Archive for December, 2011

October Existing Homes Sales

Tuesday, December 20th, 2011

The sale of existing homes expanded in October according to the National Association of Realtors.  The 1.4 percent improvement was a welcome change from September’s contraction of 3 percent.  The annualized rate of sales for the month was 4.97 million which is up 60,000 unit month-over-month.

The additional sales did not happen without consequence.  The median price for a home was down 2 percent to $162,500.  Year-over-year it has lost 4.2 percent.  The housing depreciation may be picking up steam as the year-over-year comparison was only down 1.6 percent and 3.4 percent in August and September respectively.  The average home price fell 2.5 percent in October and has lost 4.6 percent vs. last year.  Another beneath the headline issue the existing housing market faces is contract failures.  October failures shot up to 33 percent from 18 percent in September.  Failures are contracts that are not completed due to a variety of circumstances like mortgage applications being declined or appraisal values being too low for a bank to justify completing the loan.  While mortgages continue to be more difficult to obtain than in the housing boom, interest rates set another record low.  According to Freddie Mac, the national average commitment rate for a 30-year conventional, fixed rate mortgage fell to 4.01 from 4.11 in September.

Along with rates, the silver lining for the existing home market is that the inventory is slowly normalizing.  There are currently 3.33 million homes for sale which represents a 2 percent monthly decline.  Based on the number of homes being sold, the country now has an 8.0 month supply.  This is getting closer to the six month supply Atlas considers normal.  Of course, it may take additional price concessions by the sellers in order to move enough homes and bring the stock of houses down to the preferred level.    (by Christopher Cox)

Revised 3rd Quarter GDP

Monday, December 19th, 2011

The economy did not grow quite as quickly in the third quarter as initially thought.  The Bureau of Economic Analysis revised its estimate to 2.0 percent annualized growth, down from the preliminary estimate of 2.5 percent.  The economy still picked up steam in the third quarter when compared to the 1.3 percent growth of the second quarter.

The biggest contributor to the downgrade came from inventories.  Initially businesses were estimated to have increased inventories by $5.4 billion. Instead, it looks as if their inventories shrank by $8.5 billion.  Businesses sold more than they produced in the July-September period.  If this trend continues, companies will have no choice but to increase output in the months ahead.  It suggests that companies expected slower consumption than what actually materialized.  Net exports added to the demand figures.  Americans did purchase more foreign made goods than in the second quarter (this subtracts from GDP), but exports of domestic goods and services saw a material upward adjustment in the revision as global demand increased.

There is no doubt that the world has its economic and political headwinds, but the latest data suggests consumers are looking past the problems.  Perhaps, ignoring the concerns is what the economy needs.  That does not align with Atlas’ point of view as we are waiting for the adjustments of long-term imbalances to begin imposing greater influence on the demand side of the economy.  Coupled with sovereign resolutions to fiscal problems in the developed world, we see an aging American population re-liquefying and spending less thus hindering future consumption for an extended period of time.  The economy is dynamic, so it will see periods of growth like the current one which started in June of 2009.  Our concern is primarily over the weak rate of change of the expansion, and the economy’s vulnerability to financial shocks.   (by Christopher Cox)

October Personal Consumption

Friday, December 16th, 2011

The country’s personal income and spending both posted gains in October according to the Bureau of Economic Analysis.  As whole, Americans’ income grew $48.1 billion or 0.4 percent.  Even after Uncle Sam took his cut, we managed to take home $30.2 billion more in disposable income.  For the month, inflation adjusted income grew.  Spending also increased as did the country’s savings rate.

Wages and Salaries are the biggest segment of the country’s income mix.  This component increased by $33.6 billion compared to $28.2 billion the month before.  Government payrolls continued to shrink as they fell $0.4 billion versus a decrease of $1.9 billion in September.  October was not a good month to be a farmer either.  Their income contracted $5.1 billion.  Other proprietor’s managed to make $2.0 billion more than in September, and rental income also increased $3.2 billion.

Personal consumption surged in September 0.7 percent, making for a tough comparison in October.  The country did not grow as quickly as the prior month but managed to consume 0.1 percent more.  The prices of goods and services decreased 0.1 percent.  After extracting food and energy, the core inflation rate ticked up 0.1 percent and is now up 1.7 percent year-over-year.  Even after the higher prices, the savings rate increased to 3.5 percent.

