Click here to visit : Yet Another Housing Crisis on the Horizon?

Home prices are heating up, as the flow of new homes and permits continue to steadily increase and the attraction of historically low mortgage rates motivates buyers.

The buyers that are driving up the housing market are not only the buyers of principal homes, but also the investors who are attracted to the relatively lower home prices and cheap financing.

What is interesting is that we are seeing major buying from not only the smaller investor who may dabble in an investment property, but also the large institutions and hedge funds that are getting into the swing of things, gobbling up hundreds and thousands of properties at lower prices.

The S&P/Case-Shiller index, comprising the 20 largest U.S. metropolitan cites, increased a better-than-expected 9.3% in February, representing the 13th straight up month for prices.

While the housing market is far better than it was a few years ago, when the sub-prime mortgage crisis crushed the housing market and left a trail of destruction, my view is that there may be a bubble building as much of the current surge in prices is due to the cheap money.

Just consider the S&P/Case-Shiller index and notice the major jump in home prices in the housing market. For example, home buyers in the Phoenix housing market saw home prices surge 23% year-over-year, while those living in San Francisco reported an 18.9% surge in home prices.

My problem is that much of the buying in the housing market is being triggered by low-financing costs that can inevitably get homeowners in trouble once interest rates begin to ratchet higher—and they will go higher. For instance, carrying a $100,000 mortgage will become more expensive for many homeowners who were initially able to enter into the market only because of the low rates.

Even Robert Shiller, co-creator of the S&P/Case-Shiller index, is not that enthusiastic. He feels that the current housing climate is occurring in an “abnormal economy” that has been created by the money printing by the Federal Reserve. Shiller actually believes that home prices will do very little over the next decade. (Source: Napach, B., “Robert Shiller: Home Prices Will Remain Relatively Stagnant For Next 10 Years,” Yahoo! Finance, April 30, 2013.)

Years ago, after the last housing bubble, I said that if you have the money, go out and buy an investment property—you would be buying homes when they were cheap and, best of all, the money was cheap.

So as long as the Federal Reserve continues to pursue its bond-buying program and place downward pressure on financing rates, the housing market will continue to improve.

The worry is for when rates move higher: we may be headed for another housing market bubble down the road. If so, you may want to lighten up on the homebuilder stocks.

Funny how some people never learn.

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Click here to visit : Did the Federal Reserve Just Signal More Monetary Policy?

The latest meeting by the Federal Reserve was quite significant regarding its monetary policy program, and many economists will now need to revise their analyses.

The key sentence in the Fed’s statement was, “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” (Source: Board of Governors of the Federal Reserve System web site, May 1, 2013, last accessed May 2, 2013.)

Why is this so significant? For the past few months, many economists and analysts have been expecting that the Federal Reserve would begin to discuss when it would be appropriate to begin reducing its aggressive monetary policy program, specifically the monthly $85.0 billion bond-buying level.

Many were thinking that at this meeting the Federal Reserve would indicate that at some point in the future it would begin reducing its aggressive monetary policy stance. While the Fed did indicate that it might be prepared to reduce bond buying and lower monetary policy measures, this is the first mention in its press releases that an increase is possible.

In my opinion, this indicates that the Federal Reserve now believes that additional monetary policy might be necessary, whereas we all had been hoping that the U.S. economy would begin to improve. Clearly, the recent data has shown otherwise.

Job creation remains very weak, and various sectors, such as manufacturing, do not indicate that they will increase their level of production anytime soon. Internationally, we are also seeing continued weakness in many countries, which can only put downward pressure on our own economy.

With approximately 11.7 million people still out of work, the sentiment in the Fed’s press release that an increase is possible is a signal to me that the current easy money program is losing its effectiveness. The Federal Reserve committee still has two targets to hit: an unemployment rate below 6.5% and an inflation outlook that is below 2.5%.

