Yesterday’s market reversal was carrying the same cautious tone into today’s early session, but we did see some investor interest following the release of recent Federal Reserve minutes, which hinted at the possibility of further monetary easing. This certainly helps fuel a resurgence in the price of gold and other commodities. The net result is likely more continued bad news for savers who are not putting money to work.
Earnings results did push the averages, with results from Dell (DELL), Analog Devices (ADI), and Eaton Vance (EV) pushing the needle lower, while solid numbers boosted companies like William Sonoma (WSM) and American Eagle Outfitters (AEO). Aside from those story names, the selling we saw in the tape moved across various sectors. Some of the well-known names moving lower included Vornado Realty Trust (VNO), Caterpillar (CAT), and Northrop Grumman (NOC).
Government data released this past Friday showed jobless rates rose in 44 states during the month of July, as opposed to 27 states for the month of June. When I read definitive data like this, it certainly gives me pause to join the chorus of rebounding real estate sales and improving job hiring sentiment.
So why do we see so many calls for a real estate recovery that seems non-existent? Well, we all know the real estate industry has been a big source of economic spending (advertising) as well as a real battleground for political lobbyists. Just a few days ago, news the Republican Party was willing to add the mortgage interest deduction back on their platform showed just how influential builders and realtors are in getting voters aware of potential tax implications headed their way. It also shows how much weight they still pull in Washington.
Unfortunately for stock investors, Wall Street doesn’t have the same standing these days when it comes to influencing politicians to lower taxes. If either party shows an inclination to side with Wall Street, let’s say keeping capital gains rates at current levels, they could be asking for a tough campaign. Politicians tend to buckle quickly if they know their campaign stance is not of the popular vote. Of course, we all know politicians aren’t exactly honest in their campaign promises, so any proposed tax hikes or cuts could fall quickly by the wayside once the elections end.
I’m certainly no shill for Wall Street, but when you look deeper at how poorly assets have performed for many (real estate vs. stocks), stocks have at least rebounded to 4-year highs. Those who managed to avoid speculative equities and value traps, and stick to quality dividend-paying stocks, have seen tremendous portfolios gains. Outside of few elite markets, the same can not be said for real estate.
In fact, demographic trends facing the U.S. would caution against a huge snap-back in real estate values, especially with the unemployment picture we have today. We have two decades plus of growing retirees who will likely be looking to downsize from their current living situation (and they mostly should as part of an overall smart financial retirement strategy of having less fixed costs), and will be adding to the supply of homes for sale. Whether or not we have a bulging shadow inventory of bank-owned homes that many claim, the supply/demand ratio remains tilted to one of continuing supply.
Again, I am not speaking out against home ownership more than I am asking individuals to look at the facts when it comes to your investment dollars. There are solid real estate investments out there if you can locate positive cash-flow situations or have experience in the foreclosure side of renovating homes and re-selling or renting them out. But when it comes to residential real estate, there are still very few markets where price appreciation can be counted on.
Unfortunately all the media hype in the world can not willfully move the real value of what we own (homes, stocks, etc.) — not that the business media doesn’t attempt it. So you can not overlook the facts provided by influencing data points. With more and more citizens relying on government assistance and slowly dropping out of the employment picture, do you think these folks are worrying about buying homes? These people are just trying to survive from day-to-day and week-to-week. For actual real estate appreciation to take place in a majority of markets, we need a major positive trend shift in the job markets. We don’t currently see it yet and that’s the fact.
Do we think stocks are immune to danger with the points I am making above? Certainly not, but there are some industries and companies that should be able to shoulder a sustained search for an economic bottom better than others. Our job is to find those names and continue to monitor them when it comes to investors deciding where their hard-earned capital should be aimed at. This year’s Presidential election will no doubt have market-watchers (including us of course) trying to come up with all sorts of scenarios to how investors should be positioned going forward. Stay tuned as we’ll be sure to pass on our views.An Important Note Regarding the Best Dividend Stocks List
We want to make sure everyone understands that the stocks on our Best Dividend Stocks List are the names we currently like for new investor capital, regardless of what date the stock was first recommended on. If and when a stock is removed from the list, we will clearly state whether the stock should be sold (which is rare but occasionally will happen), or simply held in one’s account until we see a better entry point or catalyst.
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Thanks for reading everybody. I’ll see you tomorrow!
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