To recap, income, spending, and saving were all up with inflation only increasing moderately.  The data looks encouraging this month.  There is, however, room for improvement.  The savings rate is relatively low for a country still in the process of re-liquification.  It takes longer to pay down debt when so much of our current income is going directly into consumption.   Also, year-over-year disposable income growth, when adjusted for inflation, is actually below zero.  If the inflation figures continue to recede as they did this month, it will make it easier for real incomes to improve, and this will leave more room to save or, in our country’s case, pay down debt.  (by C. Cox)

Stress Reduction

Thursday, December 15th, 2011

I was reading a recent issue of the Blaylock Wellness Report furnished by a friend who subscribes to the author/doctor’s primary thrust regarding proper diet.  I didn’t need to get too far into the issue’s headline article before developing an affinity for the fellow myself.  After all, who wouldn’t like to have their doctor prescribe red wine and chocolate?  He had my attention right off, but when the subject turned to stress, he said, “Anyone who has started a business knows the intense level of stress that goes with an avalanche of government regulations, taxes, everyday business operations, personnel problems, and a continuing fear of failure.”

The good doctor seems to be a sharp cookie, a neurosurgeon and all, but what caught my attention in the above quote was the order in which he placed the agents of stress.  The award goes to government regulations with taxes as the runner up.  Perhaps these were ranked by concerns of a personal nature Dr. Blaylock was feeling when he penned the words.  I’m no psychologist, so won’t delve too deeply looking for some hidden agenda.  I will also point out that he isn’t an accountant and still chose to list those two specific items first.

In this election year, jobs creation seems to be the primary issue which surfaces in polls of the electorate.  The candidates, each jockeying for position in the coming primaries and official campaign to follow, try to cover the subject while addressing reams of other positions which may be of concern to specific special interest groups.  All seem to agree that the government needs to do something to get people back to work.  None seem aware that every promise they provide which benefits some may ultimately work to the detriment of others.  The economist Hayek built his theory in part on the notion that no one can actually know what each individual really wants and needs or what resources are available to provide for the same.  He felt this natural and unavoidable failure would inevitably lead to results which are unforeseen after legislation to spur the economy or a social agenda is enacted, often with consequences which prove less than desirable (I’m being charitable here).

Lest I digress too far afield, allow me to get back to stress.  I am so glad I’m not running for office.  Those guys must all be nuts.  In fact, there is some evidence which suggests they truly are but that’s another story.  Not being a candidate gives me certain latitude to suggest what may be a solution too simplistic, but I’ll let ‘er rip.  If regulation and taxes are creating all this stress, why not eliminate a pack of them?

A Portfolio of Penguins

Wednesday, December 14th, 2011

It’s a cold-hearted person who doesn’t see penguins as adorable.  Standing in a group, holding their little bullet-bodies erect with flapper arms tight to their sides, they shuffle en masse like a silent film parody.  A clownish cast of one thousand Charlie Chaplins and Marx brothers moving in a huddle would still be no match.  Admit it.  Penguins are just too cute.

Of course penguins don’t always just hang around in clusters.  As we have all learned, sometimes they march.  That’s when those little flipper arms start waving all around and the more adventuresome breaks from the pack, streaking across the ice and snow on its belly, rapidly distancing itself from the rest, anxious to get a belly full of fish or squid.

A group of penguins goes by different names depending on where they are located.  On land it’s called, appropriately, a waddle.  So, have you ever thought how the stock market resembles a waddle of penguins?  We do.  You see, most stocks tend to rise and fall pretty much in unison.  If they are trending up, it’s seen as a bull market.  But never forget the stock market is not a singular mass; rather, it is a market of individual stocks.  Each also tends to move up and down in a range defined loosely by standard deviations.

Sorry, I didn’t mean to bore you.  I’m just pointing out that both stock markets and individual stocks tend to revert to their mean even as they shuffle back and forth.  Occasionally one will break from the pack.  Those are the ones you probably ought to track.  They may be heading up, out of the rookery, intending to be the first to the fish, leaving all the rest to catch up (thus forming what is called in the case of penguins a raft, i.e. a waddle once it hits water).  Or they may be returning to the safety of the crèche (the term for all babies in a rookery, their nesting area) when the feeding frenzy begins to end.