The unemployment rate is nowhere near 6.5%, with the real unemployment rate being significantly higher. The Federal Reserve does understand that real unemployment is unbearably high, and its use of quantitative easing is the only tool it has at its disposal. Once again, the Fed did mention fiscal drag as being an impediment to growth. The politicians in Washington continue to cause havoc with the American economy, as people are uncertain about the future and fed up with both political sides.

This secondary target for the Federal Reserve is an inflation outlook below 2.5%. While the Fed might be currently meeting its target, as we’ve seen both consumer and producer core inflation far below 2.5%, such an aggressive monetary policy program will at some point raise concerns over the long-term costs. If inflation were to begin increasing, this could result in many asset classes moving upward in price, including commodities like gold.

The key question: can the Federal Reserve rein in monetary policy at a fast enough pace to prevent inflation? History has shown that the Fed has been quite slow at pulling back on quantitative easing, and this delay has created bubbles in the economy, which will create more havoc down the road. There are always costs that must be paid for such a monetary policy program.

But before we see quantitative easing come to an end, the current economic situation in America might very well warrant additional and more aggressive monetary policy by the Fed. The quotation that began this article clearly shows that the Federal Reserve is considering additional measures, which makes me worry about the true fundamental strength of the U.S. economy.

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Click here to visit : How True Is the “Sell in May and Go Away” Adage?

Let’s look at the question from two angles: a historical context and the S&P 500’s currently position.

There are some historical facts that raise a few concerns in my mind regarding an investment strategy in the market during the month of May and early summer—not only in terms of actually selling off, but also in terms of increasing volatility.

A look at the best and worst performances for the month of May since 1928 by Bespoke Investment Group, LLC shows that for the S&P 500, two of the top-10 worst Mays (May 2010 with a 8.2% contraction, and 2012 contracting by 6.27%) and one of the top-10 best Mays (May 2009 with 5.31% growth) occurred during the recent bull market that started in 2009. (Source: “S&P 500’s Best and Worst Months of May Since 1928,” Bespoke Investment Group, LLC web site, April 30, 2013, last accessed May 1, 2013.)

Clearly, volatility in the S&P 500 has increased substantially for the month of May for the past few years over the course of the current bull market, and your investment strategy certainly needs to take that volatility’s timing into account. Additionally, since the bull market’s beginning in 2009, the S&P 500 during the month of May has averaged a decline of 2.64%.

Looking even further back, many investors have continued to alter their investment strategy for the S&P 500 during the month of May—and the spring season in general—since history does indicate that caution is warranted during this timeframe. Mark Hulbert of MarketWatch stated on CNBC that statistical work has shown the “sell in May and go away” trading strategy has worked since the 17th century. (Source: Navarro, B.J., “‘Sell in May,’ History Says: Pro,” CNBC.com, April 30, 2013, last accessed May 1, 2013.)

Hulbert states that statistical work on 108 different stock markets, going back as far as England in 1694, shows some evidence that indicates that selling in May through October has some merit. However, not all stocks within the S&P 500 are affected. The investment strategy for certain sectors was more positive historically than others.

Of course, one can’t make a decision on an investment strategy simply based on past performance. We all know that past performance is not always a predictor of the future. However, there are persisting worrisome signs that the S&P 500 is due for a pullback in the current timeframe.

Featured below is a chart for the S&P 500 and the Dow Jones-UBS Commodity Index:

Chart courtesy of www.StockCharts.com

This chart, showing the S&P 500 and the Dow Jones-UBS Commodity Index, indicates that while there were obvious deviations over the past 10 years between the S&P 500 and the commodity index, the divergence has now really become quite large. In addition, the relative strength index (RSI) for the S&P 500 has now moved into overbought territory.

However, there are additional variables to consider when making any shift in an investment strategy. At this time, we’re seeing aggressive central bank stimulus around the world. This might drive the commodity prices higher, closing the gap while leaving the S&P 500 relatively untouched.

Considering the relative calm and low volatility levels in the S&P 500 over the past couple of months, it makes sense to take precautions in your investment strategy and prepare for higher volatility levels. Low volatility levels can only last for so long before a spike occurs.

