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Prospects for International Stocks, Value Stocks, and Bonds in the New Year

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Prospects for International Stocks, Value Stocks, and Bonds in the New Year

By: Tom Madell | Tue, Jan 3, 2017


While any time of the year can prove to be a worthwhile time to consider changes to your investments, the start of a new year typically seems to arouse the most interest for this kind of activity. It is at this time that it has become clear which investments excelled in the prior year and which didn’t, perhaps suggesting the new year will follow suit.

But more astute than trying to jump aboard prior winners and shedding their losers, at this time of the year investors should be trying to anticipate what changes a new year might bring. Thus, while prior trends might continue, new events might shuffle previous outcomes, creating a whole new set of winners and losers.

Right now the biggest questions investors should be asking themselves are these: Is the existing investment backdrop around the world set to change under a seemingly hard-to-predict President Trump administration and if so, how, followed by what are the ramifications of near certain higher interest rates in the US and possible big political and economic shifts elsewhere, especially within Europe as a result of upcoming “Brexit” negotiations and several national elections?

In my opinion, it is still too early to be able to anticipate clear answers to these questions, not to mention whether any such changes brought about by such events will result in big changes to the existing investment climate we witnessed throughout much of 2016, at least through the pre-election period. However, some investors are already jumping into action under the assumption that they can already, even before the late Jan. Presidential inauguration, correctly anticipate the winners and losers of 2017, or even beyond.

Realistically, though, some of these assumptions might be thought of as resembling “if a, then b, and thus c,” such as, for example, the one regarding Trump’s proposed increased spending on roads, bridges, and airports: “If more infrastructure spending, then more growth, thus more gains for stocks.” In effect, not only has “a” come to pass, but then “b,” and then “c” must follow as a result in order to be correct. Such an analysis in advance of any these actual outcomes would appear to be a risk-laden proposition since it is possible that at least one of the three assumptions might turn out unexpectedly.

Therefore, a prudent course of action would appear to be, at most, acting in advance only on those investment outcomes deemed most highly likely, and waiting for further certainty on all others. Especially with all US stock indexes nearly at historic highs, additional purchases based on as of yet unconfirmed multiple cascading assumptions may have only a small upside potential for new investment gains vs. larger downside ones. And while international stocks, especially in Europe, could possibly be in for more trouble, selling the most underperforming multi-year categories of mutual funds, such as many international funds have been, often doesn’t turn out to have been wise move a year or two down the road.

While the above might be viewed as general guidelines, I will now focus on three fund categories that investors might fail to recognize as having the most potentially changed outlook, not only for 2017, but perhaps for at least several years ahead: international stocks, value stocks, and finally, domestic bonds.

International Stocks

Several years ago, investors were piling into international stock funds as advisors and pundits alike touted the benefits of diversification, often through international index funds and ETFs. For example, assets in the Vanguard Total International Stock Index (VGTSX) had, as of the end of the third quarter 2016, more than doubled over the prior three years, jumping 135%. Yet investors remaining in the fund over the entire period suffered with less than a +1% annualized return. While undoubtedly many of these recent investors will hold on in the hopes of better days ahead, one may wonder whether such results are indeed likely, or whether they are likely to continue to badly underperform the US markets. More up-to-date, over the last 3 years through year end, the annualized return on the average international fund has now become negative at about -2%.

So what will now help determine the future course of your international stock fund? As you may be aware,slow growth, and in some cases, especially so, such as in Japan, has characterized many of the major economies around the world. While generally good for international bonds, slow growth tends to hold back stocks. Looking forward, then, will growth start to improve in the most important world economies?

Within both Europe and Japan, central banks have been struggling to pull their economies out of near recessionary conditions for several years now by dropping interest rates with only mixed results. Will they be any more successful in 2017 than they have been previously?

Both regions are apparently more fully recognizing the need for more than just interest rate maneuvers now that such actions can hardly drop rates any further without causing potential disruptions to their economies. Increased government spending may thus begin to be more fully utilized as a necessary next step to promote more growth.

But a problem for US investors in these regions remains: As US interest rates are higher than in many of these countries, and likely set to go even higher, investors in most international funds do not always profit, or profit as much, from any increases in foreign stock prices. If the US economy does better than in these countries, and as projected interest rates rise more in the US, the US dollar tends to strengthen. Of course, while this has been happening most recently, it is only an assumption that we will have more of this in store for 2017 as President Trump attempts to successfully push the growth “button,” and does it faster and more successfully than our international cohorts.

When this happens, what this means is that US investors tend to lose additionally on their international stock returns, even if such stock prices themselves happen to hover near zero, or worse, actually fall. In fact, since the election of Donald Trump, during November alone, the value of the dollar rose by 3.5% in international markets and continued to gain even further in December, the most dramatically against the Japanese yen. This has resulted in little, if any, gains for US investors in foreign stocks, while US stock prices generally climbed. The markets are apparently anticipating an even further outpacing of growth and interest rates in the US than abroad, which tends to attract money from around the world into US stocks and bonds, continuing to hike the value of the dollar versus foreign currencies.

Thus, aside from the question of how well, or even if, international economies will recover from their growth droughts, one must consider whether the assumption of a continuing strengthening dollar will prove to be correct. Further, if the eurozone continues to suffer politically at the hands of “populist” forces that are not enamored either of a unified Europe nor a unified currency, namely the euro, the dollar could continue to rise, hurting US returns in European stocks. Then, too, the “Brexit” vote may eventually hurt Britain more than it currently has, creating similar drags on the U.K. economy and the British pound.

Finally, if Japan cannot successfully start to improve its economy, the rise in the dollar against the Japanese yen could continue to hurt US investors in international funds. In many such funds, Japan is the country whose percent of assets invested are generally second most, with assets invested in Europe and Britain combined occupying the top spot. For example, the Vanguard Total International Stock Index Fund (VGTSX), as well as its ETF counterpart, (VXUS), currently have 18% of assets invested in Japan, but over 42% invested in Europe of which about 13% is in the U.K.

The first question to be answered then is: Will the US economy continue to do better than elsewhere? The second is: Will the US even increase its current advantage, as potential pro-growth policies are pushed by the new president? Many investors are currently betting yes to both. So, does such a forecast imply that readers should lighten up on international stocks?

But muddying that prediction might be that international stocks have considerably more reasonable valuations than US stocks, with a forward-looking P/E ratio of about 15 for VGTSX vs. nearly 20 for the US total stock market (e.g. VTSMX). And, according to my own proprietary measures of valuation, almost all categories of US stock funds are somewhat close to a designation of overvaluation, which, when reached, would mean a recommendation of “Reduce.” International stock funds, while not showing particularly good prospects, are still considered “Holds.”

Also of interest is that growth in emerging market economies (with the exception of China) is expected to accelerate for the first time in six years according to the International Monetary Fund (IMF), potentially helping emerging market funds whose returns have been stuck just a little north of zero over the last five years. Investors are urged to consider adding to such holdings, or at least, broader international funds that have a relatively high percentage of emerging market stocks, such as VGTSX with approximately 19% in emerging markets; Vanguard International Growth (VWIGX) has slightly more at about 21%.

So here is my recommendation regarding international funds: While one might reduce allocations internationally marginally, especially to a troubled Europe, long-term investors should probably continue to hang on to well-diversified international funds and emerging market funds. Note that one of our recommended international funds, Tweedy Browne Global Value (TBGVX), employs a tactic called hedging to eliminate the negative effect of a rising dollar for US investors so it may be especially good choice if the above scenarios play out. On the other hand, if the dollar falls, funds without this tactic (that is, that are not hedged which includes most typical international funds) might be expected to be better bets. Several other international ETFs that use hedging have been recommended by me before, namely, WisdomTree Europe Hedged (HEDJ) and WisdomTree Japan Hedged (DXJ); both are doing better in the last few months than the typical non-hedged international fund.

Value Stocks

As discussed in previous Newsletters at my website (for example see last January’s Newsletter), up until recently growth funds had been outperforming value funds for quite a while. Both types of funds are often recognized (but not always) by the presence of “growth” or “value” in their names.

However, starting at the beginning of 2016, as I pointed out in the May 2016 Newsletter, the tide began turning, with value now exceeding growth. According to the Wall Street Journal, the average one year performance for multi-cap value funds in 2016 was 15.2 vs. only 1.8% for multi-cap growth funds, as of 12-30.

Delving further, using specific data for Vanguard index funds, in the large and midcap sphere VIVAX has outperformed VIGRX 16.8 vs. 6.0% while in the small cap realm, Vanguard Value Index (VISVX) has outperformed Vanguard Growth Index (VISGX) 24.7 vs 10.6% (thru year end). These performance discrepancies have gone from being only mild before the election to extreme in its aftermath.

What can explain this significant reversal which was apparently accelerated by Mr. Trump’s election, and more importantly, can one expect this trend to continue? Perhaps this: Growth stocks, historically, tend to outperform value in times of low growth and low inflation which certainly describes what we have had for many years now. However, value stocks tend to outperform during periods of higher growth and higher inflation.

Slowly but surely, both growth and inflation have been picking up in 2016. According to several sources, such as this one from a 2015 article, at different times during the economic cycle, one investing style tends to outperform the other:

“value … outperforms growth amid high GDP growth and high inflation, signifying that the market may be overheating. At that late stage in the cycle, businesses have increased capital expenditures and wages, primarily benefiting two of the largest value sectors – industrials and financials.”

