. Bullishness amongst stock advisors is at a multimonth high. And the percentage of assets mutual funds have invested in the stock market is near a multiyear high (both negative factors for the market)…

All the sudden, the luxury car market is hot again. Prices for prime New York real estate have hit the stratosphere. Wall Street banks and brokerages are making billions of dollars in new profits and their executives been paid out billions of dollars in bonuses.

I remember 2007 quite vividly. From January to August of that year, the stock market just kept rising. The bulls were plentiful; the bears were rare. But just when it looked like the stock market was the only game in town, stocks started to move sideways; by October 2007, stocks started to collapse.

During 2007, in Profit Confidential, I kept writing about how stocks were overbought and overpriced. And I remember getting letters from subscribers telling me I was “on the wrong side of the fence and wrong about the stock market.” I took the abuse on the chin. But by the end of 2007, as stocks started to collapse in price, I was totally vindicated, and circulation to Profit Confidential had its biggest jump ever.

What I see today is very similar to 2007. But the underpinnings of the stock market are actually worse now than they were in 2007.

Today, we have corporate insiders dumping stock at an alarming rate. Public companies are propping up their earnings with an unprecedented amount of stock buyback programs. Corporate earnings growth has come to a halt. The global economy is slowing. Certain countries in the eurozone are in a depression. Cypress has resorted to taking money away from people who have over 100,000 euros on deposit (could be a new trend), and it doesn’t seem to be a big deal.

The U.S. economy could be contracting right now. The underemployment rate (which is the unemployment rate taking into consideration people who have stopped looking for work and people who have part-time jobs but really want full-time jobs) actually went up last month and still sits around 14%.

The average American consumer is in big trouble. Real disposable income is lower today than it was in 2008. The personal savings rate has fallen more than 70% ... Read More

Yet, while the stock market gains are great for the bulls, I still have an issue with the rate of the stock market rally. Simply stated, it’s just a bit too fast, too quick.

I also wonder why the stock market is ignoring the continued fragile state of the global economy in spite of a deep recession in the eurozone and stalling in China.

The reality is that we need to be concerned about how the global economy is faring. The idea of focusing too much on only America doesn’t make sense due to the increased correlation between the global economies. Slowing in Asia and Europe will impact U.S. companies. (Read “Why America Will Struggle if the Eurozone Languishes.”)

Looking at China, while the Chinese economy continues to expand at rates we can only dream of, the country is stalling, as reflected in its demand for commodities.

Copper is a key commodity used in wiring, pipes, electronics, and other areas. When the economy expands, so does the demand for copper.

China imported less copper in February with imports declining to a 20-month low, according to the country’s General Administration of Customs (Source: “China Copper Imports Slump to 20-Month Low on Holidays,” Bloomberg, March 7, 2013, last accessed May 6, 2013.) China is the world’s top importer of copper, so the decline in the import number is important. (Source: “International Trade Centre,” NationMaster.com, last accessed May 6, 2013.)

The lower demand from China is a telltale sign that there could be more slowing on the horizon. If this is the case, then you have to wonder about the current level of the stock market.

Take a look at the chart below comparing the movement of spot copper on the Chicago Mercantile Exchange (CME), as shown by the red candlesticks, against the S&P 500, reflected by the green line.

    Chart courtesy of www.StockCharts.com

You will notice the direct correlation in the first part of the chart up to around March, when copper prices begin to trend lower on global growth concerns, while the S&P 500 continues to ratchet higher, based on my technical analysis.

Looking at this comparative move, I’m somewhat baffled by the stock market. The reason for the decline in copper prices is the rise in copper stockpiles due to the global slowing.

So why is the S&P 500 continuing to move higher?

It’s true, the U.S. economy is improving across the board, but you have to also consider or discount in what’s happening with ... Read More

We are also coming to the end of the historically best six months of the year for the stock market (November to April), according to the Stock Trader’s Almanac.

I’m not saying to exit the stock market, but you will need to be more selective and focus more on trading opportunities as we move toward the second half of the year.

With about one-third of the year behind us, the advance in the stock market so far is becoming more realistic, but it’s still somewhat elevated, based on the annualized return.

For instance, based on the current advance, the Dow is headed for a 38% gain this year. The S&P 500 is on a path to 35%, and the NASDAQ is headed to 29%. These are all excellent goals, but I doubt this will happen, which means that something else has to give as we move forward. I expect more hesitancy.

The first-quarter earnings season has been average and slightly better than expected, but the lack of revenue growth is a major concern of mine. To me, the lack of revenues implies corporate America is hurting for business, so there may be some stalling on the horizon.