Given the economic situation in America—and around the world—if I were currently holding stocks in the S&P 500 that are up significantly, I would certainly look to take profits. The increase in the S&P 500 since November of 2012 cannot continue at the current pace. My personal investment strategy would be to begin raising cash or possibly buying puts to hedge my portfolio.

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Small business is the backbone of America’s economy. While large multinational companies tend to get all of the attention, it’s the small companies that are critical to the country’s economy.

From your local “mom and pop” shop to the independent watering hole around the corner to the small manufacturing company making widgets, small companies are critical to the economy.

These are the companies that tend to fare better than other companies when coming out of a recession or a slowdown, due to their ability to make quick decisions in response to rapidly changing business variables.

While large companies could take months to adapt to a changing business environment, small companies could take only days or weeks to adjust, which is why their activity should be monitored.

An interesting measure on how well small companies may be doing can be linked to the amount of loans taken out. The thinking is: the higher the loans, the more the business is growing.

The Small Business Lending Index (SBLI), developed by Thomson Reuters and PayNet, is a good benchmark on small business lending. The SBLI is based on the volume of new commercial loan and lease originations from the major lenders in the U.S. given to small companies.

In March, the index fell to 98.5 from 105.4 in February.

The SBLI chart shows the pattern of the loans from 2005. You will notice the dip in loans when the recession surfaced, followed by the steady rise in loans to small companies up until the present time. Also note the recent big dip in loans to small companies.

This recent decline may prove to be nothing important, but it could also indicate an impending slowdown in loan demand by small companies on the horizon—potentially foreshadowing an upcoming slowing in the business climate and U.S. economy as small companies clamp down on spending used for company expansion, such as jobs growth and adding capacity via machinery.

While we may be somewhat premature in suspecting the possible slowing, it is important to monitor the lending situation.

In the economy as a whole, factory activity may be stalling, as indicated by the key Institute for Supply Management (ISM) index, which fell to 50.7 in April, down from 51.3 in March. While the reading still indicates expansion in manufacturing, the low reading indicates stalling and is the lowest reading since December 2012, when 50.2 was reported, according to the ISM.

So, while the Federal Reserve’s easy money policy has helped to drive the economy, the red flag indicated by the slowing in loans made to small companies is worrisome. As such, you may want to be careful when buying stocks during this time because the economy could be set for some stalling.

Click here to visit : Small Business Loans Drop: Does This Foreshadow a Slowing?

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(The Fed is) “creating massive fraud…in the short term it’s great for assets…at some point there’s a levitational problem.”

          Nouriel Roubini,CNN Money, April 29, 2013

Like it or not, several crises are impending in the next few months. And it is highly likely certain of these are unavoidable.

Fortunately, it is possible to prepare to avoid significant damage from most of these and indeed to profit, as we indicate here.

Unfortunately, if one fails to prepare for certain of these very soon, it will be too late, even impossible, to prepare later.

Crisis #1: for $US denominated asset holders: The $US is losing its status as the world’s reserve currency.

Why? Primarily because it is losing its purchasing power because The private for-profit Fed is printing money far in excess of any increase in production of goods and services (i.e., via Q.E. to Infinity). Consequently, key nations such as Australia and France have already struck deals to bypass the $US by agreeing that their currencies can be directly convertible into Chinese Yuan. And the recent BRIICSS nations summit laid the groundwork for a non U.S. dollar-centric international financial system.

The Fed’s increasing monetary inflation creates price inflation because its wildly excessive money printing is already diminishing the purchasing power of the $US. Thus it is not surprising that real price inflation in the U.S. is already 9.12% per shadowstats.com.

Bernanke has committed to continuing to print $85 billion per month (i.e., $1 trillion per year). Much of this money is going into The Fed’s mega-bank shareholders/owners balance sheets and not into the real economy, so it is highly unlikely the $US Dollar-centric western world will see a dramatic economic recovery.