Sure enough, these stock sectors have been among the strongest in 2016. Thus it appears that investors may be anticipating that the prior lower growth and lower inflation, which previously aided consumer spending, may now be expected to hinder it if they indeed start to kick in. And in fact, consumer-oriented stocks have done considerably more modestly in 2016 than industrials and financial stocks. Such consumer stocks, especially so-called consumer cyclical (or sometimes called consumer discretionary) stocks, are an important component of most growth category funds while much less so in value category funds.

If further renewed growth and subsequent inflation are on the horizon, as already started to show up prior to the election and as apparently are now being further projected by investors for the years ahead as a result of Trump’s campaign and post-election statements, investors may continue to drive value stocks higher than growth stocks. If so, this will be consistent with the likely outperformance we have foreseen for value stocks over growth stocks for quite a while now.

Domestic Bonds

During the first half of 2016, the average bond fund was still coasting along, doing even better over the prior 12 months than the average stock fund. However, by the end of the 3rd quarter, all that had started to change as interest rates began to rise, having the effect of dampening bond prices. As Election Day approached, the rising rate trend continued, possibly pushed along further by the prospect of upcoming Fed fund rate increases.

Now, well after Nov. 8, bond prices have taken a definite negative turn. So does this approximate six month downdraft in bond prices suggest that bond investors should be lightening up on their bond fund exposure?

It is important to recognize that the rise in interest rates from the extremely low levels that prevailed in mid-2016 likely did indeed signal an important turning point in rates. But even more important than what preceded, the election of Donald Trump, as discussed above, seemed to have caused aggressive investors, and perhaps many others, to assume that if Trump’s campaign promises were enacted, the economy would most likely undergo much more government stimulus along with lower taxes, all of which could tend to be inflationary and lead to higher interest rates.

Since higher rates almost always lead to lower bond prices, such investors are likely assuming further declines in bond prices, and coincidentally as well, higher stock prices since stocks might well be the main beneficiary of the expected economic stimulus and the resulting bond market outflows.

Given the already in place upward trend in interest rates from historically low levels, coupled with the projected “Trump effect” of increased economic activity, it does seem like a reasonable conclusion to assume that bonds, at least for now, have become a somewhat less attractive option within an investor’s portfolio. However, this urge to sell bonds should be tempered at least somewhat by the fact that the act of transferring money from bonds to stocks may turn out to be unwise at this time of near record high stock prices.

Bonds may still offer some value, especially once recognized that not all bond funds are “created equal,” and thus, that not all types of bond funds may necessarily produce poor returns going forward. Additionally, if interest rates do rise, so do dividend payouts, which over the long term provide the biggest component of bond fund total returns, not the price fluctuations which preoccupy investors who might focus more on short-term losses.

One useful guide may well be to consider a possible reversal from the kinds of bonds that have done particularly well or poorly over the last 3 years or so. In the former category are long-term bonds, especially government bonds, while over a similar period, short-term bonds of all types as well as inflation-protected bonds have shown unimpressive returns. If the investment climate is indeed changing, these latter types of bonds might be expected to outperform the former, and recently, this has indeed been the case.

Bond funds that suffer the most during a period of rising rates tend to be US government bonds, especially those with long maturity dates. Since many bond funds designed to mirror the broad bond market, such as the Vanguard Total Bond Market Index (VBMFX), have a relatively high proportion of US Treasury bonds, one might consider keeping such exposure particularly low.

Inflation-protected bonds, which have performed poorly over an extended period due to low measured inflation, now seem to be a relatively better bet than ordinary government bonds, although this does not guarantee one will necessarily get a positive return if we get a true bond bear market. In fact, since June 30th, they have suffered too, although not quite as much as non-inflation-protected bonds.

It would still appear that international bond funds make considerable sense since interest rates outside of the US are unlikely to be rising any time soon. To offset a negative effect on returns to US investors if the dollar continues to rise (as discussed above), a fund that tries to remove such a “currency effect,” that is, a fund that hedges such exposure seems to make the most sense, such as PIMCO For. Bond (USD-Hedged) Adm (PFRAX) or Vanguard Total International Bond Index (VTIBX).

High yield bond funds, which hold corporate rather than government bonds, tend to be less negatively affected by rising US rates. In fact, they may indeed profit if the US economy strengthens as they tend to correlate more highly with stocks than with many other types of bonds. After a rocky start to the year, they have greatly outperformed all other types of bonds in 2016.

Tax-free municipal bonds, although a type of government bond, still offer higher after-tax yields than most ordinary taxable bonds when your Federal tax bracket is currently 28% or more and you are investing for mainly for income. However, if the Trump administration is successful in lowering investors’ tax brackets, muni bonds may become less effective as a tax reduction tool, and therefore, may suffer a hit to their prices.

Finally, while lately, funds with mortgage-backed securities, such as Vanguard GNMA (VFIIX), have still suffered as interest rates have risen, they too have dropped less than other government bond funds. Thus, while the price of VBMFX has dropped about 5% since early July, VFIIX has dropped only about 3.5%. Looking forward, there appears to be moderately less risk in the latter fund than the former.


Refer to my January 2017 Newsletter article for my specific Model Portfolio recommendations


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Tom Madell

Tom Madell, Ph.D.
Publisher
Mutual Fund Research Newsletter
http://funds-newsletter.com

Mutual Fund Research Newsletter is a free newsletter which began publication in 1999. It has become one of the most popular mutual fund newsletters on the Internet, as shown on the Alexa.com “Top Sites” page for Mutual Funds News and Media Newsletter websites. Tom Madell, the Publisher, is a researcher and writer, as well as a long-term investor, whose investing articles have appeared on hundreds of websites, including the Wall Street Journal and USA Today, Morningstar, and in the international media.

Since we began publishing our Newsletter’s quarterly Model Portfolios, the great majority of our Stock Portfolios have outperformed the S&P 500 Index over the following year, 3 years, and 5 years. Ours is one of the most consistent track records anywhere.

The site is unique in that it takes an empirical, technical analysis approach to forecasting which specific mutual funds will likely outperform the major stock indices, along with an economic, fundamental analysis.

You can become a free subscriber to the site, receiving occasional email notification as soon as new articles or investing alerts become available, by emailing funds-newsletter@att.net using “free subscription” as the subject. You can also reach me using the same address.

Copyright © 2003-2017 Tom Madell

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Published at Wed, 04 Jan 2017 02:56:08 +0000

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Oil prices rise as markets eye OPEC, non-OPEC production cuts

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Oil prices rise as markets eye OPEC, non-OPEC production cuts

By Jane Chung | SEOUL

Oil prices rose in the first trading hours of 2017, buoyed by hopes that a deal between OPEC and non-OPEC members to cut production, which kicked in on Sunday, will be effective in draining a global supply glut.

International Brent crude oil prices LCOc1 were up 16 cents, or 0.3 percent, at $56.98 a barrel at 0802 GMT on Tuesday – close to last year’s high of $57.89 per barrel, hit on Dec. 12. Oil markets were closed on Monday after the New Year’s holiday.

U.S. benchmark West Texas Intermediate (WTI) CLc1 crude oil prices were up 22 cents, or 0.41 percent, at $53.94 a barrel, not far from last year’s high of $54.51 reached on Dec. 12.

Jan. 1 marked the official start of the deal agreed by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC member countries such as Russia in November last year to reduce output by almost 1.8 million barrels per day.

Market watchers said January will serve as an indicator for whether the agreement will stick.

“Markets will be looking for anecdotal evidence for production cuts,” said Ric Spooner, chief market analyst at Sydney’s CMC Markets. “The most likely scenario is OPEC and non-OPEC member countries will be committed to the deal, especially in early stages.”

Libya, one of two OPEC member countries exempt from cuts, increased its production to 685,000 barrels per day (bpd) as of Sunday, up from around 600,000 a day in December, according to an official from the National Oil Corporation (NOC).

Elsewhere, non-OPEC Middle Eastern oil producer Oman told customers last week that it will cut its crude term allocation volumes by 5 percent in March.

Non-OPEC member Russia’s oil production in December remained unchanged at 11.21 million bpd, still near a 30-year high, but it was preparing to cut output by 300,000 bpd in the first half of 2017 in its contribution to the production cut accord.

(Reporting by Jane Chung; Editing by Kenneth Maxwell, Richard Pullin and Christian Schmollinger).

Published at Tue, 03 Jan 2017 02:07:39 +0000

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Schedule for Week of Jan 1, 2017

by geralt from Pixabay

Schedule for Week of Jan 1, 2017

by Bill McBride on 12/31/2016 08:11:00 AM

Happy New Year!
The key report this week is the December employment report on Friday.Other key indicators include the December ISM manufacturing and non-manufacturing indexes, the November trade deficit, and December auto sales.

Also the Q4 quarterly Reis surveys for office, apartment and malls will be released this week.

—– Monday, Jan 2nd —–

All US markets will be closed in observance of the New Year’s Day Holiday.

—– Tuesday, Jan 3rd—–
 

ISM PMI

10:00 AM: ISM Manufacturing Index for December. The consensus is for the ISM to be at 53.8, up from 53.2 in November.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated expansion at 53.2% in November. The employment index was at 52.3%, and the new orders index was at 53.0%.

10:00 AM: Construction Spending for November. The consensus is for a 0.6% increase in construction spending.

—– Wednesday, Jan 4th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for December. This report is for private payrolls only (no government). The consensus is for 172,000 payroll jobs added in December, down from 216,000 added in November.