I continue to believe there are additional gains to come for the stock market; albeit, we could see a correction in the process. By year-end, I still feel the stock market will be higher.

At this point, I think the S&P 500 will finish somewhere between 1,650 and 1,700, while the Dow Jones Industrial Average could close above 15,250 by the end of the year.

Of course, a lot of what happens in the stock market depends on global risk, including the eurozone (read “Why America Will Struggle if the Eurozone Languishes”) and China, and its impact on U.S. stocks. If the eurozone continues to falter, it will impact China and, ultimately, the U.S. economy, along with the rest of the global economy.

If the U.S. economy delivers with stronger jobs growth and if corporate America can deliver with higher expected earnings in the second half of the year, the stock market will move higher.

There are a lot of assumptions toward the economy that may or may not turn out.

Given this, we could see stock selection play a more critical role as we move forward in 2013.

I advise riding the gains but also taking some profits along the way.

To be extra careful, should something negative surface and disrupt stocks, you want to make sure you have some put options in place.... Read More

U.S. equity futures traded little changed in early pre-market trade following mixed global economic data. Mixed data out of Japan was followed by a flood of data out of Europe which continued to point to room for the European Central Bank to ease policy further

View the full post at: The Euros Wanted to Make A CO2 Market in the Worst Way, and They Succeeded!

Honeywell International Inc. (NYSE/HON), a big-cap industrial goods company, reported corporate earnings that were 16% higher in the first quarter as compared to the same period of last year. However, revenues for the quarter were flat—with no change in overall sales. (Source: Honeywell International Inc., April 19, 2013.)

Similarly, General Electric Company (NYSE/GE) reported a 16% increase in its first-quarter corporate earnings (though the company did lower its forecast for the year). The company’s revenues were flat in the first quarter over the same period of 2012, and General Electric (GE) experienced a 17% decline in orders from Europe in the first quarter. (Source: Wall Street Journal, April 19, 2013.)

McDonalds Corporation (NYSE/MCD), the fast-food giant, experienced a global sales decline in the first quarter of 2013: sales declined 1.2% in the U.S.; 3.3% in Asia, the Middle East, and Africa combined; and 1.1% in Europe. The chief financial officer (CFO) of the company, Peter J. Bensen, said, “…that battle for market share has become so critical for the long-term heath of business; we’re willing to sacrifice that margin.” (Source: “McDonald’s Profit Rises, but Year-Over-Year Sales Fall,” The New York Times April 19, 2013.)

In the long term, the key stock indices reflect the corporate earnings and revenue growth of public companies, and that growth in earnings and sales just isn’t there right now.

It is also well documented in these pages that companies in the key stock indices are buying back their shares; the end result of this is a boost in per-share corporate earnings. Other companies in the key stock indices are making rigorous cuts to their labor force all in the name of keeping profit growth alive.

Dear reader, cost-cutting and financial engineering can only go on masking the real issue of declining demand for so long. The reality is that we have high domestic unemployment and weak consumer demand; the eurozone troubles are increasing; China’s growth is slowing, and Japan is in an outright recession—all of which are a drain on corporate revenues for American corporations. The year 2013 will prove to be a very difficult year for corporate earnings growth and stock prices will soon reflect this concern.... Read More

Sadly, the federal government isn’t reining in spending in any meaningful way. It has posted a budget deficit of over one trillion dollars over the last four years. It won’t surprise me if we see another one-trillion-dollar budget deficit this year.

My concern: the economic problems at the local levels are threatening to increase the national debt even more.

States and cities across the U.S. economy are each posting an increased budget deficit; some are in severe distress, while some have already filed for bankruptcy. Just look at Stockton, California; Jefferson County, Alabama; and, most recently, Detroit, Michigan—the “Motor City” was taken over by the state, because it wasn’t able to control its budget deficit.

A study by Public Financial Management, Inc. (PFM) found that Baltimore, one of the biggest cities by population in the U.S., will amass a budget deficit of $744.8 million over the next 10 years. On top of this, as of 2011, the city has unfunded liability of $3.2 billion—this includes a pension deficit of $1.1 billion and $2.1 billion of costs in health care and other benefits. (Source: Reuters, February 11, 2013.)

Illinois has a multibillion-dollar budget deficit problem. And the state has one of the least-funded pension systems—it sits at 39%; 80% is considered a healthy level. (Source: Yahoo! News, February 13, 2013.)