Investor Response #1: With deliberate speed, diminish overexposure to $US denominated assets and focus on purchasing real money (i.e., physical gold and silver), quality miners (see Deepcaster’s rRecommendations (e.g., re. Notes 1, 2, 3 below), and interests in food-productive agricultural assets and select productive inflation-resistant real estate properties.

Crisis #2: Bank Deposits, some brokerage accounts, and 401(K)s, and IRAs are no longer safe stores of wealth.

Regarding bank deposits, most are already generating a negative real return, once real inflation is factored in. Interest paid on such deposits, e.g., in CDs, is already miniscule thanks to the Fed’s ZIRP.

And the principal amount of deposits is no longer “safe” as the Cyprus template proved. Large Euro depositors in Cyprus banks were deemed creditors of the bank and had up to 60% of their “deposits” seized without compensation, and probably with the blessing of the U.S. controlled IMF, and ECB.

This is a template for the future treatment of bank “deposits.”

Similarly, the treatment of investor funds in MF global brokerage accounts is likely a template for treatment of certain brokerage account funds. Be selective about where you put your money.

Investor Response #2: Our advice is similar to but not identical to investment legend, Jim Sinclair’s “Get out of the System”, at least with a portion of your assets you cannot afford to lose. See recent Alerts regarding specific recommendations.

Crisis #3: Markets in Paper Gold and Silver (e.g., LBMA and Comex) are increasingly discredited.

The Cartel (Note 4) takedown of gold (by over $200) and silver in mid-April have discredited those markets.

Why? Because, while that massive price takedown did achieve a substantial diminishment of pro-precious metals small investors sentiment, that massive takedown also generated a huge spike up in demand for purchase and delivery of physical metal such that in retail locations (e.g., coin stores) around the world physical gold and silver are simply unavailable in some locations. And where these are available, some premiums have nearly doubled.

Voice of China Radio reports that over the past two weeks, Chinese housewives purchased 300 tons of Gold ($US 16 billion).

Investor Response #3: If and as possible, buy physical in a certain form (see Deepcaster’s Letters and Alerts for preferred forms) on any dip and take delivery. And stocks in quality miners are now available at bargain prices.

Crisis #4: Equities Markets are increasingly artificially elevated.

Given the lousy fundamentals in most developed Western nations and several other nations (which we have documented ad nauseam in our recent publications), it is reasonable to ask why major equities markets have been elevating this year.

Half of the answer obvious to most is the massive injections of QE by The Fed, Bank of Japan, ECB and others.

But even more recently there is an even more alarming cause: central banks have also been increasingly buying equities in record amounts according to a central banking publication /RBS Survey. (April, 2013)

Not only does this create considerable moral hazard, but also greatly exacerbates the risk of hyperinflation and/or a crash. (This risk is exacerbated by the fact that NYSE margin debt is at record highs.) Of course the official numbers (in the U.S., China, and elsewhere) attempt to hide the impending hyperinflation. But the fact, e.g., that the U.S. is threshold hyperinflationary already at 9.12% per shadowstats.com is revealing.

This increased central bank equities buying, like the mid-April paper gold and silver price takedown, evidence an increasing desperation by the central banks in keeping the equities market boosted and gold and silver prices suppressed. The day of reckoning is approaching ever closer for these markets. The artificial boosting cannot last forever.

Investor Response #4: Be prepared for the impending equities takedown. Leveraged short ETFs put on at the right time can not only protect against loss but also generate significant profit.

“Be Prepared.” 

- Boy Scouts of America Motto

Best regards,

Deepcaster
May 3, 2013

Note 1: All good forecasts reflect probabilities not promises, guarantees, or certainties. We do not issue Forecasts unless our analyses reflect at least more-likely-than-not probabilities. But occasionally our forecasts indicate, IMO, a higher, i.e. a much-more-likely-than-not probability for certain key sectors we cover. 
And this is one of those weeks in which key fundamental, technical, interventional, and political reflect not certainty (and certainly not a guarantee) but rather, a much-more-likely-than-not probability, for one key sector we cover. 
To consider these forecasts, see our Alert “17.97% Yield Buy Reco & Remarkable Forecasts: Equities, Gold, Silver, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, & Crude Oil,” posted in ‘Alerts Cache’ at deepcaster.com. 
And to consider our recent “Blue Chip” buy recommendation recently yielding 17.97%, and selling as we write for about $5/share, read that same Alert.