Early: Reis Q4 2016 Office Survey of rents and vacancy rates.
Vehicle Sales

All day: Light vehicle sales for December. The consensus is for light vehicle sales to decrease to 17.7 million SAAR in December, from 17.9 million in  November (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the November sales rate.

—– Thursday, Jan 5th —–

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 260 thousand initial claims, down from 265 thousand the previous week.

Early: Reis Q4 2016 Apartment Survey of rents and vacancy rates.

10:00 AM: the ISM non-Manufacturing Index for December. The consensus is for index to decrease to 56.8 from 57.2 in November.

—– Friday, Jan 6th —–

8:30 AM: Employment Report for December. The consensus is for an increase of 175,000 non-farm payroll jobs added in December, down from the 178,000 non-farm payroll jobs added in November.

The consensus is for the unemployment rate to increase to 4.7%.
Year-over-year change employment

This graph shows the year-over-year change in total non-farm employment since 1968.

In November, the year-over-year change was 2.25 million jobs.

A key will be the change in wages.
U.S. Trade Deficit

8:30 AM: Trade Balance report for November from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through October. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $44.5 billion in November from $42.6 billion in October.

Early: Reis Q4 2016 Mall Survey of rents and vacancy rates.

10:00 AM: Manufacturers’ Shipments, Inventories and Orders (Factory Orders) for November. The consensus is a 2.5% decrease in orders.

Read more at http://www.calculatedriskblog.com/2016/12/schedule-for-week-of-jan-1-2017.html#uSkLP9wTzqxpyXqH.99

by Bill McBride on 12/31/2016 08:11:00 AM
Published at Sat, 31 Dec 2016 13:11:00 +0000

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Major Stock Bear Still Looms

 

Major Stock Bear Still Looms

By: Adam Hamilton | Fri, Dec 30, 2016


The US stock markets spectacularly defied the odds in 2016, soaring after both the UK’s Brexit vote and US presidential election. Both actual outcomes were universally feared as very bearish for stocks before the events. These contrary stock rallies have left traders feeling euphoric, convinced stock markets are impregnable. But with stock valuations hitting bubble levels in an exceedingly-old bull, a major bear still looms.

Though you wouldn’t know it in recent years, stock markets are forever cyclical. They rise and fall, flow and ebb, in great valuation-driven cycles. Bull markets always eventually give way to bears, and vice versa.  Stocks can’t and don’t rise or fall forever, extreme popular greed or fear never last for long. The history of stock markets looks like a great sine wave, an endlessly-alternating series of bulls and bears.

Stock-price levels are ultimately dependent on underlying corporate profits, truly their sole fundamental foundation. Profits tend to rise gradually over time in fairly-linear fashion. But bulls and bears, fueled by widespread greed and fear respectively, temporarily drag stock prices away from their righteous fair values derived from earnings. These emotional distortions never last, as stocks always revert to mean valuations.

Today stock euphoria is rampant deep in the second-longest bull market in US history. And the driving catalyst couldn’t be stranger, Donald Trump’s surprise win of the US presidency. Leading up to early November’s election, stock markets sold off every time Trump’s odds of winning seemed to rise.  Then on election night as Trump’s Florida lead mounted, stock-index futures plummeted limit-down to 5% losses!

Yet within hours after it became clear the election results wouldn’t be contested, stock traders’ sentiment turned on a dime. Instead of fearing Trump the unknown loose cannon, they whole-heartedly embraced his policy agenda. The prospects of huge corporate-income-tax and personal-income-tax cuts, on top of massive new infrastructure spending, left stock traders salivating at potential much-higher future profits.

So they rushed to buy stocks in the wake of Trump’s surprise victory, catapulting the stock markets to a series of new all-time record highs. These naturally ignited widespread popular greed and euphoria. As 2016 ends, investors expect nothing but blue skies coming. But the near-bubble valuations stocks were trading at even before the election argues the opposite, that dark storm clouds are building ready to unleash hell.

Rather ironically Trump himself, stock traders’ newly-crowned savior of the stock markets, often warned about these dangerous stock markets during his campaign. Trump spoke to his biggest audience ever back in late September during the first US presidential debate, and he couldn’t have made his outlook on the stock markets any clearer. Trump admonished, “Believe me, we are in a bubble right now…”

“…and the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down.  We are in a big, fat, ugly bubble.” And valuations now in the wake of the post-election euphoria are even more extreme than they were several months ago when Trump somberly warned American voters about the stock-market dangers! Stocks are an accident waiting to happen.

Heading into 2017, all investors desperately need to understand how exceedingly risky these lofty stock markets are. A major stock bear still looms despite recent months’ sharp rallies to new record highs, and all the jubilation that goes along with that. While the primary reason is today’s literally bubble valuations the stock markets are trading at, many other bearish factors are also converging. The downside risk is great.

While it would take books to fully explain all this, the best place to start is with a brief history of this stock bull. This bull market is the most anomalous in US history, with the majority artificially conjured by a Fed hellbent on extreme easing! This first chart looks at the flagship Standard & Poor’s 500 (SPX) broad-market stock index, along with its definitive sentiment gauge the VIX S&P 500 implied-volatility index.

VIX and SPX Cyclical Bull 2009-2016

This amazing stock bull was born way back in March 2009 in the wake of the first true stock panic since 1907. After such an epic maelstrom of fear fueled such an extreme plummet to climax a bear market, a new bull was indeed overdue despite rampant bearishness and pessimism. The very trading day before the SPX bottomed, I wrote a hardcore contrarian essay explaining why a major new bull market was being born.

Back in early 2009 stock-market valuations were so low after the panic that a new bull was fully justified fundamentally. And its first four years or so played out perfectly normally. Between early 2009 and late 2012, this bull market’s trajectory was normal. It rocketed higher initially out of deep bear lows, but those gains moderated as this bull matured. And its upside progress was punctuated by healthy major corrections.

Stock-market selloffs are generally defined in set ranges. Anything under 4% isn’t worth classifying, it is just normal market noise. Then from 4% to 10%, selloffs become pullbacks. Beyond that in the 10%-to-20% range are corrections.  Selloffs greater than 20% are formally considered new bear markets. In both 2010 and 2011 the SPX suffered major corrections in the upper teens, which are essential to rebalance sentiment.

As bull markets power higher, greed naturally grows among investors and speculators.  They start to get very complacent and expect higher stocks indefinitely. Eventually this metastasizes into euphoria and even hubris. Major corrections, big and sharp mid-bull selloffs, rekindle fear to offset excessive greed and keep bulls healthy. Interestingly even in 2010 and 2011 the Fed played a key role in stock-market timing.

Those early bull years’ major corrections coincided exactly with the ends of the Fed’s first and second quantitative-easing campaigns. QE is an extreme monetary-policy measure central banks can use after they force interest rates, their normal tool, down to zero. The Fed’s zero-interest-rate policy went live in mid-December 2008 in response to that first stock panic in a century, and QE1 and QE2 soon followed.

Quantitative easing involves creating new money out of thin air to buy up bonds, effectively monetizing debt. While QE1 and QE2 certainly caused market distortions, both campaigns had predetermined sizes and durations.  When traders knew a particular QE campaign was nearing its end, they started selling stocks which drove the major corrections. So the Fed decided to change tactics when it launched QE3.

As the SPX approached 1450 in late 2012, that normal stock-market bull was topping due to expensive valuations. After peaking in April, stock markets started rolling over heading into that year’s presidential election.  Stock-market fortunes in the final several months leading into elections can greatly sway their outcomes. So in mid-September 2012 less than 8 weeks before the election, a hyper-political Fed birthed QE3.

QE3 was radically different from QE1 and QE2 in that it was totally open-ended.  Unlike its predecessors, QE3 had no predetermined size or duration! So stock traders couldn’t anticipate when QE3 would end or how big it would get. Stock markets surged on QE3’s announcement and subsequent expansion a few months later. Fed officials started to deftly use QE3’s inherent ambiguity to herd stock traders’ psychology.

Whenever the stock markets started to sell off, Fed officials would rush to their microphones to reassure traders that QE3 could be expanded anytime if necessary. Those implicit promises of central-bank intervention quickly truncated all nascent selloffs before they could reach correction territory.  Traders realized that the Fed was effectively backstopping the stock markets!  So greed flourished unchecked by corrections.

This stock bull went from normal between 2009 and 2012 to literally central-bank conjured from 2013 on! The Fed’s QE3-expansion promises so enthralled traders that the SPX went an astounding 3.6 years without a correction between late 2011 and mid-2015, one of the longest-such spans ever. With the Fed jawboning negating healthy sentiment-rebalancing corrections, sentiment grew ever more greedy and complacent.

QE3 was finally wound down in late 2014, leading to the Fed-conjured stock bull stalling out. Without central-bank money printing behind it, the stock-market levitation between 2013 and 2015 never would have happened! One of the most-damning charts of recent years shows the SPX perfectly tracking the growth in the Fed’s balance sheet as its monetized bonds accumulated there. This stock bull is largely fake.

Without the Fed’s QE firehose blasting new money into the system, stock-market corrections resumed in mid-2015 and early 2016. After topping in May 2015 not much higher than QE3-ending levels, the SPX drifted sideways to lower for fully 13.7 months. That too should’ve proven this artificially-extended bull’s top, giving way to the overdue subsequent bear. But that was miraculously short-circuited by the Brexit vote.

