A Few Old Sayings
by Sinclair Noe
by Sinclair Noe
DOW + 29 = 17,106
SPX + 2 = 2000.02 (record)
NAS + 13 = 4570
10 YR YLD + .01 = 2.40%
OIL + .55 = 93.90
GOLD - .70 = 1280.90
SILV - .08 = 19.38
SPX + 2 = 2000.02 (record)
NAS + 13 = 4570
10 YR YLD + .01 = 2.40%
OIL + .55 = 93.90
GOLD - .70 = 1280.90
SILV - .08 = 19.38
The S&P 500 notched its 30th record of the year and
closed above 2000 for the first time ever. The Dow also rose but fell short of
its record closing high after setting an all-time intraday high earlier in the
session.
There are a few old sayings about the market that seem to
fit. The first is, “the trend is you friend”; we have seen a few minor
pullbacks since the bottom in 2009, but since the start of 2013 there has been
a strong and steady uptrend. “A trend in place is more likely to continue than
it is to reverse, until it reverses” and today marked a continuation of the
trend, not a reversal.
Why is the market going up? Who knows? There are plenty
of problems around the world. The US economy looks sluggish, but “stocks climb
a wall of worry to march into bullish territory”; that’s a phrase that’s been
thrown around for more than 60 years, but was made popular by Joe Granville in
the 1980s. Another financial proverb
claims “Worry is interest paid on trouble before it falls due.” And the
opposite of the “wall of worry” is “Bear markets slide down a slope of hope.”
And then there is the very, very old saying “buy low,
sell high.” Any idiot off the street could repeat this phrase to you as if they
had the secret recipe for investing success. Honestly, it’s good advice,
because the overwhelming top indicator for investors and traders is price. You can’t
spend volume or moving averages or stochastics or relative strength, and
eventually, inevitably the trend will change.
If you want to look at a chart of an uptrend, just look
at the S&P 500. If you want to see a chart of a downtrend look at the past
four months’ worth of charts for wheat and corn and soybeans. As we near the
end of summer, farmers are preparing for record crops in the Midwest. Wheat
crops are forecast at a record 273 million bushels, up from 235 million last
year; this year’s soybean harvest is
also expected to be a record, and corn will be a near record. But there is a
problem. In many areas, such as the Dakotas, where agriculture has been a
mainstay, the energy boom has taken over, and most of that oil travels by rail,
and that means grain shipments have been held up, right as we head to harvest.
Reports the railroads filed with the federal government
show that for the week that ended Aug. 22, the Burlington Northern Santa Fe
Railway, North Dakota’s largest railroad, had a backlog of 1,336 rail cars
waiting to ship grain and other products. Another railroad, Canadian Pacific,
had a backlog of nearly 1,000 cars. Agriculture Department officials estimate
that Canadian Pacific would not be able to fulfill nearly 30,000 requests from
farmers and others for rail cars before October.
We have a couple of reports on home prices. The Federal
Housing Finance Agency’s home price index shows house prices rose just 0.8%
in the second quarter of 2014. This is the twelfth consecutive quarterly price
increase for the FHFA index, but it also shows a slowdown. The FHFA index is
based on home sales prices from conforming mortgages through Fannie Mae and
Freddie Mac. Home prices are up 5.2% from the second quarter a year ago. Arizona
ranked 5th in annual appreciation.
In another indicator of a housing slowdown, the S&P/Case-Shiller
National Home Price Index gained just 6.2% in the 12 months ending June 2014,
while the 10-City and 20-City Composites gained 8.1%. That’s a dramatic shift
from the double-digit, year-over-year price increases that had become the norm
in the second half of 2013 and the first part of this year. All three indices
saw their rates slow significantly from last month. To be clear, home prices
are not dropping, simply rising at a slower rate.
The 20-city composite rose 1% in June. Phoenix
posted a 0.6% gain for June, and a 6.9% gain from June of last year. Nationally,
prices are still 17% below their peak. In Phoenix, the peak was measured to
June 2006; from that point prices dropped 56%, and although prices have
recovered, we are still 35% below peak prices.
The takeaway from the housing reports is that price gains
are slowing, and home supply has increased with higher prices and more people
renting; consumers are slowly losing their ability to finance large purchases
as home price appreciation continues to outpace wages. Absent a big increase in
wages, you might expect home prices to remain flat or even decrease a bit in
coming months.