Note 2: Our earlier four wave forecast is playing out thus far, as forecast. But first…

The recent dramatic gold and silver and general commodities price takedown demonstrated that the prospects for certain key commodities price

– launches soon are better than ever (but of course from lower levels) and

– that even higher Price Targets sooner are now in store for these Key Commodities.

Why? The recent Cartel coordinated precious metals takedown appears to have been effected by the selling of 400 tonnes ($20 billion) of paper gold – representing 15% of all annual mine production. Total contracts traded represented about 3,000 tons. If all that were physical, it would not be feasible, and probably not possible, to make delivery. Only The Cartel or a major catastrophe could have created such an 8 standard deviation event!

So have we hit bottom in the gold price? and which key commodities have stellar price prospects? We answer these questions, comment on Cartel motivation, and make a buy recommendation in our recent Alert “Our 4 Wave Forecast Accurate So Far; Buy Reco; Forecasts: Gold, Silver, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, Equities, Crude Oil, & Key Commodities”  just posted in ‘Alerts Cache’ at deepcaster.com.

And we recently made a buy recommendation with great profit potential.

Note 3: There are magnificent opportunities in the ongoing crises of debt saturation, rising unemployment, negative real GDP growth, over 9.0% Real U.S. Inflation (per Shadowstats.com) and prospective sovereign and other defaults. 
One sector full of opportunities is the High-Yield sector. Deepcaster’s High Yield Portfolio is aimed at generating total return (gain + yield) well in excess of real consumer price inflation (9.12% per year in the U.S. per shadowstats.com).
To consider our High-Yield stocks portfolio recommendations with recent yields of 17.97%, 10.6%, 18.5%, 10.7%, 26%, 8%, 15.6%, 8.6%, 10%, 6.7%, 14.9%, 8.8%, 10.4% and 15.4% when added to the portfolio; go to www.deepcaster.com and click on ‘High Yield Portfolio.’

Note 4: We encourage those who doubt the scope and power of overt and covert interventions by a Fed-led Cartel of key central bankers and favored financial institutions to read Deepcaster’s December, 2009, Special Alert containing a summary overview of intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 Letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to the interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.

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Click here to visit :  Why Dr. Doom Is Bullish on Stocks

Economist Nouriel Roubini, also known as Dr. Doom, is finally on board with the stock market upswing; in fact, he believes the stock market can go even higher over the next two years.

Now, if you are familiar with the often bearish opinions of Roubini, you’ll know that his hawkish view of the stock market is somewhat bizarre, but you’ll also understand why he thinks this way.

The thinking behind Roubini’s view is similar to my own view on the stock market. Roubini believes that the concerted move by the world’s central banks to provide easy access to money via aggressive monetary policy is helping to drive the current buying in the stock market.

“In the short-term, it’s great for assets,” said Roubini about investors riding the bubble higher. (Source: Farrell, M., “Dr. Doom: Buy stocks while you still can,” CNNMoney.com, April 30, 2013.)

As many of you know, I have long been a critic of the Federal Reserve’s money-printing operations, along with the easy money flow from the world’s other banks.

Roubini predicts that the stock market will move higher over the next two years—as long as the Federal Reserve continues its aggressive stimulus strategy.

Of course, Roubini is aptly named Dr. Doom for a reason: he believes a period of reckoning is coming. And I’m on the same page.

As interest rates edge higher, investors will exit the stock market, and there will be a subsequent backlash.

I refer to this cause and effect as the impending economic Armageddon—it’s coming.

Interest rates will inevitably move higher. The low or near-zero interest rates are currently enticing investors to look to stocks and dividends for added returns, but the shift to higher rates will force some rotation away from the stock market and back into the safety of bonds.

