Below is a chart of San Diego City building permit from 1894 to 1989 as found in Jon Strebler’s San Diego Housing Prices, 1887-1989: The Myth of Invincibility.
Strebler was often quoted in Richard Russell’s Dow Theory Letters and was kind enough to send us a copy of his Myth of Invincibility many years back.
The 44% rally off the March low appears to be fading. If the market (S&P 500) can’t break through the 3,230 high set in June over the next few weeks, we estimate that 2,800 will be the next leg down. Fears of COVID first wave is a legitimate one and many states are easing restriction while new cases accelerate. Below are 20 companies on our watch list this week. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
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This from Richard Russell’s Dow Theory Letters dated December 19, 1979:
“Note that all the zero years have started poorly and have been in a state of collapse by their 5th month (May). The single exception since 1900 was the year 1950 (Issue 772. page 2.).”
How have the “zero years” from 1980 to 2020 done?
In the period from 1900 to 2020, that average percentage change has been -5.65%. The average percentage change from 1980 to 2020 has been +0.62%.
Not much can be gleaned from this perspective other than the zero years having below average market returns [+8.64% inflation adjusted] 77% of the time.
Posted in 1900, 2020, DJIA, Richard Russell, zero years
"The problem with such diseases as influenza and HIV is that the viruses have an uncanny ability to change their makeup. Thus, the immune system is not prepared to combat the new or mutant strain. For instance, at intervals the flu virus attacks with a virulent new strain – 1900, 1918, 1957, 1968, 1977."
Russell, Richard. Dow Theory Letters. July 20, 1994. Issue 1152. Page 5.
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Posted in COVID-19, Flu, Quote of the Day, Richard Russell
In an article titled “Retail REITs: Double-Digit Yields, Secular Shifts And Mean-Reversion” (link), it was recently proposed that:
“If you believe in a mean-reversion, REITs with sound balance sheets and strong value drivers should be considered in the portfolio.”
This quote on REITs seems accurate if you’re willing to overlook that publicly traded REITs have existed since the late 19th century. Since that time, there have been many fits and starts and resets making for a complicated outcome in the publicly trade REIT market.
In the same article, a graph was presented to demonstrate the general ebb and flow of the REIT market, or markets in general, that graph is illustrated below:
Following this graph is the mention of Macerich Co. (MAC) with the following remark:
“Let's take MAC as an example here. In my recent article "Macerich: 2 Scenarios Of Default - Positive For Value Investors", I calculated that MAC trades at a significant (at least 75%) discount to its NAV. It is hard to believe that such a discount will exist forever.”
The reality of this specific example [MAC], on a total return basis (adjusted for dividends and splits) is far from the ascending average with a range in price from undervalued to overvalued extremes.
Below is the history of Macerich (MAC) from 1994 to the present:
Macerich Co. (MAC) could be exceptionally undervalued and likely to survive the current market malaise. However, on an adjusted basis, MAC has recently been where is has been in 2008, 1999, and 1995.
So while the prospects are bright for Macerich Co., if we excluded the complicated history of publicly traded REITs and that on an adjusted basis MAC does not have an ascending average over time, there is a limit to what an investor should be willing to accept in exchange for the hard earned capital.
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New one family homes sold for the month of May 2020 was reported today and it looks like the low has been reached. The year-over-year perspective belies the image conveyed in the absolute change which is far from the 2005 peak.
Absolute Change
There is little need to expect that the prior absolute increase needs to be achieved (1,389 on July 2005). However, it is no coincidence that we see some kind of reaction within a long-term rising trend at a similar level during the 1990 to 2005 increase. The two prior reactions broke the rising trend into three separate periods as noted by Edson Gould’s Three Steps Rule:
Three steps up in an advancing market and three steps down in a declining market usually exhaust the bullish potential accumulated at the bottoms and the bearish potential accumulated at tops- but sometimes there is a fourth step (Edson Gould Reports. Edson Gould’s 1975 Forecast. November, 1974. page 8. ).
When we speak of the “long-term” rising trend, we’re referencing our December 9, 2010 article titled “Real Estate: The Verdict Is In” and the subsequent updates since 2010 which is primarily based on the work of Roy Wenzlick.
Year over Year Change
The year-over-year (YoY) change shows that a reversal of the trend within a NBER recession has typically meant a reaction to a 27%-30% change at some point down the road. We’re currently at 12.66% in the YoY change in New One Family Homes Sold so there should be some room to the upside before the current recession ends and the next recession begins.
As always, prepare for the worst as the current pandemic will not start the second wave until after the one year anniversary of the first wave.
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Posted in Edson Gould, real estate, three step rule, Wenzlick
Below is the annual silver/Dow Jones Industrial Average ratio from 1900 to 2020.
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Posted in Silver Dow Ratio
Below is the year-to-date (YTD) performance of various major indexes and from December 31, 2019 to June 19, 2020.
The following is the breakdown of the Dogs of the Dow (found here) in week 25, compared to other fundamental ratios. Continue reading
We executed the following transaction(s): Continue reading
Prior Year Watch List Review (June 14, 2019)
The best performing strategy from last year was high P/B which fell 7% for the year. This was driven by a gain of 12.3% for Kellogg (K) and 11.5% gain for W.W. Grainger (GWW). However, that gain was offset by a loss of -46% from Nordstrom (JWN). Chasing high yield companies was detrimental with Alliance Resource Partners (ARLP), which at the time yield 12.30%, as it lost -76% in a year. Occidental Petroleum (OXY) with yield of 5.80% lost -62%.
| June 14, 2019 | ||
| Strategy | High | Low |
| Yield | -48.3% | -19.2% |
| P/E | -28.4% | -27.4% |
| Payout Ratio | -12.8% | -17.3% |
| P/B | -7.3% | -28.3% |
| Closest to Low | -10.0% | |
| S&P 500 | -5.1% | |
| Dow Jones Ind | -1.9% | |
| Top 5 companies except for Index | ||
U.S. Dividend Watch List Jun 12, 2020
This market swing from March low pushed many companies above 10% of the low and leaving us with only 5 companies on our dividend watch list despite broadening our criteria to include negative payout ratio. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
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With today’s announcement from the University of Michigan’s Consumer Sentiment Survey we have updated our June 11, 2020 posting and contrasted it with the Dow Jones Industrial Average from 2007 to 2020.
The recent reversal in the survey is reflecting what we saw in the low of the Dow Jones Industrial Average which occurred on March 23, 2020. This implies that the stock market (subject to zero revisions) leads the sentiment survey by more than 60 days. Whether this reversal is the low will be determined in due time.
Posted in Consumer Sentiment, Dow Industrials
In the period from 2013 to 2019, the Federal Reserve was actively in the process of unwinding their balance sheet with what we can only imagine was their non-core “assets.”
In the period from 2013 to 2019, counter to the claim that the Fed is THE reason the market has increased from the 2009 low, the stock market, as represented by the Dow Jones Industrial Average, increased +74.10%.
This assessment goes along with our prior work on this same topic making the point that the increase in interest rates would result in a stock market and gold price increase.
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Posted in Federal Reserve Bank, interest rates