When states and cities run out of money, they will be forced to go to the federal government to seek a bailout. As a result, the national debt could spring to much higher levels than most are anticipating.

The U.S. government has been spending with two hands and borrowing money to pay for its expenses from the Federal Reserve. Dear reader, this can only go on for so long. Our national debt is reaching a very dangerous level. Looking at it from a nominal value, the U.S. holds the most debt in the world.

The U.S. government may still be able to borrow for now, but our creditors will sell the U.S. debt they hold if they find the dollar is simply becoming worthless. If that happens—and I believe it eventually will—there will be tremendous damage to the financial markets.

Michael’s Personal Notes:

Italy’s exports to the global economy fell 2.8% in February compared to the previous year. Italy’s exports to the biggest country in the eurozone area, Germany, plummeted 9.7%, and to China, exports declined 9.2% in the ... Read More

During its fiscal year 2012, exports from India’s economy to the global economy declined 1.76%. (Source: The Economic Times, April 18, 2013.)

These are not the only two countries in the global economy that are facing declines in their exports. Japan, one of the world’s major exporters, is facing troubles as well—the central bank of Japan is continuously printing paper money in the hopes of achieving economic growth.

The ultimate truth behind exports falling, dear reader, is nothing but bleak demand in the global economy. Consider the stock chart for the Baltic Dry Index (BDI) below. I look at this index as one of the key indicators of demand and exports.

Chart courtesy of www.StockCharts.com

This indicator, since the financial crisis of 2009, has been screaming that there is no demand in the global economy. As a matter of fact, the BDI hasn’t recovered since its steep decline in 2008.

Unfortunately, as the conditions in the global economy continue to deteriorate, the key stock indices continue to rise. This may suggest that there is economic growth, but the underlying economic numbers and other indicators are suggesting the complete opposite. Don’t get lured into the stock markets; they are only rising because of extensive paper money printing.

Consider Caterpillar Inc. (NYSE/CAT), for example. This global company witnessed its sales of construction and mining equipment plunge 11% in the first three months of this year! (Source: Dow Jones Newswires, April 19, 2013.)

Before seeing any economic growth in the global economy, I believe that we will see economic conditions worsen first. U.S.-based multinational companies, such as Caterpillar, are already seeing the effects of slowing demand; soon, others will follow.

What He Said:

“I’m getting very worried about the state of the U.S. housing market and its ramifications on the economy. The U.S. could be headed for its first outright annual decline in home prices on record, adjusted for inflation. And I really believe this could be a catastrophe for the U.S. economy.” Michael Lombardi in Profit Confidential, August 2, 2006. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.... Read More

We heard China was showing renewed evidence of stalling after its first-quarter gross domestic product (GDP) growth showed some fragility. Of course, it should not be a surprise, given what Europe and the eurozone are going through. The reality is that no country is immune from any other.

The world’s top countries all have significant trade with each other. You knew that when the eurozone stalled and fell back into another recession, it would hurt China and other key trading partners. This is not rocket science, but just simple common sense.

So here we have the dogs of the eurozone: Greece, Portugal, Italy, Spain, Ireland, and tiny Cyprus.

Sorry, but these countries will take years—or in the case of Greece, decades—to turn around. There’s no secret formula, only time.

And in the process, these weak members of the eurozone will continue to suck the life out of Germany and France, which are also facing their own growth issues. Now you see why England rejected the initial idea to join the eurozone. I wonder if Germany feels the same now.

News that China hit a wall in the first quarter was not a surprise. I mean, you could not have expected anything else, given the despair in the European Union (EU), which comprises 27 countries, including the 17 countries making up the eurozone.

The EU is China’s largest trading partner, and China is the EU’s second-largest partner following the United States, according to the European Commission.

Given this, any major impact on the EU and the eurozone will also have an impact on the economies of China and the United States, which is why I closely monitor the region.

For the eurozone, in particular, there must be a longer-term strategy to fix the weaker nations.

The eurozone has 17 different countries, each with its own political and economic system, and they’re all coming together under the euro, so you know there will be problems. Unfortunately, it has not been smooth sailing since the beginning of the euro in 1999.

So we can read about how nice the recovery is in America, but ultimately, the growth of jobs and the U.S. economy will hinge on the ability of the EU to recover.

If the EU does not recover, the United States and China may be in for more pain down the road.... Read More

Blanchard showed further concerns regarding the economic slowdown in the eurozone, saying, “Europe should do everything it can to strengthen private demand. What this means is aggressive monetary policy and what this means is getting the financial system stronger…” (Source: Ibid.) In other words, print more paper money.