Moreover, the higher interest rates will mean much heavier carrying costs for those who have accumulated massive debt loads during the current low-interest-rate environment.

Just take a look at the government’s massive $16.84 trillion in national debt. Wait until you see what the carrying costs will be on this debt as interest rates edge higher: it’s not going to be pretty.

So just like Roubini advised, the time for stocks is now—as long as interest rates continue to be a non-factor. It’s unclear how long the stock market will hold and edge higher.

In the meantime, ride the wonderful gains, but make sure you have an exit strategy in place for when the easy money flow dries up.

GET THE BEST INVESTMENTS ADVICE FOR : 2013 US Financial Crisis

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With the introduction of monetary stimulus by many central banks around the world, a common question asked is: what’s a unique investment opportunity in a market sector that is not immediately obvious to the average investor?

If the global stimulus really begins to work, it should result in higher demand for commodities. If this occurs, an interesting market sector that might be an above-average long-term investment opportunity is the shipping industry.

Information just released shows that Greek shipping firms have recently ordered the most iron ore carriers since 2008. Greek shippers own a large number of vessels internationally. (Source: Sheridan, R., “Greeks Bet Ship Rout Ending With Most Orders Since 2008: Freight,” Bloomberg, April 30, 2013.)

While the average earnings per day for a Capesize ship (a type of cargo ship used to transport raw commodities) is only $4,900—a massive drop from the peak in 2008 of $229,000—many analysts are expecting this current level to be a bottom and are expecting earnings to increase to $17,500 per day next year.

Clearly, the Greek shipping market sector sees an investment opportunity over the next few years. From the time of ordering to delivery, the process of obtaining a carrier takes approximately two years. However, because of the economic slowdown, the costs of construction and secondhand sale prices have dropped precipitously.

As an example, a new ship that used to cost approximately $100 million to build in 2008, now costs only $47.0 million. Prices are even lower on the secondhand market sector for large ships, and some shipping firms see this time as an investment opportunity and are using the low prices to their advantage.

Diana Shipping Inc. (NYSE/DSX) paid only $27.0 million for a secondhand vessel, a substantial amount of savings from the approximately $58.0-million price tag for a new vessel of this kind. (Source: “Review on Maritime Transport,” United Nations Conference on Trade and Development web site, last accessed May 1, 2013.)

The stock chart for Diana Shipping is featured below:

Chart courtesy of www.StockCharts.com

Investors also believe that there might be an investment opportunity in the shipping market sector, looking out over the next three to five years, because prices have recently begun to move up from multiyear lows.

Diana Shipping has broken a long-standing downtrend resistance line, since investors believe the bottom might be in for the shipping market sector. While the firm might be getting a great deal in acquiring new and used ships, we are not seeing growth in revenues, as data rates still remain quite low.

However, much like a large vessel at sea, it takes a long time for the shipping market sector to turn. But when it does begin to turn, prices will begin to move up. It appears that Diana Shipping is preparing for the turn in the rates it can charge by expanding its fleet, anticipating a rebound in commodities over the next few years.

If you believe that monetary stimulus will re-ignite the commodity cycle once again, then it should be easy to also believe that the rate shippers charge for transport will move up as well. One can certainly use the shipping market sector to create an investment opportunity that is leveraged off the continuation of the commodity super cycle, as these stocks can certainly move a significant amount.

If you look at the move in Diana Shipping from the lows in 2006 until the peak in 2007, this was a huge percentage return. I do not think that Diana will hit that peak level anytime soon, as there are still a massive amount of shipping vessels and a slow global economy, which will prevent a massive rise in the prices charged by the shipping market sector over the short term.

However, one certainly can’t ignore the technical situation that other investors are putting their money where their beliefs are, seeing a substantial investment opportunity in the shipping market sector and buying a significant number of shares. If they are right that shipping rates have bottomed, this could be a great long-term investment.

GET THE BEST INVESTMENTS ADVICE FOR : 2013 US Financial Crisis

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George Soros knows a thing or two about making money from big bets. In 1992, Soros made a $10.00 short wager on the British pound and walked away with a billion dollars in profits.