Investing in stocks is quite similar.  Knowing when to look for gains and when to seek shelter goes a long way in keeping your portfolio healthy.

Free Money

Tuesday, December 13th, 2011

I was watching the ABC evening news a couple of nights ago when it hit me. I’m one of the 99 per centers.  Looking at the glamorous anchor, the handsome co-anchor, the foxy weather lady, the beautiful business reporter, all with perfect teeth and immaculately clad, I had to finally admit what most already knew were too polite to mention.  I’m just not one of the beautiful people, the top 1% who get paid just to allow the rest of us to look at them.  No snickering out there!  I’m not grousing.  The elite are drop-dead gorgeous, graduates of the right schools, sharp as a whip, and probably fluent in three languages.

Anyway, a couple of them were discussing the latest trend of companies to reinstate the 401(k) match which had been eliminated a couple of years ago during tougher times.  The business reporter was enthusiastic about every employee’s opportunity to receive free money by participating, and rightly so.  For every dollar the employee deposited into their own account, the company would match it up to some pre-determined limit.  The reporter then went on to explain how that sum would grow over the course of twenty-five years.

That set me to thinking.  I checked with the census department and found the median income of an American household in 2010 was $49,445.  If they put 6% in a 401(k), matched by the company, the annual deposit would be $5,933.  The next question was how much that would be worth in 25 years if they invested it all in the stock market.  The fact is that the five-year return for the U.S. equity market is slightly negative at the moment.

Assume for a moment that this investment continued to lose money for the 25 years it would be held in your 401(k).  The interesting thing to me about this is that, despite the negative return, since the company was doubling your deposit from the get go, you would still be way ahead.  Not only that, but you would at least have a tidy nest egg when retiring.  If you didn’t save your money, there would be nothing waiting at the end of the road.

The clincher to the story came when the news anchor said companies are reinstituting the match with the hope that when employees hit sixty-five they will be able to afford retirement.  Otherwise corporations fear they will be stuck with old (read: expensive) workers who may be difficult to fire.  The money may seem free to the employee, but the firms seem to be hoping their investment will pay off, thereby avoiding the alternative, a painful layoff.

Letters to Santa

Monday, December 12th, 2011

As an avid stamp collector I used to accumulate used envelopes from just about everywhere.  Often times there would be an unusual postmark on the envelope.  I had several replying to hopeful children from North Pole, Alaska where thousands of letters are sent every year.  Kids will ask for things you might never expect in their letters and the subject will often turn on significant events in the family rather than the season’s most popular toy.   MSN Money carried a story recently quoting Paul Brown, the operations manager at the Santa Claus House which is situated in North Pole, AK.  He said children had been asking Santa “Please help us stay in our house,” but more recently the focus has shifted to requests that Santa help Mom or Dad find a job.

The U.S. Post office receives thousands of letters addressed to Santa every year.  They offer each of us a chance to pick up one or two of them if we want to fulfill the sender’s wishes.  I visited the local branch yesterday and discovered a bureaucratic hitch in Santa’s get-a-long which fails to keep his sleigh attached to the reindeer delivery mechanism.  They told me I would need to go to the central station in City of Industry if I wanted one of the letters.  If you aren’t familiar with the area, that’s about thirty miles and three freeways from here.  They said the letters would be made available to the public on just two days between now and Christmas, but they didn’t know which two.  I was given the address and told to check at that location for the schedule.  They didn’t give me a telephone number but when you call no one ever seems to answer so that’s probably just as well.  I’ll tell you this though.  Santa needs to give the Postmaster General some coal this year.

I called the local Chamber of Commerce.  It turns out Santa is flying into the local airport to deliver toys collected in part by the Chamber to area children.  Also, the nearby Foothill Family Shelter accepts gift cards under $25 from places like Wal-Mart, gas stations, grocery stores, fast food eateries, and theaters.  They also need wrapping paper for the gifts they already have on hand ready to give to pre-selected families.  The only things the Post Office is talking about giving out these days are pink slips.  What a bunch of grinches.