Sunday, May 29, 2016

Weekly MAD Economic Review

"No one would have remembered the Good Samaritan if he'd only had good intentions. He had money as well" - Margaret Thatcher

For those of you who do not know who Margaret Thatcher you can find out more information about her here. She was a smart lady and Britain's Prime Minister from 1979-1990.  Margaret's words ring a bell for me this week as I highlighted another rich person with money in the "Dead Money" post. Money brings you attention when normally people would not care.  If The MAD Consultant made that same statement it likely would have gone unnoticed by mainstream press.  As individuals in this crazy world it's not a smart idea to base your investments off one rich persons words or snappy headline.  That's a sure recipe for disaster. But on to this weeks review.

We'll continue with additional good news in the housing sector.  New home sales hit an annualized(meaning adjusted) rate of 619,000 for April.  The number is 23.8% higher than April 2015(472,000 sales).  Then mid-week we found out pending home sales rose 5.1% from March. Pending home sales aren't as strong of an indicator since people can still back out of the sale, but it does show there is an uptick in activity.  All of this doesn't mean the sector is suddenly better. We still have a long way to go in the housing market. After years of under development it's likely we have hit the point where new houses need to be built just to replace old ones that are no longer useful.

Here we have a chart depicting the Case-Schiller index and real residential property prices. Notice the divergence. Clearly there a lot of people with underwater mortgages still.  If so there are options you should check out that could possibly save you a lot of money and your home. I'll visit this topic in more detail in my mid-summer real estate update.

Durable goods came in with a strong 3.4% increase, but much of that was due to a huge increase in aircraft orders which can fluctuate widely. Without aircraft orders durable goods came in down 0.8%. That's not really encouraging.

Q1 GDP was revised up to 0.8% after an initial reading of 0.5%. That's stronger, but still not as strong as it should be.  Based on recent data it's probably reasonable to expect Q2 GDP to be a little stronger than anticipated.  A reading above 2% would be really nice.  Despite many people not feeling like the economy is working for them, it is still growing albeit ever so slow.

The US Dollar saw continued strength. With the possibility of another rate hike in June, international capital has been shifting it's way back into the US.  With negative rates abounds elsewhere it will only make more sense for capital to shift into the US. That is an underlying reason for the recent strength we have seen in equities. International money converted into dollars has to be put to work in stocks, bonds, and real estate(more on that in my mid-year real estate update).

The equity markets had a higher week, albeit on lower volume as participants took some time off for the holiday weekend. The Nasdaq had a strong week overall. It has under-performed most the year, and is the only index still in negative territory YTD. Now is the time to watch the market and see if it can break above resistance to new highs before making any new adds. we are in a weird position both domestically and internationally. You don't want to be caught buying right before another 5-10% downswing so it's best to stay conservative, and have the ammo ready for bargains when they appear.

IndexStarted WeekEnded WeekChange% ChangeYTD %
S&P 5002052.232099.0646.832.32.7
Russell 20001112.061149.4637.403.41.2

That's all for now. Enjoy the long holiday weekend. Remember those who have served our country with the ultimate sacrifice. That's something many of us are not willing to do.  And let us hope in the future others will not have to make the same sacrifice themselves.

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