Newsmax's Yastine: Economy Growing, But Beware of New Stocks

Wednesday, 16 Apr 2014 04:37 PM

By Joe Battaglia

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While a scheduled line of Chinese and tech initial public offerings give signs of a recovering economy, they also signal a market correction that could make it a bad time to invest.

Jeff Yastine, editorial director of financial newsletters for Newsmax, cautioned investors in the stock market and 401(k) holders to beware. The current climate, especially the plethora of IPOs, he says calls for questioning "what else is there left really growth wise?"

"It means that the economy is beginning to recover," Yastine told John Bachman on "America's Forum" on Newsmax TV. "We're starting to see a little wage growth, you're starting to see, an overused term from four or five years ago, green shoots in the economy. It's clear. It's happening.

"At the same time, the stock market is a discounting mechanism. You wonder why has the stock market done so well in the past four years? It's because the smart money in the market was looking over the horizon saying that improvement in the economy was somewhere over the horizon. Now, we're there. If you're an investor in the stock market, if you have 401(k) funds and those sorts of things, you have to ask yourself how much upside is left in what we're looking at here?"

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As an example of a red flag to be considered, Yastine pointed to April's sharp sell-off in the NASDAQ and other exchanges.

"Most of the damage is being done to the companies that went public in the past couple of years, which again, speaks to these sorts of story stocks that get overvalued," Yastine said. "They get really fluffed up, and then you have to have a big bout of selling to sort of take the wind out of their sails before the market can make another advance."

Among the notable IPOs coming are the Chinese microblogging site, Weibo, the boutique investment bank Moelis & Co., and the Chinese e-commerce behemoth Alibaba. Yastine said this flood of IPOs is a sign that "Wall Street is saying, 'Hey, we can sense that there's a lot of people out there that really want to buy stock,' which is usually the worst time to be buying new shares."

Speaking specifically about the Chinese IPOs, Yastine said news that the Chinese economy grew 7.4 percent, on an annualized basis should be another reason for investors to give pause before jumping in.

"If you look at it on a quarterly basis, that number continues to step lower," Yastine said. "What's happening is the Chinese economy is decelerating, and the number that was reported, that you talked about, was actually the lowest in the past 18 months or so. So you're talking about the world's largest or second-largest economy, but it is decelerating."

Yastine said that while that cooling of the Chinese economy may seem like a positive in terms of inflation, it is also an indicator that Chinese consumers don't have as much money to spend on Internet goods, which would likely make stock in Alibaba "an overpriced security to buy at this point."

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