Greece, Spain, Italy, and Portugal are facing a staggering economic slowdown and are dragging the stronger eurozone nations down with them. The countries that were supposedly “immune” to the debt crisis in the region are now feeling the pressures.

Germany, the strongest nation in the eurozone and the fourth-largest economy in the world, is having troubles; demand is falling. German car sales plummeted 13% in the first quarter of 2013. (Source: Financial Times, April 17, 2013.) The Bundesbank, Germany’s central bank, expects the country’s gross domestic product (GDP) to increase by only 0.5% in 2013. (Source: MNI News, April 16, 2013.) But being so early in the year, this 0.5% GDP growth can easily turn into a 0.5% contraction, considering the problems in the eurozone.

As I have been writing since the beginning of 2012, the economic slowdown in the eurozone will spread to other parts of the world, rather than it being contained.

The events in Cyprus sent a significant amount of fear into the global economy. And the crisis there still isn’t over. The country is being forced to sell its gold to pay for the expenses.

Next on the “hit list” is the tiny eurozone country of Slovenia.

The Organization for Economic Cooperation and Development (OECD) has reported that bad loans on the books of Slovenia’s banks account for about one-fifth of the country’s GDP! (Source: New York Times, April 9, 2013.)

The economic slowdown in the eurozone is troublesome for the global economy, especially the U.S. economy. About 40% of the companies on the S&P 500 stock index derive sales from the eurozone—they have to be feeling the pressure.

Michael’s Personal Notes:

According to CoreLogic, there were 54,000 foreclosures in the U.S. housing market in February. At the same time, and what is still even more worrisome, is the fact that there were 1.2 million homes in the foreclosure inventory. (Source: CoreLogic, March 28, 2013.)

The top-five states with the highest level of foreclosure inventory to mortgaged homes are Florida with 9.9%, New Jersey with 7.2%, New York with 5.0%, Nevada with 4.6%, and Illinois ... Read More

In a period of economic growth, the general standard of living is supposed to improve as people get jobs, spend money, and live in prosperity. As the economy improves, businesses spend, hire more staff, produce more products, and are able to see rising profits. In the U.S. economy today, we have the complete opposite.

A record amount of people in the U.S. economy are on food stamps. In January of this year, there were 47.8 million Americans on some form of food stamps. This number is eight percent higher than it was in January 2011, when 44.2 million people were using food stamps. (Source: United States Department of Agriculture, April 5, 2013.) Of the entire U.S. population, 15.1% are using some form of food stamps.

Why are so many Americans in the U.S. economy on food stamps? Millions of Americans are unemployed, and those lucky enough to find a job are working in low wage-paying sectors. And real wages are declining. This is all contrary to economic growth.

As for businesses in the U.S. economy, in March, factory output in the U.S. economy declined 0.1%—the second decline in the first three months of 2013. Furthermore, the capacity utilization for manufacturing—a measure of what manufacturers can produce and what they’re actually producing—declined by 0.2% in March. (Source: Board of Governors of the Federal Reserve System, April 16, 2013.) Companies involved in manufacturing in the U.S. economy are operating nowhere near their optimal levels.

But have no fear, dear reader, the stock market and stock advisors are very optimistic. In fact, in spite of all the negative factors, it’s almost as if the stock market and the overly bullish stock advisors see no misery ahead at all.

But troubles in the global economy are escalating quickly. Yes, the eurozone and Japan are begging for economic growth. But now others, such as China, are following their lead.

It would not surprise me to see the U.S. economy register negative growth in the first quarter of 2013. Printing money and throwing it at the economic problems at hand can only work for so long—actually, the concept has stopped working.

Michael’s Personal Notes:

From last Friday to Monday of this week, gold bullion prices fell from about $1,550 an ounce to as low as $1,350—a decline of more than $200.00 dollars, or almost 13%.

The financial media tells us the reasons for the sell-off are ... Read More

As I have been harping on about in these pages for some time now, key stock indices rally when their companies expect corporate earnings to be better—they see their growth in their businesses. Right now, both corporate earnings and revenue growth are under pressure.

In the first quarter of 2013, companies on key stock indices like the S&P 500 are expected to show negative growth in their corporate earnings. Out of the 110 companies that have issued outlooks for their corporate earnings, 80% of them issued negative guidance. (Source: FactSet, April 12, 2013.)

