Saturday, July 2, 2016

TLH Weekly Review

We accomplished two things this week. One was we made it through "BREXIT" alive with some surprising results.  Second is we finished off the first half of the year into a wonderfully long 4th of July weekend.  I couldn't think of a better time for some well earned relaxation, and an adult beverage with amazing family and friends.

Let's get started with the aftermath of the Brexit vote. Initially all hell was breaking loose in Europe, and then in the US financial markets. The pound has slipped to decade long lows, and many are citing this as the demise of the country.  Not so fast people.

Judging by the stock markets of  Britain, France, and Germany it's the Brit's who have come out ahead since the vote last Friday. If we are to believe the efficient market theory then it clearly shows that participants are currently betting Britain will be the winner.  The best part is Britain's market is outperforming by a wide margin of 6% + against each country's benchmark. I'm willing to think this was not the outcome most people were expecting no matter which vote won. It seems most people were preparing for 20% crash or more. 

Now that one comparison alone is not foretelling of the future FYI.  We must watch how this entire ordeal unfolds over the next few years. My personal view is this will be better for Britain, and bad for the EU especially if other countries follow.  It might take up to 5 years or more to see how this really pans out

Now onto some more US focused news. We received a lot of economic data this week. First was the third revision to Q1 GDP coming in at 1.1%. That's up from the initial 0.5% projection so a plus there. 

Then we received some housing data. We saw a 5.4% YoY rise in the Case-Shiller 20 city index. While good the number seems to be decelerating, and there were 3 cities showing small declines on a seasonally adjusted basis. We then got hit with a decrease in MBA Mortgage Index showing a -2.6% decline despite mortgage rates back near historic lows. Additionally pending home sales came in at 110.8, or 3.7% lower than April's(115.0), and 0.2% lower than May 2015. Let's see if some of this is temporary. The housing market as a whole has been holding up better than most people(including me) have thought it would this year. 

It appears there are some supply/demand issues in some markets.  Also in the Case-Shiller reading it was noted many areas have not hit their pre-recession peaks. The recovery has been uneven on all levels, and real estate is not immune.

We did receive a nice reading in the ISM Index at 53.2. Sadly the Federal Reserve is no longer supporting the ISM data series so I won't be posting this info from FRED. 

There was the personal spending, income, and savings report too. Income growth was OK at 0.2% increase, while spending rose 0.5%. So that leave savings and with numbers like that we can expect a decrease, which we saw.  The annualized savings rate for Americans came to 5.3% for May which is down 0.1%. Believe it or not the savings rate has been trending higher nationally since 2013. 

I'm a big proponent of saving money. Why? The more you save the more you get to invest!!! It's a combination I absolutely love, and you should too. You don't get rich by spending your money.  You get rich by investing your money. 

One note is that the the markets basically registered their entire gain for the year this week. Just check out the numbers below. Despite so much up and downs, we really haven't traded out of the long range we've been in since 2014. But we are excruciatingly close it seems to making a break one way or the other.  

IndexStarted WeekEnded WeekChange% ChangeYTD %
S&P 5002037.412102.9565.543.22.9
Russell 20001127.541156.9029.362.61.8

Onto the portfolio stocks. MKC reported earnings this week.  They reported another solid quarter showing how well run, and how much more immune they are to the swings in the economy. Sure currency swings take a bite out of earnings sometimes such as right now. But people are still going to buy the spices, flavoring, and other seasonings this company sells. I think their recent move into fresh herbs is pretty savvy. McCormick is going to be a big winner for us this quarter(portfolio results out soon!!!).

During the week I added more to Emerson Electric. I stated before I wanted the shares below $50. I had once chance that lasted only a day and didn't get far enough. This time I was lucky enough it went all the way down to below $49. I had set my buy at $48.99, but the stock actually made its way down to the 200 SMA. I'm finding comfort in high quality that's for sure

EMR is one of the last few high quality names I see yielding more than 3%, and for that matter even more than 3.5%. CMI & IBM are the only other two blue chips I follow where I see a yield over 3.5%. The odd things is none of the other stocks out there really seem in bubble territory. However good names continue to trade for a premium, and I'm expecting that to continue.

This only means I'll have to keep my head on a swivel to notice the bargains when they materialize since other investors are quick to snap up the shares while they can too.

Visa & MasterCard both received some bad news. Apparently a previous class-action lawsuit settled for $5.7 billion was thrown out by a judge. There was the initial sell-off, but yesterday they seemed to hold their ground. I'm not overly concerned about an impact. The money would have already been accounted for and put into reserves long ago. Even if another 2-3 billion is added both are able to handle that type of financial hit, and it will only be a temporary factor in the long term story of these two companies.

That's all for now. Enjoy the Fourth of July weekend and festivities!

The Long Haul Investor

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