Always Double Check Your Spreadsheets
by Sinclair Noe
by Sinclair Noe
DOW + 63 = 16,606
SPX + 8 = 1900
NAS + 31 = 4185
10 YR YLD - .02 = 2.54%
OIL + .67 = 104.41
GOLD - .80 = 1293.90
SILV - .01 = 19.58
SPX + 8 = 1900
NAS + 31 = 4185
10 YR YLD - .02 = 2.54%
OIL + .67 = 104.41
GOLD - .80 = 1293.90
SILV - .01 = 19.58
The S&P 500 Index closed at a record high of 1900.53.
It was a record high close but not a record high considering intraday pricing. The
S&P hit an intraday high of 1902 on May 13, however it closed on that day
at 1897. Today, the intraday high was 1901, but I’ve always considered the
close to be a more significant number than the intraday high. Since the start
of the year we’ve been on a roller coaster ride in the markets, but as of today
the Dow is up 0.2% year to date, the Nasdaq is up 0.2% for the year, and the
S&P is up 2.8% since the start of the year.
If you are a regular, you might wonder why we aren’t
celebrating a record high. The first answer is that 1900 is just a number with
no special significance; the second answer is that we only celebrate when the
Dow Industrial Average hits a record high, and the last record high close on
the Dow was May 13 at 16,715. We don’t celebrate S&P records, and like so
many things, the reasoning is entrenched in archaic traditional dogma.
An example would be Memorial Day, which started after the
Civil War as a way to commemorate the soldiers who died while in military
service. The holiday was originally known as Decoration Day, a day to place
flowers or other such decoration on the graves of the fallen soldiers. It seems
like some sort of twisted ritual when today we have such little respect for our
soldiers that we can’t even provide timely health care in a VA hospital. Maybe
this Memorial Day we can all contact our elected representative.
You can send an email by going to
contactingthecongress.org, or the main phone number for Congress is
202-225-3121. I hope you could contact at least one of your elected officials
and tell them to take immediate action to straighten out the problems at the VA
before we lose another soldier. I really don’t care if you are republican or
democrat or something else; this is not a red or blue issue, it’s a red, white,
and blue issue.
In economic news, the Commerce Department reports sales
of new single family homes rose 6.4% to a seasonally adjusted rate of 433,000
units in April. The rise ended two straight months of declines. The inventory
of new houses on the market increased 0.5% to 192,000 units, the highest level
since November 2010. Nevertheless, the stock of new houses on the market
remains more than 50% below its pre-recession level. At April's sales pace it would take 5.3
months to clear the supply of houses on the market, down from 5.6 months in
March. With inventories rising, the median price of a new home fell 1.3% to
$275,800 from April last year.
According to Freddie Mac, rates on fixed 30-year
mortgages fell to an average of 4.14% this week, a near seven-month low. And
mortgage rates almost certainly play a very big role in the housing market and
according to a new report from Deutsche Bank they explain the current weakness
in the housing market.
Last year rates spiked as the markets threw a taper
tantrum, a strong reaction to the possibility the Fed would exit QE. Mortgage
rates bumped up one percentage point, not a huge move, but on a percentage
basis, it was more than 30%. Sharp spikes in mortgage rates tend to produce
“extended periods of weakness in housing” that last several quarters
historically. The current cycle hasn’t disappointed on that front. But they
also find that most housing indicators have actually fared better in the recent
episode relative to the historical experience.
With the caveat that all real estate markets are local, most
indications of housing supply show that markets have returned to pre-crisis and
even pre-housing boom levels. Housing demand is improving gradually, though
household formation levels have disappointed many analysts so far.
This week Russian President Putin traveled to China to
ink a deal to sell natural gas to the China over the next 30 years. Meanwhile
negotiators from the US and the Eurozone very quietly began their fifth round
of negotiations on the Transatlantic Free Trade Agreement, also known as the Transatlantic
Trade and Investment Partnership. Text from the private negotiations has leaked
out, but nothing is official yet. Big Oil and Gas is looking at the situation
in Europe and seeing a big opportunity, and so they are trying to remove
restrictions on the export of energy goods.
