Browsing Posts published in November, 2011

November has come to a close, so it’s time to make changes based on the signals from my modified Ivy Portfolio.  The signals automatically update, so if you’re reading this post long after I wrote it, chances are the signals look much different from what they are now.

Planned Transactions on December 1

For the end of November, here is a summary of what the signals are saying:

Buy – AGG, IPE

Sell – JNK, SPY, VXF, EFA, EEM, VNQ, DBC

Only JNK and DBC have flipped sides from the end of last month.  All other positions remain the same.  Therefore, tomorrow morning (Dec 1) I will change the JNK and DBC positions to short at 9:35am ET (5 minutes after markets open).  I believe there will also be dividends from the AGG, IPE and JNK funds deposited into cash.

Performance for November

From the close of Oct 31 thru Nov 30, the Easynomics Portfolio gained 0.98% versus a loss of 0.51% for the S&P 500 index.  That’s a net gain of 1.49% for the portfolio, leaving the cumulative result still trailing the S&P 500 by 2.80% (or $2,517).

 

Disclaimer: All of the information provided at Easynomics is for informational and educational purposes only and should not be construed as financial, legal, or any other kind of advice.

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I love indexes!  If you haven’t figured that already, I don’t know what to tell you …

Easynomics Temporary Staffing Index (ETSI)

Don’t say the name of this index too loudly anywhere unless you want to hear “bless you” afterward.

Why did I create this index?

The labor market (jobs) is generally a lagging indicator.  That is, long after the economy gets better or worse, you see the same thing happen to the labor market.  But there are some specific areas of the labor market that are closer to being a leading indicator than others.  One of those is the temporary staffing (temp jobs) portion.  Generally speaking, before a company decides to hire full-time workers, it first tries to add temporary workers, in case the extra work doesn’t stick around.  It’s much easier to hire and let go of temporary workers.  Therefore, the ups and downs of the temporary workers can be a guide to what may happen to the overall jobs market.

What makes up the index?

There are two components, which I list below.  I average the value of an index that is based on each one.  Each item below is indexed to the level in June 2006, which means that the value for each is set at 100 at the beginning of June 2006:

  1. American Staffing Association Index (Source: American Staffing Association) - This weekly index is based on a survey of companies that are in the business of getting temporary jobs for people who are interested.  The index is great because it comes out very close to real-time.  The only problem is that it’s not seasonally adjusted.  If you look at a graph of the index for the past several years, there is a clear pattern throughout the year.  Therefore, I have decided to do a very basic seasonal adjustment so that we can really see whether the index is up or down versus the previous week/month/year.  Lastly, in order to make it roughly equivalent to the monthly nature of the other component listed below, I decided to use a 4-week moving average, specifically the last 4-week moving average of each month.
  2. TEMPHELPS – Temporary Help Services (Source: Federal Reserve Bank of St. Louis and Bureau of Labor Statistics) - When the BLS releases its Employment Situation on a monthly basis, the portion of it dedicated to temporary workers can provide us the same kind of information as the ASA index above.  It is already seasonally adjusted.

How is the index calculated? continue reading…

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For a “Quick ‘n Easy” read, just review the labeled white boxes, then skip to my “Easy Take” summary at the end.  You can review any charts/graphs afterward.  I want to make sure no one is intimidated by the length of my posts, even though I’m trying to making them easy …

I’m continuing with a feature called “Easy Pod” – a collection of indicators that help portray the current status of something.  In this post, that something is housing and real estate. Let’s first review a few key concepts that are important to know about housing and real estate: (you can skip to below the first horizontal line if you’ve read this Easy Pod in the past)

  • There are two basic kinds of real estate, residential and non-residential.  Residential refers to places where people live.  Non-residential includes things like businesses, office buildings or warehouses.
  • For residential real estate (this is what we’ll refer to as “housing”) there are new homes and existing homes.  The difference should be fairly obvious.  New homes are looking for their first owner, while existing homes already have an owner.
  • “Inventory” is how many of something you have available to sell.  When we talk about the current inventory of new homes, we are talking about how many new homes are available to be sold.  When inventory is high, that makes it more likely that prices will be lower.  Remember, it’s the “supply and demand” basics here.  If you have too much of something, people will pay less for it.  The way we try to measure inventory in housing is by comparing how many unsold homes there are versus how fast homes are selling.  That’s why you’ll see things like “8 months inventory.”  It means that, at the current rate of home sales, it would take 8 months to get rid of the extra inventory.
  • Sales levels and prices are definitely related to one another.  If you see home sales slowing down, it means that homes are not in as much demand, so chances are good that prices will go down.  You have to look at the combination of housing prices, sales and inventory to get a good feel for what’s going on.

