Not so fast

"The two month average of 298,500 homes sold was the lowest two-month level ever recorded. Sales of new homes are at 47-year lows, down 80% from the number being sold in 2004, and a wave of foreclosed homes will be hitting the market over coming months, giving new home sales even more competition. Foreclosures on mortgages backed by Fannie Mae and Freddie Mac increased 21% in June from May."

via Forbes

"The recession and shifting demographics will swell the ranks of people who will rent, not buy, housing over the next five years."

via Barron's

P.S. How about the swelling ranks of those who cannot afford renting, not to mention buying?

Resilient smokes

An update on Tobacco sales:

"Some of the world's largest tobacco companies showed this week that even in a sluggish global economy they have the power to raise prices in most countries and beat earnings expectations."

"The tobacco companies' figures helped mitigate concerns that a large increase in the U.S. tax on tobacco last year and high global unemployment would force a switch by consumers to lower-priced smokes."

Reuters

What's booming?

"Over the past 27 years, wholesale shipments for handguns, long guns and ammunition have increased at a combined compounded annualized growth rate (CAGR) of 5.5%. However, the CAGR has almost tripled to 15.1% during the past five years..."

via Barron's

Ok, Firearms: check. As we established in a recent post, Alcohol is doing well, too. What's left? I will do some research on Tobacco sales tomorrow. Forget Bloomberg and WSJ, dear reader. Will the Bureau of Alcohol, Tobacco, Firearms and Explosives become the investment insight resource of the year?

Caveat emptor

A very brief case against Treasuries:

"... while government bonds are generally seen as defensive, the sub-3% yields they pay right now aren't much compensation for the risk of dollar depreciation, future U.S. interest hikes, or inflation over the net 10-years."

… and stocks:

"We also believe that this market will not bottom out until it reaches 10 times or lower the smoothed earnings. Although this may sound implausible, we note that the S&P 500 sold at a P/E of 10 or under smoothed earnings in 17 of the past 60 years."

via Business Insider

A friendly reminder

WSJ reports that "small investors flee stocks... moving the money to bonds, certificates of deposit and bond-like annuities."

The subject at hand is the perceived safety of those assets. A skeptical investor would have a couple of questions to ask here. How much are they paying for the "safety"? And, what kind of "safety" are they getting for their money?

Given the popularity of the "safe" assets, the prices are high and the yields are nil. Bonds, CDs and annuities are in fashion, even if the soon to be retirees' actual investment horizon extends beyond 5-10 years? Zero-yielding and exposed to the Fed's persistent desire to reflate? Granted, it might not work after all and we may have a prolonged Japanese-style deflation. But it is hard to imagine that the Fed will not try. Besides, and I have no opinion on the future of the asset classes mentioned above, one should ask whether the past performance of Treasuries and the like is a good guarantee of future results. Sounds like buying high and doing it collectively.

When they panic, a contrarian in me wakes up. Let them rush to the exits, and I will stand at the gates ready. Take my "safe" CDs and give me your "unsafe" equities. I will buy all I can, at a right price.

Sounds about right?

“Deflation is just a natural reaction to rampant debt-induced growth over the past 30 years. Forcing price to remain high by pumping money into the system will only delay the inevitable. There is no deflation cuz [sic] price is just beginning to go back to what it should have been. You shouldn’t have made as much you did back in 06, your house shouldn’t have been worth as much as the price when you bought it and everything around you should have been worth less, far less had the economy not been artificially propped by up the government during successive administrations starting with Reagan…”

An anonymous comment on WSJ

Unappealing Asymmetry

"Current yields on government bonds in most advanced economist are at very low levels. Under only one condition – that the world follows Japan’s experience of prolonged deflation – do they offer any chance of a reasonable return. But this is not the only possible future. For other outcomes, long-dated government bonds offer a limited upside with a potentially uncapped downside. As investors, such asymmetric pay-off profiles don’t appeal to us."

Edward Chancellor

On gold and sugar

“Gold has been extremely strong of late, but I’m not rushing out to buy gold. I don’t like to buy things that have been going straight up.”

“Not many things are 75 percent cheaper that 36 years ago, but that’s true of sugar... Agriculture commodities are desperately cheap compared to 20, 30, 40 years ago.”

Jim Rogers via Bloomberg

Headline impact

"We are hearing consistent laments (aka, whining) from hedge managers of all types that fundamentals matter little as markets are now trading almost completely on the basis of headline news. Correlations across markets remain very high."

via Greycourt

What's booming?

No, the US employment is certainly not booming yet. But that's hardly news. However, there are pockets of optimism in the market. What's in vogue?

"Scotch prices continued to rise during the recession, and the Scotch Whisky Association reported record export figures amid booming demand from emerging markets. Diageo itself recently opened a new £100 million distillery, the first new one built in Scotland in 30 years."

WSJ