Soros is now convinced Germany needs to rethink its strategy toward the sustainability of the eurozone and, in a draconian manner, believes the country should leave the euro.

Of course, should this happen, the 17-country eurozone would collapse, triggering a massive economic Armageddon and financial crisis in Europe that would ultimately generate chaos for the global economy.

What Others Are Reading : Next Financial Crisis

Now, I doubt Germany or France—the two pillars integral to the eurozone—will exit the euro, but the reality is that the situation in the economic zone remains in a financial crisis with little hope of revival.

The problem is that the eurozone is firmly in a financial crisis and recession, trying to find its way out.

Greece, Portugal, Spain, and Italy are a drag on the ability of the eurozone to get out of its financial crisis. The unemployment rate in Greece and Spain is over 25% and worsening.

Italy just formed a new government, but there’s tons of work left for that debt-ridden country before it can exit its own financial crisis that has been building for years.

With all of this bad news, it’s not surprising to see people in the eurozone feeling the despair. According to the European Commission, economic morale in the eurozone remains weak after declining in March and April. (Source: Emmot, R., “Economic mood in euro zone sours again in April,” Reuters, April 29, 2013.)

And it appears that the solution will again be to continue the pumping of liquidity into the eurozone to avoid a worsening of the financial crisis; the European Central Bank is expected to cut interest rates tomorrow.

In my view, it’s the same strategy that is being used across the globe and here in the U.S.: just print money and hope the economy will recover and avert a worse financial crisis.

This has been the case for years, and while it has helped in the U.S., the eurozone is a special situation due to the reality that there are 17 independent countries with their own governments. Mistakes have been made along the way that have resulted in a weak eurozone.

The problem is that the easy monetary policy is successful in keeping the eurozone from collapsing now, but remove the support and, as I said, the region will collapse into a financial abyss.

This dependency on easy money will pose problems down the road when interest rates begin to ratchet higher and there are massive debt loads to pay off.

Moreover, a weak eurozone will continue to impact the global economy and the U.S. economy.

U.S. exports to the European Union declined to $20.06 billion in February, down from $25.11 billion in March 2012, according to the United States Census Bureau.

So, while stocks continue to move higher toward record territory, you really need to pause and think about whether the advance is sustainable, given the significant financial crisis that persists across the Atlantic.

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One of the common questions I get asked is: where are the long-term opportunities for growth? We all know that the American economy is growing extremely slowly, yet most people don’t realize how international many of the S&P 500 companies really are.

As an example, while we all think of Kentucky Fried Chicken (KFC) and Pizza Hut as American restaurants, the parent company, YUM! Brands, Inc. (NYSE/YUM), has a growth plan that is not based domestically and is instead focused on the Chinese economy.

Because S&P 500 companies are increasingly focusing on growth potential around the world, the one economy that has seen consistent increases in gross domestic product (GDP) has been the Chinese economy.

However, recent data are showing signs that the Chinese economy might be slowing down. According to the National Bureau of Statistics, industrial profits in March increased by 5.3% year-over-year, but it marks a drop from the 17.2% increase in industrial profits recorded during January and February. (Source: Orlik, T., et al., “Chinese Industrial Profit Growth Slows,” Wall Street Journal, April 28, 2013.)

Earlier this year, we received information that the Chinese economy did post a lower-than-expected GDP increase of 7.7%, down from 7.9% during the fourth quarter of 2012. The leadership in China is trying to engineer a slower Chinese economy to prevent bubbles.

So, what does this mean for S&P 500 companies?

Many S&P 500 stocks are looking toward the Chinese economy as the next great growth generator. YUM! Brands opened almost 2,000 restaurants in 2012, of which 889 were based in China. (Source: “YUM! Staying the Course: China and a Whole Lot More, 2012 YUM! Brands Annual Customer Mania Report,” YUM! Brands, Inc. web site, last accessed April 30, 2013.)