Heading into late June this year, Wall Street was forecasting a sharp global stock-market selloff if British people actually voted to leave the EU. What was seen as a low-probability outcome promised to unleash all kinds of uncertainty and chaos. And indeed when the Brexit vote surprised and passed, the SPX fell sharply for a couple trading days. Then meddling central banks stepped in assuring they were ready to intervene.

So this tired old bull again started surging to new record highs in July and August, although they were not much better than May 2015’s. After that euphoric surge on hopes for post-Brexit-vote central-bank easing, the SPX started to roll over again heading into the US presidential election. Again Wall Street warned just like Brexit that a Trump win would ignite a major stock-market selloff, and again proved dead wrong.

The shocking post-election stock surge has been called a Trumpgasm, or Trumphoria.  Capital flooded into stocks for a variety of reasons. In addition to hopes of far-better government policies boosting corporate profits, funds rushed to buy to chase good year-end gains to report to their investors. And the resulting record stock-market highs, and hopes for big economic changes, are even bringing individual investors back.

So by mid-December, this anomalous bull market in SPX terms extended to an epic 235.8% gain over 7.8 years! That is one of the biggest and longest bull-market spans in US history, exceptional in every way. The problem is its foundations are totally rotten, underlying corporate earnings never supported such lofty stock prices. While stocks soared mostly on extreme Fed easing, profits growth stagnated.

Before we delve into these stock markets’ dangerous bubble valuations, consider the radical complacency the post-election surge generated. That definitive VIX fear gauge collapsed back into the 11s, about as low as it ever gets.  Note in the chart above that big selloffs erupt from low VIX levels revealing stellar complacency and non-existent fear. The stock markets are ripe for a major selloff regardless of valuations.

And investors aren’t taking the threat of a new bear seriously. Crossing the bear threshold just requires a 20% retreat. Even such a baby bear would erase all SPX gains since late 2013. A normal bear market at this stage in the Long Valuation Waves is actually 50%, cutting stock prices in half! That would erase the great majority of this entire mighty stock bull, dragging the SPX all the way back down to early-2010 levels.

Even more ominously, bear markets naturally following bulls tend to be proportional. That makes sense since bears’ job is to rebalance sentiment and work off overvalued conditions. So there’s a high chance the coming bear after such an anomalous Fed-goosed bull won’t stop at 50%. The downside risks from here are utterly mindboggling after such a long bull driven by extreme central-bank easing instead of profits.

And that finally brings us to valuations, this old stock bull’s core problem.  This next chart looks at the SPX superimposed over a couple key valuation metrics.  Both are derived from averaging the trailing-twelve-month price-to-earnings ratios of all 500 elite SPX companies. The light-blue line is their simple average, while the dark-blue one is weighted by market capitalization. Today’s valuations ought to terrify investors.

S&P500 Valuations 2000-2016

Unfortunately today corporate earnings are intentionally obscured by Wall Street to mask the dangerous overvaluation that is rampant. Analysts make up blatant fictions including forward earnings, which are literally guesses about what companies will earn in the coming year. These almost always prove wildly optimistic. Analysts also look at adjusted earnings, another Pollyannaish farce where companies ignore expenses.

Wall Street also plays a deceptive estimate game to make quarterly-earnings results look way better than they really are. Instead of comparing actual hard quarterly profits with the same quarter a year earlier, they intentionally lowball estimates so companies beat regardless of their actual earnings trend.  Investors are being bamboozled, with the only honest way of measuring corporate profits buried and forgotten.

That is based on generally-accepted accounting principles (GAAP) which are required when companies actually report to regulators. The only righteous way to measure price-to-earnings ratios is using the last four quarters of GAAP profits, or trailing twelve months. Those numbers are hard, established in the real world based on real sales and real expenses. They are not mere estimates like totally-bogus forward earnings.

Every month at Zeal we look at the TTM P/Es of all 500 SPX companies. At the end of November, the simple average of all SPX companies actually earning profits so they can have P/Es was an astounding 28.1x! That is formally in bubble territory, just as Trump warned about during the campaign.  14x earnings is the historical fair value over a century and a quarter, and double that at 28x is where bubble levels start.

If you study the history of the stock markets, stock prices never do well starting from bubble valuations. Such extreme stock prices relative to underlying corporate earnings streams actually herald the birth of major new bear markets. Again they usually cut stock prices in half. So buying stocks here, late in an old bull market artificially levitated by the Fed, is the height of folly.  Massive losses are inevitably coming.

Remember stock markets perpetually meander through alternating bull-bear cycles.  Back in late 2012 before the Fed stepped in to try and brazenly short-circuit these valuation-driven cycles, valuations were actually in a secular-bear downtrend. After secular bulls drive valuations to bubble extremes, with greed forcing stock prices far beyond underlying corporate earnings, secular bears emerge to reverse these excesses.

During secular bears, stock prices grind sideways on balance for long enough for earnings to catch up with lofty stock prices. Before QE3 temporarily broke stock-market cycles, that process had been happening as normal between 2000 and 2012. Secular bears don’t end until valuations get to half fair value, 7x earnings. So instead of being near bubble levels, valuations would normally be between 7x to 10x today.

That’s the massive downside risk stocks face due to their Fed-conjured bubble valuations! While the red line above shows the actual SPX, the white line shows where it would be trading at 14x fair value. Even that is way down around 1207 today, roughly half current levels. But mean reversions from extremes nearly always overshoot in the opposite direction, so the potential SPX bear-market bottom is much lower.

Sadly Wall Street will never bother telling investors that valuations matter.  Stock-market history proves beyond all doubt that buying stocks high in valuation terms nearly always leads to considerable-to-huge losses. All the financial industry cares about is keeping people fully invested no matter what, since that maximizes their fees derived from percentages of assets under management. Talk about a conflict of interest!

The more expensive stocks are in valuation terms when they are purchased, the worse the subsequent returns will be. And no matter how awesome Trump’s policies may ultimately prove, they aren’t going to rescue corporate profits anytime soon. Even if everything miraculously goes perfectly, the major tax cuts being discussed aren’t coming until 2018 at best. Even infrastructure spending takes some time to ramp up.

In the meantime, corporate profits face major headwinds in the coming quarters that are likely to leave stock valuations even more extreme. Part of the Trumphoria after the election catapulted the US Dollar Index to lofty new 14.0-year secular highs. About half of the revenues for the 500 SPX companies as a whole come from overseas, so overall profits are going to get hit hard starting in Q4’16 due to the strong dollar.

High US-dollar levels make the products and services US companies are selling in foreign countries a lot more expensive, retarding sales. And then the resulting foreign profits are hit again on translation back into US dollars. So the imminent Q4’16 earnings season isn’t likely to look good at all, although Wall Street will try to mask that as usual with expectations games instead of hard year-over-year analysis.

The stock markets’ lofty valuations before the Trumpgasm and bubble valuations since are a very serious problem that can only be resolved by an overdue major bear market. Only that will drag stock prices low enough to where existing and future corporate earnings will support reasonable valuations again. Realize as well that the Republicans now dominating government have every incentive to let stocks fall in 2017.

As Trump often pointed out, they know stocks are dangerously overpriced due to their artificial levitation by the Fed in recent years. The sooner the inevitable stock bear to fix this begins, the sooner it will end. There is a narrow window here where the stock bear can still be blamed on Obama’s policies.  There’s no doubt the Republicans in power want it out of the way before the 2018 elections and especially the 2020 ones.

Early in new presidencies is the best time politically, the least damaging, to see weak stock markets. As Republicans now control the majorities in both the Senate and House as well as the presidency, they have huge incentives to get the overdue stock bear out of the way as soon as possible. That way they can ride the subsequent bull into the next elections. So Washington’s support of this fake bull is likely finished.

Investors really need to lighten up on their stock-heavy portfolios, or put stop losses in place, to protect themselves from the coming valuation mean reversion in the form of a major new stock bear. Cash is king in bear markets, as its buying power increases as stock prices fall. Investors who hold cash during a 50% bear market can double their stock holdings at the bottom by buying back their stocks at half price!

Put options on the leading SPY S&P 500 ETF can be used to hedge downside risks. They are cheap now with euphoria rampant, but their prices will surge quickly when stocks start selling off materially. Even better than cash and SPY puts is gold, the anti-stock trade. Gold is a rare asset that tends to move counter to stock markets, leading to soaring investment demand for portfolio diversification when stocks fall.

Gold surged nearly 30% higher in the first half of 2016 in a new bull run that was initially sparked by the last major correction in stock markets early this year. If the stock markets indeed roll over into a new bear in 2017, gold’s gains next year should be much greater. And they will be dwarfed by those of the best gold miners’ stocks, whose profits leverage gold’s gains. Gold stocks rocketed 182% higher in 2016’s first half!

Absolutely essential in bear markets is cultivating excellent contrarian intelligence sources. That’s our specialty at Zeal. After decades studying the markets and trading, we really walk the contrarian walk. We buy low when few others will so we can later sell high when few others can. While Wall Street will deny the coming stock-market bear all the way down, we will help you both understand it and prosper during it.

We’ve long published acclaimed weekly and monthly newsletters for speculators and investors. They draw on our vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks. As of the end of Q3, all 851 stock trades recommended to our newsletter subscribers in real-time since 2001 averaged stellar annualized realized gains of +24.1%! For only $10 per issue, you can learn to think, trade, and thrive like a contrarian. Subscribe today!