There are a number of indicators that describe what’s going on in housing and real estate, and there are even some people who combine these indicators into one number (an index) to give a summary.  In this “Easy Pod” I will show you indicators and indices that I like to follow.  Check back regularly for updates.

Special note:  You’ll notice a bunch of my charts shown below come from Calculated Risk.  This is a must-see for information on the economy.  I visit this site multiple times every day.  Bill McBride does a fantastic job of analyzing the most important economic data and events, putting them in context.


Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating
New Home Sales Negative
Housing Starts Negative
NMHC Quarterly Survey of Apartment Market Conditions Neutral
NAHB Housing Market Index (HMI) Negative
Easynomics Real Estate Price Stability Index Negative




Indicator: New Home Sales   |   NEGATIVE
Easy Intro: None yet   |   Link to SourceClick here   |   Latest Date This Info Represents: October 2011

Quick ‘n Easy

Every new home that is built and sold adds to the Gross Domestic Product (GDP), helping our economy grow.  Unfortunately, in October 2011, new homes were selling at an extremely low rate.  Fortunately, not too many new homes are being built so that the ones in inventory (still on the market) can get cleared out at a normal pace.

Courtesy: CalculatedRiskBlog.com

Easy Description: Statistics that tell us how many new single-family homes (basically a building for one family, not apartments or condos) were sold.  It also tells us about the selling price of those homes and the unsold inventory of new homes (waiting to be sold).

Latest Reading: If sales in October 2011 were to continue at that rate for a whole year, there would be 307,000 new homes sold.  This “annualized” rate is 1.3 percent lower than last month’s rate, and it is 8.9 percent above the rate from the same month last year.  The median sales price (half of homes sold for less than this amount, the other half sold for more) was $212,300.  That is 4.0 percent higher than the median price one year ago.  There are 162,000 new homes still for sale (inventory), so at the current pace it would take about 6.3 months to sell the remainder.

Also, take a look at my Easy Trends analysis of New Homes Months of Supply thru October 2011 to see where the trends are headed.

Implications: The pace of new home sales has largely been moving sideways for over a year.  The “6.3 months of inventory” part is key to understanding that home builders have done a pretty good job of adjusting to market conditions.  Because so few homes are being sold, they have been dropping the number of homes they build way down, which means that supply is decreasing and price isn’t decreasing as much.  (Quick refresher on “supply and demand” – when something has a bigger supply  than there is a demand for it, sellers are forced to lower the price so that buyers will have a greater willingness to buy it.)  We are at incredibly low levels of new home construction, which is why that 6.3 months figure is very close to historical averages.  Before the housing boom, the typical months of inventory level was around 6 months.

So, what happens if new homes start selling again?  Builders will start making more homes, which will push up supply just enough to keep up with the new demand so that prices don’t move too much in one direction or the other.  The kind of massive price increases we saw in the housing boom were unsustainable, just as massive price decreases from this point would have to be temporary, too.  Market forces will always push things toward a “healthy” equilibrium.

But regardless of the fact that the inventory number is looking pretty decent, these number of sales (307,000 annualized rate) are just awful.  And when fewer homes are being sold, that’s less economic growth.  The sale of a new home is just like the sale of a car, television or clothes – someone made something and sold it, which adds to the GDP.  What we’d like to see from here is a continued increase in new home sales numbers while keeping that months of inventory right around the 6 month mark.  That would mean the housing market is on its way to greater positive contributions to the GDP report without having any false imbalances in the system.

Easynomics Rating Methodology: The long term average is about 672,000 new homes sold per year.  I’d like to see numbers that are within 15 percent of that average.  Therefore, I will give this indicator a rating based on the average of the last three months: Above 772,000 is “positive”; below 571,000 is “negative”; anything between is “neutral.”

continue reading…

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For a “Quick ‘n Easy” read, just review the labeled white boxes, then skip to my “Easy Take” summary at the end.  You can review any charts/graphs afterward.  I want to make sure no one is intimidated by the length of my posts, even though I’m trying to making them easy …

This is a dashboard of economic indicators that I most regularly follow.  For each, I will try to give you a brief description, the latest reading and what I understand to be its implications.  For simplicity, I will assign each a rating of positive, neutral or negative.  For each indicator, I will denote in its section how I decide which rating to give it.