Orders for
durable goods jumped 22.6% in July; that is a record move, but much of the
increase is because Boeing saw a jump in signed contracts for the 777X; it will
take years before those planes are flying. Along with Boeing, automakers also
turned in a strong performance. Demand for cars and small trucks climbed by
10.2%. Orders excluding the transportation sector, however, fell 0.8% with
widespread weakness. Orders for primary metals, machinery, computers and
defense goods all declined. Another key measurement of business investment, a
category known core capital goods, dropped 0.5% in July. Orders for durable
goods are volatile, and can jump around from month to month. While business
investment has fallen in three of the past four months, it’s increased by an
annual pace of 9% so far this year.
The Conference
Board’s consumer confidence index jumped to 92.4 in August, the highest
level since October 2007, from a revised 90.3 in July. Confidence has now
increased for four straight months, and consumers remain quite positive about
the short-term outlooks for the economy and labor market, even as the future
expectations index declined from 91.9 to 90.9.
It’s official, minus the approval of regulators; Burger
King will buy Tim Hortons for $11.4 billion and move the corporate headquarters
to Canada, except they will keep corporate offices in Miami; and even though
the deal would make sense without the tax dodging; it is a tax inversion deal. Warren
Buffett’s Berkshire Hathaway is providing $3 billion in financing for the
acquisition. Berkshire will earn 9% annual interest by taking a preferred
equity stake.
The Department of Veterans Affairs says investigators
have found no conclusive proof that delays in care caused any deaths at a VA
hospital in Phoenix. That may be technically accurate, or not, but a troubled
health care system in which veterans waited months for appointments while
employees falsified records to cover up the delays, certainly did not serve
those veterans with the care they deserved. The inspector general's final
report has not yet been issued.
The VA is preparing a whole host of fixes for its
healthcare system. Congress approved $17 billion to expand health care
resources at the VA. Across the entire VA system, $400 million must be spent on
staff overtime or private doctors to ensure veterans are treated quickly. As of
Aug. 6, the VA had allocated $128 million in private care costs for 83,000
veterans; 8,248 VA schedulers across the country have been trained in
appropriate ways of scheduling patients, including 764 Phoenix workers; an
internal investigation board will be created to identify managers at the
Phoenix hospital responsible for wrongdoing and what disciplinary actions
should be taken; nearly $17 million has been spent in Phoenix to send veterans
to private doctors for speedier care.
Also, mental health resources have been expanded in
Phoenix by filling all but three of 13 psychiatric vacancies and six of seven
psychologist positions and adding four social workers. The hospital's primary
care staff has been expanded by 53 doctors, nurses and other caregivers.
Twenty-seven temporary examination rooms have been opened, and two new
outpatient clinics are planned with an additional 30,000 square feet of space.
President Obama went to Charlotte North Carolina today to
address the national convention of the American Legion; and he announced steps
to expand veterans’ access to mental health care and an initiative with
financial companies to lower home loan costs for military families.
The US has begun surveillance flights over Syria to
gather intelligence that might lead to airstrikes against ISIS militants in
Syria. Military action inside Syria has not been approved yet. Pentagon
officials have been drafting potential options for the president, including
airstrikes.
Here’s a thought, before we send any more troops back
into Iraq, or approve any airstrikes in Syria, we should make sure the VA has
figured out a way to provide the best medical care to veterans. No excuses.
Ukraine has captured 10 Russian soldiers, though it did
not state how they were caught. Weapons and fighters are able to cross the
porous border freely, but until now there has never been confirmation that
serving Russian soldiers were active inside Ukraine, despite repeated claims
from Kiev. Russian President Vladimir Putin and Ukrainian President Petro
Poroshenko held one-one-one talks today in Minsk, aimed at defusing the
situation, which is positive, but the Russian POWs undoubtedly makes talks a
bit awkward.
After 50 days of fighting, Egypt has brokered a ceasefire
between Gaza and Israel. Palestinian and Egyptian officials said the deal
called for an indefinite halt to hostilities, the immediate opening of Gaza's
blockaded crossings with Israel and Egypt and a widening of the territory's
fishing zone in the Mediterranean.
The United Nations has produced a new study on climate
change; it includes a summarization of hundreds of scientific papers and is
considered to present the best scientific and economic analysis on global
warming, and is designed to provide policymakers with a scientific foundation
for dealing with global warming. Bloomberg
says it has received a leaked copy of the report which highlights the dangers
from rising temperatures including damage to crop production, rising sea
levels, melting glaciers and more pervasive heatwaves. The report mentions the
word “risk” more than 350 times; “vulnerable” or “vulnerability” are written 61
times; and “irreversible” comes up 48 times.
The study, called the “Synthesis Report”, says global
warming already is impacting “all continents and across the oceans,” and
further pollution from heat-trapping gases will raise the likelihood of
“severe, pervasive and irreversible impacts for people and ecosystems”. And the
longer we wait to address the problems the more it will cost.