The bottom line is the stock markets are literally trading at bubble valuations thanks to the stunning post-election rally. Such lofty stock prices are risky anytime, but exceedingly dangerous late in an enormous bull market artificially extended by the Fed. A major new bear market is long overdue that will at least cut stock prices in half. And the new Republican government has every political incentive to encourage it soon.

Prudent investors have to overcome late 2016’s groupthink herd euphoria and protect themselves from what’s coming. That means lightening up on stocks, building cash, and buying gold. Central banks have a long history of trying and failing to eliminate stock-market cycles. The longer they are artificially suppressed, the worse the inevitable reckoning as the cycles resume with a vengeance. 2017 looks dangerous!


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Adam Hamilton

Adam Hamilton, CPA
Zeal LLC.com

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Mr. Hamilton, a private investor and contrarian analyst, publishes Zeal Intelligence, an in-depth monthly strategic and tactical analysis of markets, geopolitics, economics, finance, and investing delivered from an explicitly pro-free market and laissez faire perspective. Please visit www.ZealLLC.com for more information, www.zealllc.com/samples.htm for a free sample, and www.zealllc.com/subscribe.htm to subscribe.

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Recommended article: The Guardian’s Summary of Julian Assange’s Interview Went Viral and Was Completely False.
Published at Fri, 30 Dec 2016 09:10:48 +0000

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Wall St. set to end 2016 with a whimper

Wall St. set to end 2016 with a whimper

 

By Yashaswini Swamynathan

 

U.S. stocks fell on the last trading day of 2016, eating into gains for the year, as Apple led a decline in technology stocks.

 

The S&P 500 technology sector’s 0.72 percent drop put the broader index on track for its third straight day of declines, its longest losing streak since Nov. 4.

 

The Dow Jones Industrial Average was set for its weekly decline since the U.S. election. The rally had pushed the index to within 13 points of 20,000 last week, but after three straight days of losses, the index is now about 200 points shy.

 

“The market is ending 2016 with a whimper. We entered the rally like a lion, but are leaving like a lamb,” said Andre Bakhos, managing director of Janlyn Capital in Bernardsville, New Jersey.

 

“It is disappointing on many levels as investors believed that we are going to see the Dow at 20,000. The euphoria that was in motion in the Trump rally has fizzled.”

 

 

Until Thursday, the three main Wall Street indexes were set to end the year with double-digit percentage gains. The S&P is now on track to post a gain of 9.7 percent for the year, the Nasdaq 7.8 percent and the Dow 13.7 percent.

 

At 12:35 p.m. ET (1735 GMT) the Dow .DJI was down 20.2 points, or 0.1 percent, at 19,799.58, the S&P 500 .SPX was down 5.87 points, or 0.26 percent, at 2,243.39 and the Nasdaq Composite .IXIC was down 38.38 points, or 0.71 percent, at 5,393.71.

 

 

Seven of the 11 major S&P 500 sectors were lower, with technology .SPLRCT and consumer discretionary .SPLRCD stocks taking the biggest hit.

 

Apple (AAPL.O) was the biggest drag on all three indexes, falling 0.6 percent to $115.98 after the Nikkei financial daily reported that the company would cut production of the iPhone by about 10 percent.

 

Apple suppliers also dropped on the news. Qualcomm (QCOM.O), Skyworks Solutions (SWKS.O), Cirrus Logic (CRUS.O) and Qorvo (QRVO.O) were down between 1 percent and 2 percent.

 

 

Declining issues outnumbered advancers on the NYSE by 1,444 to 1,402. On the Nasdaq, 1,795 issues fell and 1,004 advanced.

 

The S&P 500 index showed one new 52-week high and no new lows, while the Nasdaq recorded 35 new highs and 36 new lows.

 

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Anil D’Silva and Savio D’Souza)

 

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Recommended article: The Guardian’s Summary of Julian Assange’s Interview Went Viral and Was Completely False.
Published at Fri, 30 Dec 2016 18:24:20 +0000

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Wall St. rally loses steam on losses across sectors

 

A trader works on the floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., December 27, 2016.REUTERS/Andrew Kelly

Wall St. rally loses steam on losses across sectors

By Rodrigo Campos | NEW YORK

U.S. stocks fell in low volume on Wednesday in a broad decline triggered in part by a sharp drop in home resales.

Contracts to buy previously-owned U.S. homes fell in November to their lowest level in nearly a year, a sign that rising interest rates could be weighing on the housing market.

The PHLX housing sector index .HGX fell 1.2 percent to close at its lowest in three weeks. The S&P 500 posted its largest daily decline since Oct. 11.

Technology was the largest weight on major indexes, however, with Nvidia (NVDA.O) down 6.9 percent to $109.25 after short seller Citron Research said the market was overlooking the headwinds for the stock – which had earlier touched a record high.

The S&P 500 tech sector .SPLRCT fell 0.9 percent after closing on Tuesday at its highest closing level since the year 2000.

“There was enough bad news during the day” to pull the market lower, said Keith Bliss, senior vice-president at Cuttone & Co in New York referring to the housing data.

He said U.S. Secretary of State John Kerry’s comments that Israel’s building of settlements on occupied land was endangering Middle East peace, made some traders nervous and exacerbated the decline with two allies publicly at odds.

The Dow Jones Industrial Average .DJI fell 111.36 points, or 0.56 percent, to 19,833.68, the S&P 500 .SPX lost 18.96 points, or 0.84 percent, to 2,249.92 and the Nasdaq Composite .IXIC dropped 48.89 points, or 0.89 percent, to 5,438.56.

About 4.82 billion shares changed hands in U.S. exchanges, below the 7.2 billion daily average over the last 20 sessions. Average daily volume this week last year was 5 billion.

Boeing (BA.N) fell 0.9 percent to $156.10 a day after Delta Air Lines (DAL.N) said it had reached an agreement with the planemaker to cancel a $4-billion order for 18 Dreamliner aircraft.

Declining issues outnumbered advancing ones on the NYSE by a 2.73-to-1 ratio; on Nasdaq, a 2.72-to-1 ratio favored decliners.

The S&P 500 posted 11 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 98 new highs and 46 new lows.

(Reporting by Rodrigo Campos; Editing by Nick Zieminski)

Published at Wed, 28 Dec 2016 17:53:33 +0000

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Vehicle Sales Forecast: Sales Over 17 Million SAAR Again in December, On Track for Record Year in 2016

by harutmovsisyan from Pixabay

Vehicle Sales Forecast: Sales Over 17 Million SAAR Again in December, On Track for Record Year in 2016

by Bill McBride on 12/26/2016 09:53:00 AM

The automakers will report December vehicle sales on Wednesday, January 4th.

Note: There were 27 selling days in December 2016, down from 28 in December 2015.From WardsAuto: December Light-Vehicle Sales to Push U.S. Market to New Record

December U.S. light-vehicle sales are forecast to finish strong enough for 2016 to top 2015’s record 17.396 million units. However, actual volume largely will be determined by results in the final third of the month, because a major portion of December’s deliveries typically occur after Christmas.

The forecast 17.7 million-unit seasonally adjusted annual rate is below November’s 17.8 million, but above December 2015’s 17.4 million.

Despite the drop in December’s volume, total 2016 sales will end at 17.41 million units, barely edging out the all-time high set last year.
emphasis added

Here is a table (source: BEA) showing the 5 top years for light vehicle sales through November, and the top 5 full years. 2016 will probably finish in the top 3, and could be the best year ever – just beating last year.

 

Light Vehicle Sales, Top 5 Years and Through November
Through November Full Year
Year Sales (000s) Year Sales (000s)
1 2000 16,109 2015 17,396
2 2001 15,812 2000 17,350
3 2016 15,783 2001 17,122
4 2015 15,766 2005 16,948
5 1999 15,498 1999 16,894

 

Read more at http://www.calculatedriskblog.com/2016/12/vehicle-sales-forecast-sales-over-17.html#CCz4YM0h4B1ivPdr.99

by Bill McBride on 12/26/2016 09:53:00 AM
Published at Mon, 26 Dec 2016 14:53:00 +0000

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Question #10 for 2017: Will inventory increase or decrease in 2017?

 

Question #10 for 2017: Will inventory increase or decrease in 2017?

by Bill McBride on 12/26/2016 07:27:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2017. I’ll try to add some thoughts, and maybe some predictions for each question.
10) Housing Inventory: Housing inventory declined in 2015 and 2016. Will inventory increase or decrease in 2017?

Tracking housing inventory is very helpful in understanding the housing market.  The plunge in inventory in 2011 helped me call the bottom for house prices in early 2012 (The Housing Bottom is Here).  And the increase in inventory in late 2005 (see first graph below) helped me call the top for house prices in 2006.

This graph shows nationwide inventory for existing homes through November 2016.

Existing Home InventoryClick on graph for larger image.

According to the NAR, inventory decreased to 1.85 million in November 2016 from 2.04 million in November 2015.

This was the lowest level for the month of November since 2000.

Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays.
 

Year-over-year Inventory

The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 9.3% year-over-year in November compared to November 2015. (blue line).  Note that the blue line (year-over-year change) turned slightly positive in 2013, but has been negative since mid-2015.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

I’ve heard reports of more inventory in some coastal areas of California, in New York city and for high rise condos in Miami.  But we haven’t seen a change in trend for inventory yet.