For example, any request for an export license to ship
natural gas from the US to the EU would be approved “automatically”, even if it
means increased gas prices for US consumers, increased dependency of imports to
the US, or potential environmental damage. While it would lock in more business
for Big Oil, it’s hard to see how this helps the goal of US energy independence
or the broader public interest.
The EU’s ideas for free trade in energy with the US would
also be a frontal assault on the possibility for governments to impose a
“public service obligation,” requiring utility companies to deliver natural gas
at certain prices to consumers, for example. Any such public service obligation
should be “clearly defined and of limited duration” and also not be “more
burdensome than necessary.” In other words, if we have a cold spell in the US
and local utilities need natural gas, we could be forced to ship it to Europe,
even if for a limited duration.
Sunday brings a presidential election in Ukraine. Putin
says he will honor the results, saying Russia will "respect the choice of
the Ukrainian people" in the election and will work with the new
leadership. but the results may be a
tricky thing; we still don’t know if they will actually be able to handle
balloting in eastern Ukraine. And if there is not a clear majority winner,
there would be a runoff election in June.
Have you read the new book on economics, “Capital in the
Twenty First Century”, written by French economist Thomas Piketty? It’s a big,
thick book and a bestseller that has started multiple and running debates. Piketty's
book claims that inequality will return to the heights seen in earlier
centuries (think the Gilded Age or the French Revolution) unless governments
intervene. The best-selling book has been embraced by liberals as a call to
action against inequality, and attacked by conservatives as a call for
socialism and wealth redistribution. And so a couple of journalists for the
Financial Times, Chris Giles and Ferdinando Giugliano did some fact checking
and they claim some of the facts are less than factual.
Giles noted what he described as fundamental problems
with some of Piketty's numbers on wealth inequality. Giles wrote: "I
discovered that his estimates of wealth inequality -- the centrepiece of
Capital in the 21st Century -- are undercut by a series of problems and errors.
Some issues concern sourcing and definitional problems. Some numbers appear
simply to be constructed out of thin air."
Giles also said that the spreadsheets Piketty provided as
source material for his book have "transcription errors from the original
sources and incorrect formulas. It also appears that some of the data are
cherry-picked or constructed without an original source."
In his detailed response, Piketty did not confirm or deny that there were any big errors in his data, but said his raw data sources had to be adjusted in some cases to paint a smoother picture, or to fill in gaps. Piketty wrote: “I have no doubt that my historical data series can be improved and will be improved in the future, but I would be very surprised if any of the substantive conclusion about the long-run evolution of wealth distributions was much affected by these improvements." Piketty also pointed out that subsequent studies have backed up many of his conclusions, including the idea that wealth has become more concentrated in the US in recent decades.
Next week’s economic calendar includes a look at housing
prices from Case-Shiller/S&P; the year-over-year increase in prices in 20
major cities has slowed from the recent peak of 13.7% in November 2013, and the
trend likely continued in March.
Next Friday, we’ll get a report on personal income; wider
coverage as a result of the ACA meant Medicaid benefits accounted for 20% of
all personal income gains in the first three months of the year, therefore
income excluding Medicaid benefits is probably a more accurate way to look at
the data.
The Conference Board will release its confidence survey
Tuesday and the University of Michigan sentiment report is set for Friday; an
important subset will be how households view job availability.
On Thursday, we’ll see the Commerce Department’s revised
estimates of first quarter GDP; you will recall the first estimate showed growth
at just at annual rate of 0.1%, which was really bad; the revised estimate
could turn ugly, even negative, like maybe down 0.9%. The second quarter GDP is
expected to bounce back, but the hole is getting deeper.
Happy Memorial Day Holiday.
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