Saturday, June 18, 2016

TLH Weekly Review

Well what a week it was, and what a week this next one will be. With the Federal Reserve not raising rates this week(shocker), all eyes will be on the Brexit vote next week.

Janet Yellen and Co. decided this was not the month they would raise rates again.  Admittedly their talk has been all over the place this year.  Yet their actions have shown the propensity to do nothing. The Fed puts out a data sheet showing their projections for economic growth, unemployment, etc.  If you look closely you'll see the Fed really doesn't see much in  economic growth the next few years. 1-2% in the long run is paltry when you compare it to rates in many Asian countries where the economy is growing at 5% or more(including China).  Yet just back in December they were calling for 4 rate hikes in 2016 and 2017.

So what does that mean? Well it means the Fed is likely going to raise rates, just not at the pace everyone, the Fed included, thinks it originally will happen. They don't see a recession coming, and frankly I think we just barely missed one.  I think a lot of it is due to the problems we are seeing everywhere else.  A lot of foreign money is fleeing their homeland and ending up in the good ol' US of A. What does that money do?  Plenty of things from buying real estate, business', bonds, and of course sitting in the bank. My GUESS is the Fed is waiting to see what happens in Britain first before making any move. This is far more important than a rate hike by them. They also don't want to wait to close to the election.  Plenty of Fed members still see a rate hike coming this year so July is a real possibility.

Then we had retail sales come in this week with a .44% increase.  From the chart you can see there were quite a few bumpy months back in 2015, and January of this year.  That's definitely part of why the market has been so topsy-turvy. Yet this indicator has shown people are spending money. It just happens to be a little uneven at times. I bet from talks with family and neighbors you'll see they are out there buying, but they are more selective and price conscious. Things are just good enough, but not spectacular.

So lets get to the market.  Most people will say the Fed didn't raise rates and the market fell because of it. True to an extent. Rising rates do coincide with rising equity prices generally. But if we look at this chart we can see most of this weeks -1.1% came before the Fed announcement. After the announcement the market didn't even start to fall until the final hour of trading. At the end of the week the DJIA closed right near where it was trading before the non-rate hike.

Then we see gold has actually moved higher. That's contrary to gold bug fundamental beliefs the metal should be falling since inflation and rate hike expectations are very low. FYI the CPI numbers came in again at a very tame .2%.

 I do find Thursday's action a bit strange.  You can see the volatility right after the Fed announcement Wednesday. Thursday opened up big, only to see massive selling into the close.  The cynic in me thinks George Soros began selling his position. But you know he's long gold so everyone else should of course thank him for giving that generous tip free of charge and buy up all the shares he will then unload to you.  Yet gold has continued to hold onto it's gains. I'm not fully convinced the metal is out of the woods yet and about to resume an unabated long term march higher. I wouldn't be surprised if it tested lower support zones one more time before it retests higher resistance areas showing a true breakout to the upside.

IndexStarted WeekEnded WeekChange% ChangeYTD %
S&P 5002096.072071.22-24.85-1.21.3
Russell 20001163.931144.73-19.20-1.60.8

Now onto the portfolio. There really was not much news. Which is the way I like it despite owning a ton of big companies. I find it amazing that despite owning plenty of billion dollar companies, and tobacco, there media doesn't buzz much about these companies.  I'd say IBM get's talked about the most on mainstream media. 

I did add shares of Diageo last week. And I'm hoping to get a shot this week below $100.  I think with Brexit coming this week I'll get a shot in the ensuing chaos.  The same goes for a lot of other names I've been eyeing. Frankly a lot of stocks seem fully valued right now, and it's hard to add positions in great companies when everyone else is willing to pay full price. Remember we try to buy when the clearance posters come up. Now I'm probably not the best with that, but I try to make sure I buy when a stock has been unfairly beaten down. 


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