Fed Dominated Week
This past week was dominated by Jackson Hole, the Fed minutes, and the fact that many traders were on a beach working on their tans during this last slow period before things get in full swing after Labor Day. Missed in all of this was a week where every single econ report came in at the high end of the forecast, or outright beat expectations.
Let us review, on Monday we had the Housing Market Index where the consensus range was between 50 and 55, with the expected consensus coming at 53, and the actual number was 55, and up 2 points from the last report. The National Association of Homebuilders noted that there is a "noticeable" rise in serious buyers.
On Tuesday ICSC-Goldman Store Sales on a year over year basis were up 3.8% boosted by a robust back to school sales component. Also on Tuesday were Housing Starts where the Consensus Range was between 0.950 M to 1.025 M, with the consensus expected to be 0.963 M, and the Actual Number came in at a robust 1.093 M, up 15.7% for the month of July. The single-family component was up a respectable 8.3% for the month, and is slowly starting to grind higher, which is good because that is what a healthy market looks like for the housing market, slow but steady sustainable traction.
On Thursday Jobless Claims came in at 298 K, and continue to trend lower, and at this point they basically are like the VIX at rock bottom levels, and one wonders if they can realistically get any better than this. We should see another strong Employment Report in a couple of weeks given the strength in the labor market despite all the 'propaganda' by various parties needing to promote an Agenda, and needing to downplay the dynamic gains in the labor market for 2014 to justify 'behind the curve' monetary policies!
We also had the PMI Manufacturing Index Flash which came in at 58 versus the prior reading of 56.3, which was led by the employment component, and showed strength in output and new orders with a 3-year high for export orders. The report also highlighted and increase in backlogs and delivery times which indicate stronger demand.
The Philadelphia Fed Survey came in at 28 versus the prior reading coming in at 23.9, the Consensus Range between 17.0 to 21.0, and the consensus expected to come in at 20 for this report. So general business conditions are on the uptick in this country, despite this being the summer doldrums in financial markets with low volume levels!
On Thursday we also had Existing Home Sales with the consensus being 5.00 M, the consensus range being 4.90 M to 5.15 M, and the Actual Number coming in at the top of the range 5.15 M. The single-family component was up 2.7% for 4.55 M annualized, with the median price rising 0.4 percent in July to $222,900 (This being up 4.9% from a year ago) while the average price increased 0.2% to $268,700 (This being up 3.7% from a year ago).
Note to Self: Inflation Higher than Reported Numbers
So for those who are on the fence regarding purchasing a home it seems prices are rising and will be up a substantial amount this time in 2015. Moreover, for those who believe that there isn't any significant inflation in the economy (Insert Dovish Fed Members here) both rents and housing are rising above the core inflation reading on an annual basis. It is obvious that the inflation reports need to be reworked to reflect what the mainstream level of inflation is for categories that consumers have to buy and consume as the current configuration has categories that artificially drag down the overall inflation numbers and are highly discretionary in nature, and thus have no pricing power, and aren't reflective of the actual inflation trends in the economy!
We closed out the weekly data with Leading Indicators which were up 0.9%, with the consensus being 0.6%, showing strength in manufacturing, employment, credit and the ISM`s new orders index. This really capped out an impressive week of economic data, and shows the overall economy is on the right track.
Maybe Jeffrey Gundlach ought to Cover that Housing Short?
For the Doom and Gloom crowd with an agenda like Jeffrey Gundlach it looks like the Housing market is starting to get its second wind after the inevitable pullback from the first wage of investment capital led by the likes of the Blackstone Group. I expect Housing to continue to slowly grind higher into year-end as the economy continues to gain steam, and retail investors start moving into the market with an improving job market and more confidence in their situation, especially since rents are rising to such an extent that it is actually cheaper to own homes in many of the top housing markets.
Another factor is that consumers will start realizing that cheap money is going away as interest rates go higher from here as the Fed starts raising rates. And they better stop procrastinating, and get off the fence regarding making a decision - we see this trend a lot in markets with regard to future expectations of price and interest rates motivating consumer behavior!
Moreover, I expect the Housing market to be much stronger in 2015, and probably a market leader for many of these beaten down stocks in 2015 with a better than expected Housing Market. This means there might be some underlying value in this sector relative to the broader market being that so many investors like Jeffrey Gundlach were extremely bearish on the prospects for the industry.
Economy Picking up Steam, will Inflation Spoil the Party?
All things considered the US economy is really moving up nicely from that dismal first quarter of brutal weather, and overhang of inventories from a strong closeout to 2013. Expect some robust Employment numbers, respectable GDP prints, an Improving Housing Market, and we might even get some help from Retail Sales for the second half of the year! But make no mistake; the United States has a diversified and vibrant economy and the envy of the entire world, as the recent Dollar strength indicates. The US Economy is in a bull market, now let`s hope we can keep inflation from spoiling the party!