The recent increase in interest rates might impact inventory.  Looking back at the “taper tantrum” in May and June 2013 suggests we might see more inventory in the coming months.  In May 2013, inventory was down 13% year-over-year, but by September 2013, inventory was unchanged year-over-year.    However that change in year-over-year inventory was part of an ongoing trend (look at 2013 in the second graph above), and the “taper tantrum” might not have been the cause.

I was wrong on inventory last year, but right now my guess is active inventory will increase in 2017 (inventory will decline seasonally in December and January, but I expect to see inventory up again year-over-year in December 2017).   My reasons for expecting more inventory are 1) inventory is historically low (lowest for November since 2000), 2) and the recent increase in interest rates.

If correct, this will keep house price increases down in  2017 (probably lower than the 5% or so gains in 2014, 2015 and 2016).

Read more at http://www.calculatedriskblog.com/2016/12/question-10-for-2017-will-inventory.html#olipZET4tPiuyMfO.99

by Bill McBride on 12/26/2016 07:27:00 PM
Published at Tue, 27 Dec 2016 00:27:00 +0000

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Schedule for Week of Dec 25, 2016

by geralt form Pixabay

Schedule for Week of Dec 25, 2016

by Bill McBride on 12/24/2016 08:09:00 AM

This will be a light week for economic data.

Happy Holidays and Merry Christmas!

—– Monday, Dec 26th —–

All US markets will be closed in observance of the Christmas Holiday.

—– Tuesday, Dec 27th—–
 

Case-Shiller House Prices Indices

9:00 AM ET: S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the September 2016 report (the Composite 20 was started in January 2000).

The consensus is for a 5.1% year-over-year increase in the Comp 20 index for October. The Zillow forecast is for the National Index to increase 5.7% year-over-year in October.

—– Wednesday, Dec 28th —–

10:00 AM: Pending Home Sales Index for November. The consensus is for a 0.5% increase in the index.

—– Thursday, Dec 29th —–

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 262 thousand initial claims, down from 275 thousand the previous week.

—– Friday, Dec 30th —–

9:45 AM: Chicago Purchasing Managers Index for December. The consensus is for a reading of 57.0, down from 57.6 in November.

Read more at http://www.calculatedriskblog.com/2016/12/schedule-for-week-of-dec-18-2016_24.html#u4kHEstxdMZPrPWH.99

by Bill McBride on 12/24/2016 08:09:00 AM
Published at Sat, 24 Dec 2016 13:09:00 +0000

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Dollar basks in yield allure, Nikkei touches one-year peak

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A man looks at an electronic board showing Japan’s Nikkei average outside a brokerage in Tokyo, Japan, December 1, 2016.REUTERS/Kim Kyung-Hoon – RTSU45A

Dollar basks in yield allure, Nikkei touches one-year peak

By Dion Rabouin | NEW YORK

Stocks edged down and the dollar eased from a 14-year high on Wednesday, giving back some of the gains chalked up since Donald Trump’s U.S. election victory as investors took profits on the rally in risk assets over the past six weeks.

Wall Street was modestly lower with healthcare and real estate shares losing ground a day after the Nasdaq Composite and the Dow Jones Industrial Average hit record highs. The Dow remained just below the 20,000 threshold.

U.S. stocks have surged since the Nov. 8 election. The Dow has jumped 9 percent and the S&P 500 has gained 6 percent, with traders betting that President-elect Trump and a Republican-controlled Congress will embark on steep tax cuts and fiscal spending to stimulate the economy.

“People are taking a pause and they want to see what’s going to happen,” said Chris Zaccarelli, Chief Investment Officer for Cornerstone Financial Partners. “In his first 100 days in office, it will be interesting to see what legislation they can get through Congress and what regulations they will repeal.”

The Dow Jones Industrial Average .DJI closed 32.66 points, or 0.16 percent, lower at 19,941.96, the S&P 500 .SPX lost 5.58 points, or 0.25 percent, to 2,265.18 and the Nasdaq Composite .IXICdropped 12.51 points, or 0.23 percent, to 5,471.43.

The dollar index .DXY, which tracks the greenback against six other major currencies, fell 0.3 percent, retreating after hitting its highest since December 2002 on Tuesday.

U.S. 10-year Treasury note yields, which reached their highest in more than two years last week after the Federal Reserve raised interest rates and forecast more hikes in 2017 than most investors had expected, edged lower in light trading volume to 2.54 percent US10YT=RR.

Some traders likely reduced their dollar holdings on profit-taking ahead of a big batch of U.S. economic data on Thursday and the Christmas holiday, analysts said.

“There are no big fundamental underpinnings to the move. It’s more a technical adjustment ahead of the holidays,” said Paresh Upadhyaya, director of currency strategy at Pioneer Investments in Boston.

The euro, which touched a 14-year low on Tuesday, rose 0.4 percent to $1.0424 EUR= while the yen JPY= gained 0.25 percent to 117.55 per dollar.

The Swedish crown SEK= rose 1.4 percent against the dollar, its biggest one-day gain in six months, to 9.21 crowns after the Riksbank narrowly voted to add to its bond-buying program.

The pan-European STOXX 600 index fell 0.21 percent, having hit an 11-month high on Tuesday, led lower by banking shares. .SX7P

Chinese stocks rebounded as fears of a liquidity squeeze in the banking system subsided after risks from a bond scandal appeared contained, and on a pledge to deepen reforms in state-owned sectors.

The blue-chip CSI300 index .CSI300 rose 0.91 percent, to 3,339.54 points, while the Shanghai Composite Index .SSEC gained 1.15 percent to 3,138.54, both snapping a two-session losing streak.

Tokyo’s Nikkei share average .N225 fell, pulling back from earlier one-year highs to close down 0.3 percent.

The gains in some Asian bourses counterbalanced losses in the U.S. and Europe to leave MSCI’s measure of global equity markets .MIWD00000PUS little moved on the day.

Oil prices fell after the U.S. Energy Information Administration reported an unexpected crude inventory build and Libya’s National Oil Corporation said it planned to boost oil production by 270,000 barrels per day. [O/R]

Brent LCOc1 and U.S. WTI Clc1 crude both fell by around 1.5 percent.

(Reporting by Dion Rabouin; Additional reporting by Karen Brettell in New York and Tanya Agrawal in Bengaluru; Editing by Lisa Shumaker and James Dalgleish)

My Trading Journal: 30 Day Trading Journal

Published at Wed, 21 Dec 2016 05:48:34 +0000

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“Rates Stay Near Highs Despite Market Improvement”

Photo
tags
By wendybkoon from Pixabay

“Rates Stay Near Highs Despite Market Improvement”

by Bill McBride on 12/19/2016 05:48:00 PM

From Matthew Graham at Mortgage News Daily: Rates Stay Near Highs Despite Market Improvement

Mortgage rates stayed close to the highest levels in more than 2 years today, even though underlying bond markets left plenty of room for improvement.  Typically, when bond markets improve as much as they did today, rates would be noticeably lower.  The inconsistency has to do with more conservative lender pricing strategies surrounding the holiday season.

All this having been said, a few lenders did update rates this afternoon, offering slight improvements.  The average effective rate (which adjusts for closing costs) fell just slightly, but the average contract rate for a conventional 30yr fixed loan remained at 4.375% for a top tier scenario, with several lenders still up at 4.5%
emphasis added

CR Note: We should see a further drop in refinance activity, and I expect some slowdown in housing (still thinking about this).

Here is a table from Mortgage News Daily:

Averages Current Previous Change
Mortgage News Daily updated daily
30 Yr Fixed 4.37 4.38 -0.01
15 Yr Fixed 3.56 3.57 -0.01
FHA 30 Yr 4.05 4.10 -0.05
Jumbo 30 Yr 4.40 4.40
5/1 Yr ARM 3.23 3.25 -0.02
Freddie Mac updated weekly
30 Yr Fixed 4.16 4.13 +0.03
15 Yr Fixed 3.37 3.36 +0.01
1 Yr ARM 2.68 2.67 +0.01
5/1 Yr ARM 3.19 3.17 +0.02
FHFA updated monthly
15 Yr Fixed 3.05 3.08 -0.03
30 Yr Fixed 3.74 3.80 -0.06
30 Year Fixed

 

About These Rates Get This Widget

Read more at http://www.calculatedriskblog.com/2016/12/rates-stay-near-highs-despite-market.html#ZLYXpYQAULzVcCvQ.99

by Bill McBride on 12/19/2016 05:48:00 PM

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Published at Mon, 19 Dec 2016 22:48:00 +0000

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Yellen: “Strongest job market in nearly a decade”

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Yellen: “Strongest job market in nearly a decade”

by Bill McBride on 12/19/2016 02:02:00 PM

 From Fed Chair Janet Yellen: Commencement Remarks

The short version of what I have to say is that while I expect workers will continue to face some challenges in the coming years, I believe, for two reasons, that the job prospects and career opportunities for new graduates at this time are very good. First, after years of a slow economic recovery, you are entering the strongest job market in nearly a decade. The unemployment rate, at 4.6 percent, is near what it was before the recession. This is a level that has been associated with good job opportunities. Job creation is continuing at a steady pace; the layoff rate is low; and job openings are up over the past couple years, which is another sign of a healthy job market. There are also indications that wage growth is picking up, and weekly earnings for younger workers have made strong gains over the past couple of years. That is probably one reason why younger workers reported feeling significantly more optimistic about the job market compared with 2013, according to a survey published just today by the Federal Reserve.

Challenges do remain. The economy is growing more slowly than in past recoveries, and productivity growth, which is a major influence on wages, has been disappointing.