With 4,260 KFC restaurants in over 850 cities within the Chinese economy, as well as 826 Pizza Hut restaurants, YUM! Brands is extremely linked with that nation, among other emerging markets such as India.

The company plans to continue expanding in the emerging markets because the opportunities are huge. For many S&P 500 companies, the Chinese economy offers the potential for growth. However, if the Chinese economy were to continue slowing, this could mean negative ramifications for many S&P 500 stocks.

To compare the difference, there are 58 YUM! Brands restaurants per million people in America as of 2012, while there are only two YUM! Brands restaurants per million people within the top-10 emerging markets.

Take a look at the chart, which compares the S&P 500 Index as well as the Dow Jones Shanghai Index:

Chart courtesy of www.StockCharts.com

This chart shows how closely correlated both indexes were until 2012, at which point the S&P 500 continued to move higher, while the Shanghai Index failed to move up.

If the Chinese economy continues to slow, we could see an impact for many S&P 500 companies through disappointing revenues and earnings results. While the Chinese economy offers great potential for the long term, the current price of the S&P 500 appears to be pricing in guidance much higher than what can be realized.

I believe that this divergence won’t continue for much longer. Either the Shanghai Index will begin moving upward or the S&P 500 will begin moving downward—closing this gap in performance.

It will be interesting to see if China’s leaders can manage a slight pullback in the Chinese economy without causing massive international damage to global firms. I am doubtful, especially considering the lofty levels the S&P 500 is currently at. Additionally, the Federal Reserve continues with its easy monetary policy, which is helping add wind to the sail of the S&P 500.

Even though the stocks you own within the S&P 500 might be American, don’t discount the important role the Chinese economy plays for the companies in your portfolio.

Click here to visit : S&P 500 Companies: Short-Term Problems, Long-Term Opportunities?

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You can tell a lot about the pulse of the economy by examining the retail sales and restaurant sector. When people are working and making money, they tend to be more confident and want to spend, especially non-discretionary spending.

In the fast-food restaurant sector, the “Best of Breed” is McDonalds Corporation (NYSE/MCD).

What Others Are Reading : Financial Crisis 2013

 The company has numerous rivals and the sector is extremely competitive, but there is no real and valid threat on the horizon for McDonalds that could affect it.

Characterized by its familiar “golden arches,” which are sometimes visible from miles away, the company is a true American icon, just like General Motors Company (NYSE/GM).

Yet McDonalds is also a decent indicator on how the United States and global economy are faring.

The current level and valuation of stocks suggest everything is going well and on target with the global economy.

But, sorry to break it to you: the path to sustained economic renewal is still filled with potholes.

As I’ve previously written in these pages, the global economy and performance of the stock markets have been built by the easy money injected into the global monetary system by the world’s central banks, including our friends at the Federal Reserve.

So when I begin to see slowing at some of the key multinational companies, I wonder about the condition of the global economy.

McDonalds is a decent barometer on the global economy and, based on what I’m seeing, I sense there’s some stalling in the global economy.

In the first-quarter earnings season, McDonalds reported a marginal one-percent rise in its consolidated revenues due to the slowing in Europe and other parts of the world.

The company’s U.S. comparable sales fell 1.2%, while the global comparable sales fell one percent. In Europe, comparable sales fell 1.1%.

The big disappointment was for the Asia/Pacific, Middle East, and Africa regions, where the comparable sales fell 3.3%. McDonalds blamed the weakness on Japan and China.

In my view, the stalling in China makes sense, given the Chinese economy is slowing and people may be less inclined to go out to restaurants.

In Japan, it’s likely more of the same, as the Japanese economy is undergoing a massive stimulus program to try to get the country going and out of its decades-long coma.

My view is that the results from McDonalds indicate caution to investors and could signal a red flag that the global economy might be set for a period of stalling.

You should be aware of this, and perhaps look at an exit strategy by taking some money off the table, while keeping an eye on McDonalds.

Click here to visit :  What McDonalds Has to Say About the Global Economy

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