Market Monitor: Barry James

NBR: 8/31
Guest: Barry James
Topic: Market Monitor

Market This Week
It was a good week for stock investors. The S&P 500 gained nearly 0.9% and the smaller issues of the Russell 2000 advanced 1.9%. The S&P 500 hit a new high, while at the same time, became the longest running bull market as it outpaced the run in the 1990s. The Bloomberg U.S. Dollar Index fell 1.0%, as both gold and oil prices advanced over 1%.

News Affecting the Market

Housing market is cooling off

Higher interest rates and home prices are making home buying more difficult. The Home Affordability Composite Index is the lowest in 10 years; suggesting it is more expensive to buy a home today. Even recent data is suggesting a slowdown in the market, as building permits for new homes remain weak and sales for new homes decline. With home prices outpacing wages and rates on the rise this might be a good time to limit exposure to homebuilders.

ECRI Update

The ECRI U.S. Weekly Economic Index fell to 0.0%. The index is still well above the levels seen 12 months ago, but off the highs from earlier this year. We do to see a divergence as the index trends lower and stock prices head higher. This could suggest volatility ahead for stocks; however, the good news is the growth index is not near the -5% level often associated with recessions. Still, this may suggest the upcoming quarters may not be as robust as we have experienced recently.

Bullish Sentiment
Investors remain optimistic as bullish sentiment outpaces the bears. AAII bulls remain slightly above the 5 year average coming in at 38.5, while the bearish reading is 27. We have seen the spread narrow considerably since February as excessive optimism dissipated. Until excessive optimism builds again, markets may have additional room to move higher.

Our long-term indicators are favorable and price momentum remains strong. Our intermediate indicators suggest volatility is building and could be around the corner. We continue to favor bargain stocks which enjoy strong valuations, profitability and price momentum.

Stock Picks:

GLRBX owns all three as of 8/30/18
Companies that may benefit from inflation:

Basic Materials – Louisiana-Pacific – LPX
– World’s largest producer of Oriented Strand Board (OSB) – used in construction and furniture as a lower cost alternative to pure wood and plywood
– Housing inventory low and prices are rising – demand for OSB should rise
– Innovative company – may find other uses for OSB or other products in furniture, etc…

Basic Materials – STLD – Steel Dynamics
– Imported steel and aluminum tariffs of 25% and 10% respectively should help increase sales for STLD
– Sales mostly in USA ~95%
– Shareholder yield (Dividends + Buybacks) of almost 4%

Precious Metals – IAU/GLD
o US deficits running 4-5% could double in next recession
o Worldwide QE is still being practiced
o EM currencies
o No operating and financial leverage which is typical with gold stocks
o Both can be held in IRA’s

I do not own any

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