Wednesday, July 21, 2021

Morning Note: Builders Playing It Safe -- And -- "Resilience Lies in Expanding Our Awareness"

In yesterday's morning note I pointed to consumer sentiment around the present home buying impulse (non-existent) as an explanation for June's disappointing building permits number. In their evening note yesterday Bespoke Investment Group had the following take:

"The last few months have led us to believe that single family home builders are effectively going on strike; labor shortages and massive material cost increases have made ramping up supply a difficult and risky bet, and the industry appears to believe that current rabid demand for homes will not last. 
As a result, instead of expanding production, builders are actually reducing the pipeline of homes to focus on their existing builds, leading to fewer permits and starts.
In effect, builders are not acting competitively, and instead of expanding production are opting to not take the risk, withholding supply from the market as they sort through their backlog of existing work and production delays."

I.e., in Bespoke's view, builders -- paying attention to the pricing distortions created by (in our view) way over-stimulating by the Fed and the politician -- are being prudent right here. Investors should do the same!  

Beyond, or along with, U.S. housing, things (activity and inflation) are booming!

South Korea just reported a 33% increase in exports for the first 3 weeks of July, after a 29.5% increase in June. While PPI (producer price index) is up 6.4%. Taiwan's exports were up 31.1% in June. Japan's rose by a whopping 49% (imports up 32.7%). Germany's PPI is running hot as well, up 8.5% over last year, and, more tellingly, up 1.3% over last month.

Asian equities turned in a mixed performance overnight, with 8 of the 16 markets we track closing lower.

Europe's in rally mode this morning, with every bourse we follow in the green as I type.

US stocks are catching a bid as well (although tech, not so much): Dow up 265 points (0.77%), SP500 up 0.55%, SP500 Equal Weight up 01.05%, Nasdaq 100 up 0.02%, Nasdaq Comp up 0.17%, Russell 2000 up 1.39%.

The VIX (SP500 implied volatility) is down 5.78%. VXN (Nasdaq 100 i.v.) is down 1.80%.

Oil futures are up 2.81%, gold's down 0.55%, silver's up 0.48%, copper futures are up 0.15% and the ag complex is up 0.73%.

The 10-year treasury is down (yield up) and the dollar is down 0.03%.

Led by MP (rare earth miner), ALB (lithium miner), oil services stocks, metals miners and bank stocks -- but dragged by healthcare stocks, base metals futures, gold, gold miners and Indian equities -- our core portfolio is up 0.62% to start the day.

Here's from an inspiring and timely essay (I highly recommend giving it a read) written by none other than our own CEO, Catherine Fitzgerald:

"Fine-tuning our understanding of the metrics that define the differences between failure, survival, and flourishing in business speaks directly to those same measures in our society.
If we recognize the opportunities before us to evaluate our circumstances and consciously make choices with intention, I believe we will make progress.
The solution to our resilience both personally and professionally lies in expanding our awareness and the depth of our knowledgebase. Beginning with an authentic desire to understand, not only the numbers or financial outcomes in business but also to understand the dynamics of the interpersonal relationships within our workplaces."

Have a great day!

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