Friday, July 25, 2014

Good Morning America, How are you?

Today will be a great day.  It is Friday, and I look forward to going fishing.

Small Business

As reported here, we own several small businesses.  The durable orders report suggests that durable goods orders rose more than expected.  In turn we are told this proves the economy is on a steady path of growth.

Our hardware and second hand store are the key indicators for me if we see growth.  Durable goods in second hand goods (furniture in specific) has picked up, and in turn the competition is rising.  In new goods, durable goods (machinery, large appliances and small appliances) are not selling.  In this area of business, small businesses from Colville to Deer Park to Omak to Tonaskatte are going out of business.  Even the Colville Walmart super store seems to have a pretty empty parking lot most of the time.  (I will stress seem because that is not a scientific survey - only observation of the parking lot and the lack of people in the store when I go there.) 

Basically my observation is that the area of Eastern Washington is in a retail funk.  If what we are seeing holds up for this year, there is no massive buying surge going to happen.

I wonder though, with California's water problems if the poor and middle class are not going to see substantial inflation in the price of goods they must have; food and energy.  Of course anyone who is not blind already know prices have taken off in what the economist term inelastic goods - where inelastic goods are goods the consumer must have those goods at any price.  Also the fires in Eastern Washington are in the heart of the Wenatchee and Yakima valley - prime apple, peach, and pear farm land.  Thousands of acres of orchards have been damaged (some beyond any repair).  

I have no "factual" data that would allow me to comment on gasoline prices.  Do you find it inexplicable that the USA is now producing more energy, and the consumer is paying higher prices - almost to the point of price manipulation?   

Summary: 

·         Extreme choppiness is the way I would describe the USA stock markets yesterday.  As you know, the S&P 500 maintained a very narrow trading range with low volume.   It ended the session essentially unchanged, and the Russell 2000 lost -.02%.  Why did the market go up early?  Basically Asia and Europe exhibited strong markets based on data from China and even Europe.  In addition, the USA companies reported better than expected earnings.  In the end, the markets were undecided. 

·         June new home sales were disappointing yesterday, but the retail traders may have missed the astounding downward revision of the May data.  May saw the largest ever downward revision as sales were reduced from 504K to 442K.  Why the large correction?  Something happened between the purchase contract and the actual closing.  I could not find any explanation.

·         At 5:30 AM PDT, Durable goods orders report was released.  The initial indications are that orders rose more than expected in June after a very dismal report in May.  Many analysts will report this shows that the economy is gaining significant momentum.  I'm watching the S&P 500 and NASDAQ indexes, and they did not move based on the report.

·         Overnight Amazon reported large losses.  This is all over the news from WSJ to Bloomberg to many blogs.  Retail is not looking good (as I stated for small business). 

·         Short term (less than one month), the USA stock market is overbought.  That is not something to trade on, but it is part of building a trading plan.  The equity markets (measured by the indexes) are Bullish across the board.  If you are a momentum trader, you should become very conservative if you are long.  Long term investors may be worried, but we should remember.  No one is very accurate consistently in forecasting the TOP or forecasting the BOTTOM.  This is a bull market no matter what the USA political situation.

·         I expect the market to open way down.  The market often moves up for 5 minutes or so as the DOW (which is closed) is traded down.  Then on the equity futures markets, the price moves up to look like it is closing the gap.  Overall, the market has enough financial news (Amazon, Durable goods, European issues) to keep things pretty choppy.