But it also looks like the economic gains of the past few years are finally raising living standards for most people.

Read more at http://www.calculatedriskblog.com/2016/12/yellen-strongest-job-market-in-nearly.html#ZIiLmtZoFgl5K9oe.99

by Bill McBride on 12/19/2016 02:02:00 PM

My Trading Journal: 30 Day Trading Journal

Published at Mon, 19 Dec 2016 19:02:00 +0000

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4 Real Estate Trends for 2017 Investors Should Know

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4 Real Estate Trends for 2017 Investors Should Know

By Rebecca Lake | Updated December 17, 2016 — 6:00 AM EST

Real estate investing carries a certain degree of risk, but it also has the potential to be very rewarding. One factor that may contribute to your success as a property investor is the ability to adapt when necessary. Staying abreast of the latest developments and trends in the commercial and residential markets is important if you want to stay ahead of the curve. As 2017 looms on the horizon, here are the most significant trends that may impact real estate investors in the near future.

1. Drone Technology Takes Off

Earlier this year the Federal Aviation Administration (FAA) approved the use of drones in commercial activity. For real estate agents, that opens the door to new possibilities in terms of how they show available properties. That also expands the scope of how investors are able to vet homes, office buildings or other potential investments.

A drone video feed could allow you to view a property from every possible angle without having to see it in person. You can check for any possible defects in the structure that are visible to the naked eye before moving on to a more in-depth inspection. That could save you time and money in the long run if the drone video exposes a serious flaw. (For more, see Delivery by Drone: New Rules for Flights.)

2. Global Economic Growth May Be Muted

In terms of the worldwide economic forecast, the global economy is expected to grow by 3.4% in 2017, according to the International Monetary Fund (IMF). While that’s an increase over the 3.1% growth rate for 2016, it still represents a slight downgrade of the IMF’s original forecast. That was triggered by a dampening of the economic outlook in the wake of the U.K. Brexit​ and a U.S. economy that didn’t grow as quickly as initially expected. (For more, see Brexit’s Effect on the Market.)

While global markets were shaken after the recent presidential election, they’ve more or less rebounded. However, now that the Federal Reserve has raised interest rates by 0.25%, the second increase in a decade, there may be a dampening effect on stocks. Taken together, those factors could work to quell the real estate market to a degree, as well. Investors may need to consider how foreign markets may be affected by a global slowdown and what that could mean for U.S. real estate.

3. New Home Construction Will Regain Steam

After a period of slowdown, 2017 looks like it may be the year that housing starts begin to climb once again. Kiplinger’s predicts that single-family-housing starts will rise 11% in 2017, up from the 9% increase estimated for 2016. With inventory 4.3% lower than it was a year ago and home prices continuing to rise, there’s an opportunity for builders to fill the gap in demand.

Commercial construction is also expected to see some positive growth in the new year. According to Dodge Data & Analytics, U.S. construction starts will grow by 5% for 2017, totaling $713 billion. That’s an improvement over the 1% increase in commercial construction reported for 2016, although it falls short of the 11% gain reported in 2015. While the increases on both the residential and commercial sides are modest, they’re still a positive for investors whose focus is on ground-up properties.

4. Optionality Will Reshape the Way Properties Are Used

The sharing economy has had an impact on the way people work, vacation or simply catch a cab, and it’s also leaving its imprint on the real estate market. According to the Urban Land Institute (ULI), optionality is adding a new dimension to the way that property investors – and their tenants – define the use for a particular space.

Co-living is perhaps the most visible example of this phenomenon. Companies such as Common, WeLive and Commonspace are putting a new spin on apartment living by offering units that combine private living space with communal areas for cooking, dining and socializing. A 2017 forecast for the U.S. and Canada done by ULI and PWC features optionality front and center as developers seek to identify the best use for investment properties. (For more, see Is Cohousing Right for You?)

The Bottom Line

These are just some of the things set to influence commercial and residential real estate in 2017, and they may afffect some investors more than others. As the new year gets underway, reviewing your property investments while analyzing your goals for the next 12 months is a wise move. Understanding what trends are poised to take off can make it easier to spot potentially valuable investment opportunities going forward.

My Trading Journal: 30 Day Trading Journal

Published at Sat, 17 Dec 2016 11:00:00 +0000

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BLS: Unemployment Rates Lower in 18 states, Stable in 32 states in November

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BLS: Unemployment Rates Lower in 18 states, Stable in 32 states in November

by Bill McBride on 12/16/2016 10:16:00 AM

 From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were significantly lower in November in 18 states and stable in 32 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Nine states had notable jobless rate decreases from a year earlier, 2 states had increases, and 39 states and the District had no significant change. The national unemployment rate was 4.6 percent in November, down from 4.9 percent in October, and 0.4 percentage point lower than in November 2015.

New Hampshire and South Dakota had the lowest unemployment rates in November, 2.7 percent each. Alaska and New Mexico had the highest jobless rates, 6.8 percent and 6.7 percent, respectively.
emphasis added

State UnemploymentClick on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

The states are ranked by the highest current unemployment rate. Alaska, at 6.8%, had the highest state unemployment rate.  Note that the lowest recorded unemployment rate in Alaska was 6.3%, so this is pretty close to the all time low.
State UnemploymentThe second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently no state has an unemployment rate at or above 7% (light blue); Only four states and D.C are at or above 6% (dark blue). The states are Alaska (6.8%), New Mexico (6.7%),  Louisiana (6.2%),  D.C. (6.0%), and West Virginia (6.0%).

Read more at http://www.calculatedriskblog.com/2016/12/bls-unemployment-rates-lower-in-18.html#IMkrWTRL1O871Sbh.99

by Bill McBride on 12/16/2016 10:16:00 AM

My Trading Journal: 30 Day Trading Journal

Published at Fri, 16 Dec 2016 15:16:00 +0000

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Wall Street opens higher; Dow closes in on 20,000

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 15, 2016.REUTERS/Brendan McDermid

Wall Street opens higher; Dow closes in on 20,000

By Tanya Agrawal

The S&P 500 and the Dow were little changed in early afternoon trading on Friday, but the Nasdaq was dragged down by a fall in technology shares.

The Dow is on track for its sixth weekly gain and less than 1 percent away from 20,000, a level it has never breached.

The Federal Reserve, which raised interest rates for the second time in nearly a decade on Wednesday, sees a faster pace of rate hikes in 2017, partly due to the potential economic benefits from President-elect Donald Trump’s policies.

U.S. stocks have been on a tear since the Nov. 8 presidential election, with the S&P rising 5.7 percent on bets that Trump’s plans to deregulate sectors and increase infrastructure spending will boost the economy.

“We’re at a point where there’s not much to factor in,” said Mohannad Aama, managing director at Beam Capital Management in New York.

“You had the Trump rally, and then you had the anticipation about what the Fed was going to say. For the next two weeks, we have somewhat of an aimless market, where people are getting ready to close the books for the year.”

However, there are some concerns that the “Trump rally” may have gone too far too soon and that valuations are stretched. The S&P 500 is trading at 17.9 times forward 12-month earnings, above the 10-year median of 14.7 times, according to StarMine data.

At 12:34 p.m. ET (1734 GMT) the Dow Jones Industrial average was up 12.23 points, or 0.06 percent, at 19,864.47.

The S&P 500 was down 1.19 points, or 0.05 percent, at 2,260.84.

The Nasdaq Composite was down 5.88 points, or 0.11 percent, at 5,450.98.

Eight of the 11 major S&P sectors were higher, with the utility index’s 1.37 percent rise leading the gainers.

The technology sector fell 0.66 percent, weighed down by Oracle and Intel, which fell 1.5 percent fall.

Oracle dropped 4.2 percent to $36.59 after the business software maker’s adjusted revenue missed analysts’ estimates. The stock was the biggest drag on the S&P.

Chipotle Mexican Grill rose 1.9 percent to $389.83 after the company, under pressure from activist investor Bill Ackman, appointed four more members to its board.

Advancing issues outnumbered decliners on the NYSE by 1,856 to 1,026. On the Nasdaq, 1,640 issues rose and 1,113 fell.

The S&P 500 index showed 21 new 52-week highs and one new low, while the Nasdaq recorded 143 new highs and 24 new lows.

(Reporting by Tanya Agrawal in Bengaluru; Editing by Anil D’Silva)

My Trading Journal: 30 Day Trading Journal

Published at Fri, 16 Dec 2016 14:44:07 +0000

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Post-Fed dollar rally steadies, stocks level near highs

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Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, December 5, 2016.REUTERS/Staff/Remote

Post-Fed dollar rally steadies, stocks level near highs

By Caroline Valetkevitch | NEW YORK

The dollar and U.S. stocks dipped on Friday, taking a breather after this week’s big moves after the Federal Reserve signaled a faster pace of U.S. interest rate increases next year.

U.S. Treasury debt yields inched higher, continuing a weeks-long trend. Markets appeared to be adjusting for what is expected to be a quiet holiday period for economic data.

“We took direction from the Fed, but over the next couple of weeks we’ll see some more cleaning up of positions heading into the year-end,” said Tom Simons, money market economist at Jefferies & Co in New York.

Bond yields have surged and the dollar has rallied since the Fed on Wednesday raised rates for the first time in a year and its forecasts showed three more rate increases in 2017. The dollar has since strengthened to almost parity with the euro.

U.S. stocks, which fell on Wednesday following the Fed meeting but bounced back on Thursday, eased again on Friday and the S&P 500 was on track for a slight weekly decline.

