Sunday, May 29, 2016

TLH Weekly Review

We'll start this weeks review with additional good news in the housing sector.  New home sales hit an annualized(meaning adjusted) rate of 619,000 for April.  The number is 23.8% higher than April 2015(472,000 sales).  Then mid-week we found out pending home sales rose 5.1% from March. Pending home sales aren't as strong of an indicator since people can still back out of the sale, but it does show there is an uptick in activity.  All of this doesn't mean the sector is suddenly better. We still have a long way to go in the housing market. After years of under development it's likely we have hit the point where new houses need to be built just to replace old ones that are no longer useful.

Here we have a chart depicting the Case-Schiller index and real residential property prices. Notice the divergence. Clearly there a lot of people with underwater mortgages still. I'll visit this topic in a bit more detail this summer.

Durable goods came in with a strong 3.4% increase, but much of that was due to a huge increase in aircraft orders which can fluctuate widely. Without aircraft orders durable goods came in down 0.8%. That's not really encouraging, but at least it's not negative. 

Q1 GDP was revised up to 0.8% after an initial reading of 0.5%. That's stronger, but still not as strong as it should be.  Based on recent data it's probably reasonable to expect Q2 GDP to be a little stronger than anticipated.  A reading above 2% would be really nice.  Despite many people not feeling like the economy is working for them, it is still growing albeit ever so slow.

The US Dollar saw continued strength. With the possibility of another rate hike in June, international capital has been shifting it's way back into the US.  With negative rates abounds elsewhere it will only make more sense for capital to shift into the US. That is an underlying reason for the recent strength we have seen in equities. International money converted into dollars has to be put to work in stocks, bonds, and real estate.

The equity markets had a higher week, albeit on lower volume as participants took some time off for the holiday weekend. The Nasdaq had a strong week overall. It has under-performed most the year, and is the only index still in negative territory YTD. Now is the time to watch the market and see if it can break above resistance to new highs before making any new adds. we are in a weird position both domestically and internationally. You don't want to be caught buying right before another 5-10% downswing so it's best to stay conservative, and have the ammo ready for bargains when they appear.  Unless I see a name at an extremely attractive price I'm going to wait this out, and let the portfolio do all the heavy lifting for me.

IndexStarted WeekEnded WeekChange% ChangeYTD %
S&P 5002052.232099.0646.832.32.7
Russell 20001112.061149.4637.403.41.2

That's all for now. Enjoy the long holiday weekend. Remember those who have served our country with the ultimate sacrifice. That's something many of us are not willing to do.  And let us hope in the future others will not have to make the same sacrifice themselves.

No individual stock overviews this week. I'll give a quick summary with my thoughts on Costco & Universal Corp next week.

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