As I have also documented in these pages multiple times, corporate insiders of public companies in key stock indices are selling their shares at a record pace and major economic hubs in the global economy are facing economic pressures. U.S. companies doing business abroad will experience a hit to their corporate earnings.

The Chinese economy grew at a pace of 7.7% per year in the first quarter of 2013 due to the dismal output from factories and slowing investment spending. (Source: Reuters, April 15, 2013.) Industrial growth in China for the first three months was 8.9%, compared to an expected 10.1%, and investment growth was 20.9%, compared to the anticipated 21.3%.

A survey of 420 U.S.-based companies by the U.S. Chamber of Commerce in Shanghai revealed that only 73% of the firms were profitable in 2012; the corporate earnings of these companies have been declining as China’s economy slows. In 2011, 78% of the U.S.-based companies operating in China were profitable, and in 2010, this number was 79%. (Source: International Business Times, March 2, 2013.)

If you bring the eurozone’s poor economic conditions into this equation (a significant number of U.S.-based firms have operations in the eurozone), the future of key stock indices becomes even more depressing. The region has been experiencing a slowdown, and even the strongest countries, like France, Germany, and the Netherlands, are facing economic pressures. If this continues, the corporate earnings of companies on key stock indices will be in trouble.

And the domestic situation here in the U.S. doesn’t look any better. Retail sales are weak, thanks to soft consumer confidence, and the employment situation is bleak. Key stock indices are rising on the hopes of better conditions ahead, but I have been seeing the opposite for months.... Read More

View the full post at: Are Germans Really Poorer than Spaniards, Italians and Greeks?

As Europe's finance ministers gathered in Dublin today (Friday), they faced at least half a dozen major issues threatening the fiscal health of the Eurozone.

Although Europe's leaders, in concert with the International Monetary Fund (IMF), have succeeded in keeping a lid on each successive crisis over the past three years, that streak can't survive in the face of the new and old fiscal woes that have been peppering the Eurozone.

U.S. investors can't let those past successes deceive them into thinking the Eurozone is no longer a worry.

When the Eurozone debt crisis finally implodes - and sooner or later, it has to - it will hammer stock markets around the globe.

To continue reading, please click here...

As Europe's finance ministers gathered in Dublin today (Friday), they faced at least half a dozen major issues threatening the fiscal health of the Eurozone.

Although Europe's leaders, in concert with the International Monetary Fund (IMF), have succeeded in keeping a lid on each successive crisis over the past three years, that streak can't survive in the face of the new and old fiscal woes that have been peppering the Eurozone.

U.S. investors can't let those past successes deceive them into thinking the Eurozone is no longer a worry.

When the Eurozone debt crisis finally implodes - and sooner or later, it has to - it will hammer stock markets around the globe.

To continue reading, please click here...

Since October 1, 2012, the beginning of the government’s fiscal year, the government has spent $600 billion more than it has taken in. Hence, for the first five months of its current fiscal year, the budget deficit is already $600 billion.

We know the U.S. government has run a budget deficit of more than $1.0 trillion for each of the last four years. If the current pace of spending more than what is coming in continues in the current year, then 2013 will be another one-trillion-dollar budget deficit year.

A quote from President Herbert Hoover comes to mind when I see five years of trillion-dollar deficits. He said “Blessed are the young for they shall inherit the national debt.” (Source: Brainy Quote, last accessed April 11, 2013.)

As the U.S. government adds to its budget deficit, it has to borrow more to cover the expenses. This way, our national debt continues to increase daily. We are on pace to surpass $17.0 trillion in national debt this year. A $20.0-trillion national debt is not far away.

For fiscal 2014, President Obama has proposed a budget of $3.778 trillion. In this budget, there are increases in taxes and lower spending on government programs like social security. (Source: Wall Street Journal, April 10, 2013.)

But even with tax hikes and less money going towards social security, the budget deficit for the U.S. government will continue for years to come.

My issue? There will become a point where the interest cost of our national debt will become a major expense for the government. Year to date, the U.S. government has paid interest of over $191 billion on our debt and, for the fiscal year, it expects to pay more than $420 billion for the entire year.

Now, imagine what happens to interest payments when the national debt goes to $20.0 trillion and when interest rates rise from their ridiculously low levels of today.

It’s becoming more obvious each passing day: the U.S. can only stay liquid by printing more money until the day comes that austerity measures become the tool for the government to pay its bills.

Michael’s Personal Notes:

Fitch Ratings, a credit rating agency, has downgraded Chinese yuan-denominated government debt from AA- to A+. (Source: Dow Jones Newswires, April 9, 2013.)

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