The Dow Jones industrial average was down 2.85 points, or 0.01 percent, to 19,849.39, the S&P 500 lost 3.68 points, or 0.162686 percent, to 2,258.35 and the Nasdaq Composite dropped 15.82 points, or 0.29 percent, to 5,441.04.

“For the next two weeks, we have somewhat of an aimless market, where people are getting ready to close the books for the year,” said Mohannad Aama, managing director at Beam Capital Management in New York.

World stocks as measured by the MSCI world equity index, which tracks shares in 46 countries, were up slightly.

European shares closed up 0.3 percent. Merger and acquisition speculation around drug maker Actelion and insurer Generali helped the benchmark index to set an 11-month high earlier in the session.

In the foreign exchange market, the dollar index, which measures the greenback against a basket of six major rivals, was last at 102.82, down 0.2 percent. It hit a 14-year high of 103.560 on Thursday.

In afternoon U.S. trading, 10-year Treasury prices were down 1/32, yielding 2.584 percent, up from Thursday’s 2.578 percent. On the week, 10-year yields have gained nearly 13 basis points.

In commodities, a strong dollar and signs of mounting supply in London Metal Exchange warehouses dragged copper prices lower. Other industrial metals also slipped.

Benchmark LME copper was down 1.7 percent at $5,633 a tonne.

Oil prices jumped as producers showed signs of adhering to a global deal to reduce output. Brent crude futures were trading at $55.20 per barrel, up 2.2 percent, while U.S. crude was up 1.8 percent at $51.83.

(Additional reporting by Gertrude Chavez-Dreyfuss in New York and Tanya Agrawal; Editing by James Dalgleish and Nick Zieminski)

My Trading Journal: 30 Day Trading Journal

Published at Fri, 16 Dec 2016 09:26:12 +0000

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Prime Working-Age Population Growing Again, Near Previous Peak

by Clker-Free-Vector-Images from Pixabay

Update: Prime Working-Age Population Growing Again, Near Previous Peak

by Bill McBride on 12/12/2016 01:39:00 PM

The prime working age population peaked in 2007, and bottomed at the end of 2012. As of November 2016, there are still fewer people in the 25 to 54 age group than in 2007.
However the prime working age (25 to 54) will probably hit a new peak in December!An update: in 2014, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the “20 to 24” Age Group, Decline in the Labor Force Participation Rate: Mostly Demographics and Long Term Trends, and The Future’s so Bright …

I pointed out that “even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon.”

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the “baby boomer” generation, the movement of younger cohorts into the prime working age is another key story. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through November 2016.

Prime Working Age PopulatonClick on graph for larger image.

There was a huge surge in the prime working age population in the ’70s, ’80s and ’90s.

The prime working age labor force grew even quicker than the population in the ’70s and ’80s due to the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the ’80s!

So when we compare economic growth to the ’70s, ’80, or 90’s we have to remember this difference in demographics (the ’60s saw solid economic growth as near-prime age groups increased sharply).

See: Demographics and GDP: 2% is the new 4%

The good news is the prime working age group has started to grow again, and is now growing at 0.5% per year – and this should boost economic activity.  And it appears the prime working age group will exceed the previous peak later this year.

Note: If we expand the prime working age to 25 to 64, the story is a little different.  The 55 to 64 age group is still expanding, but that will change in a few years – and that will slow growth in the 25 to 64 total age group.

Demographics are now improving in the U.S., and this is a reason for optimism.

Read more at http://www.calculatedriskblog.com/2016/12/update-prime-working-age-population.html#ETbA8pK73QB6huG8.99

by Bill McBride on 12/12/2016 01:39:00 PM
Published at Mon, 12 Dec 2016 18:39:00 +0000

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Energy shares lift Dow, S&P; techs drag Nasdaq

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Energy shares lift Dow, S&P; techs drag Nasdaq

The S&P 500 and Nasdaq Composite fell on Monday after six sessions of gains, weighed by tech sector stocks, while a rally in energy shares petered out as crude oil gains withered to less than 2 percent from nearly 6 percent earlier.

The Dow Jones industrial average .DJI rose 38.11 points, or 0.19 percent, to 19,794.96, the S&P 500 .SPX lost 2.62 points, or 0.12 percent, to 2,256.91 and the Nasdaq Composite .IXIC dropped 31.96 points, or 0.59 percent, to 5,412.54.

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski)

Published at Mon, 12 Dec 2016 16:25:35 +0000

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The Week Ahead: December 12-16, 2016

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The Week Ahead: December 12-16, 2016

By Aaron Hankin | Updated December 10, 2016 — 5:17 PM EST

U.S. equities continued their record run last week as the Dow Jones Industrial Average soared above 19,700 as investors eyed the 20,000 level. Major U.S. indices rose 2 percent last week as optimism around fiscal stimulus remains. Elsewhere, the European Central Bank (ECB) extended its bond buying program to the end of 2017 but reduced its pace to €60 billion a month. This saw the EUR tumble below 1.06 against the U.S. dollar and short term yields in Europe fall – the German two-year Bund fell to minus 0.7 percent after the meeting.

Central bank meetings

The week ahead is all about the Federal Reserve meeting on Wednesday. The CME FedWatch tool has interest rate markets pricing in a 97.2 percent chance of the fed funds target rate band increasing to 0.5 to 0.75 percent. If the Fed does raise interest rates, it will be the first time in 12 months and only the second since 2006. With a hike all but priced in, investors will be looking at the Fed’s forward guidance, and with uncertainty around the election, the European banking concerns and record stock market prices the risk for markets is tilted to the downside.

The Bank of England meets on Thursday where it is expected rates will remain unchanged. Policymakers at the Bank of England have a conundrum on their hands as growth continues to hold up after the Brexit vote but the fall in the British pound looks set to create a sharp rise in prices that will drag down consumer spending in 2017. Prior to the meeting, retail sales figures for November are released. (See also: UK Faces Slower Growth, More Debt in 2017)

Economic data

While the Fed meeting will highlight the week ahead, there are a number of key economic data releases in the U.S. On Wednesday the PPI report and retail sales figures for November are released. Retail sales are expected to continue their uptrend with analysts expecting a rise of 0.5 percent month-on-month. On Thursday the inflation report is expected to show a modest uptick to 1.7 percent year-on-year, heading towards to 2 percent target the Federal Reserve has, and on Friday housing starts and building permits are reported. (See also: Housing Affordability Is Slipping in 20 Markets)

My Trading Journal: 30 Day Trading Journal

Published at Sat, 10 Dec 2016 22:17:00 +0000

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Schedule for Week of Dec 11, 2016

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Schedule for Week of Dec 11, 2016

by Bill McBride on 12/10/2016 08:09:00 AM

The key economic reports this week are October Retail Sales, Housing Starts, and the Consumer Price Index (CPI).
For manufacturing, October industrial production, and the November New York, and Philly Fed manufacturing surveys, will be released this week.

The FOMC meets on Tuesday and Wednesday, and the FOMC is expected to raise rates at this meeting.

—– Monday, Dec 12th —–

No economic releases are scheduled.

—– Tuesday, Dec 13th—–

6:00 AM ET: NFIB Small Business Optimism Index for November.

—– Wednesday, Dec 14th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
 

Retail Sales

8:30 AM ET: Retail sales for November will be released.  The consensus is for 0.4% increase in retail sales in November.

This graph shows retail sales since 1992 through October 2016.

8:30 AM: The Producer Price Index for November from the BLS. The consensus is for a 0..2% increase in prices, and a 0.2% increase in core PPI.
 

Industrial Production

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for November.

This graph shows industrial production since 1967.

The consensus is for a 0.2% decrease in Industrial Production, and for Capacity Utilization to decrease to 75.0%.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for October.  The consensus is for no change in inventories.

2:00 PM: FOMC Meeting Announcement. The FOMC is expected to increase the Fed Funds rate 25 bps at this meeting.

2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants’ projections of the appropriate target federal funds rate along with the quarterly economic projections.

2:30 PM: Fed Chair Janet Yellen holds a press briefing following the FOMC announcement.

—– Thursday, Dec 15th —–

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 255 thousand initial claims, down from 258 thousand the previous week.

8:30 AM: The Consumer Price Index for November from the BLS. The consensus is for 0.2% increase in CPI, and a 0.2% increase in core CPI.

8:30 AM ET: The New York Fed Empire State manufacturing survey for December. The consensus is for a reading of 3.0, up from 1.5.

8:30 AM: the Philly Fed manufacturing survey for December. The consensus is for a reading of 10.0, up from 7.6.

10:00 AM: The December NAHB homebuilder survey. The consensus is for a reading of  63, unchanged from 63 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

—– Friday, Dec 16th —–
 

Total Housing Starts and Single Family Housing Starts

8:30 AM: Housing Starts for November.

Total housing starts increased to 1.323 million (SAAR) in October. Single family starts increased to 869 thousand SAAR in October.

The consensus is for 1.230 million, down from the October rate.

10:00 AM: Regional and State Employment and Unemployment (Monthly) for November 2016

Read more at http://www.calculatedriskblog.com/2016/12/schedule-for-week-of-dec-11-2016.html#Skk33PoEudk6xIKu.99

by Bill McBride on 12/10/2016 08:09:00 AM

My Trading Journal: 30 Day Trading Journal

Published at Sat, 10 Dec 2016 13:09:00 +0000

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