  • Positive – indicative of a healthy, growing economy.
  • Neutral – indicative of a slow or no growth economy but not a contracting (recession) economy.
  • Negative – indicative of a shrinking economy or recession.

 


Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating
USA Today / IHS Global Insight Economic Outlook Index Neutral
Bloomberg Financial Conditions Index Negative
Daily Consumer Leading Indicators Negative
ADS Business Conditions Index Neutral
Employment Trends Index Neutral
Citigroup Economic Surprise Index Positive
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Negative




Indicator: USA Today / IHS Global Insight Economic Outlook Index   |   NEUTRAL
Easy Intro: Click here   |   Link to SourceClick here   |   Latest Date This Info Represents: October 2011

Quick ‘n Easy

A combination of indicators that predict the growth rate of the economy for the next several months suggests that the U.S. economy will grow at a very slow pace through March 2012.  But at least it’s slow growth instead of a shrinkage.

Source: USAToday.com

Easy Description: Forecast of the 6-month annualized Real GDP growth rate for the next several months.  Based on an index of 11 leading indicators, each of which generally predicts future changes in economic growth.

Latest Reading: Forecast for November is 1.8%, and each month’s forecast is slightly lower from there, eventually reaching a paltry March 2012 forecast of 1.1%

Implications: These numbers continue to convey the risks ahead – growth should be very slow, and that means a recession is much more of a possibility, especially if there is a shock to the financial system (like a disorderly default on loan obligations for European governments.)  These growth rates will almost certainly result in an increase in unemployment rates.  Also, some of this forecast depends upon interest rate spreads (the difference in interest rates on short-term bonds versus long-term bonds, for example).  Those kinds of spreads have been artificially affected by the Federal Reserve’s interventions that are intended to keep interest rates low.  Their usefulness as tools for forecasting economic growth are lower as a result.  What I’m saying is that this forecast may be slightly too optimistic – it shouldn’t surprise anyone if we end up in a recession six months from now, despite what this forecast says.

Easynomics Rating Methodology: For this index, if the average growth rate of the forecast months is 3 percent or higher, I will rate that “positive” – between 0 and 3 percent is “neutral” – below zero will be “negative.” continue reading…

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I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

New Homes Inventory Months of Supply

Quick ‘n Easy

When there are too many new homes still left unsold (inventory) on the market, it usually means that prices will be dropping because supply is greater than demand.  A good way of measuring the inventory is to calculate how long it would take that inventory to sell at the current pace of sales.  The normal level for this is around 6 months.  For October 2011, the number came in at 6.3 months.  This would suggest that new home prices are still likely to decrease but only barely.

When there are too many new homes still left unsold (inventory) on the market, it usually means that prices will be dropping because supply is greater than demand.  The opposite is true if there is very low inventory.  A good way of measuring whether current levels are too high or too low is to calculate how long it would take the current inventory to sell at the current annual pace of sales.  For example, if there are 150,000 unsold new homes with the most recent report saying the annual pace of sales was 225,000, here’s what the calculation would look like:

Example:
225,000 new homes sold per year
divide by 12 to get 18,750 new homes sold per month
150,000 unsold homes divided by 18,750 sold per month = 8 months supply

 Here’s a graph of the New Homes Inventory Months of Supply from Calculated Risk:

Courtesy: CalculatedRiskBlog.com

Trends and Projections

Below, I will discuss whether the indicator is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released. continue reading…

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Modified Ivy Portfolio Simulation

It was a stellar week for the simulated portfolio.  The Easynomics portfolio is now leading the S&P 500 index by 7.28% versus last week’s lead of 1.01%.  That’s a positive difference of 6.27% in just one week.  You can read all the latest details in the link.

Easynomics Stock Market Forecast (Experimental)

As for the Stock Market Forecast, the projected close for Fri Nov 25 was not even close.  The model is taking a long time to say anything with conviction, as there is simply not enough data yet.  Once I feel it has enough data, I will remove the “experimental” tag.  This time it overestimated the S&P closing price by just over a whopping eleven percent!

Here’s how the forecast performed last week: continue reading…

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