ETF Portfolio Updates: Bonds & Utilities Continue to Perform
By: Christopher Mistal
August 23, 2016
Earlier today, the U.S. Census Bureau released figures for sales of new single-family houses in July 2016. The headline figure was staggering at a seasonally adjusted annual rate of 654,000. This was a jump of 31.3% compared to July 2015 and 12.4% above June’s revised number of 582,000. These are not hard numbers, rather they are estimates based upon surveys. These eye-popping numbers should not be taken as cold hard fact and are likely to be revised (many times over). Nonetheless, they are positive for homebuilders and for U.S. economic growth at least in the short-term. Another possible explanation for the surge could be the constant teasing by the Fed to raise rates. Perhaps some buyers finally jumped off the fence in July out of fear of higher mortgage rates later on.
In addition to new home sales, we also track three other pieces of housing data: existing home sales, housing starts and the NAHB HMI. Since 2011 all four data sets have been steadily on the rise with some usual volatility. Existing home sales were least impacted when the housing bubble burst in 2006 and are the strongest, essentially at the same level they were back in 2001/2002.
New home sales and housing starts suffered overwhelming declines between late 2005 and their respective lows in 2011 and 2009. Both have staged solid recoveries, but remain below their averages going back to 1985 (dashed lines in charts below). The sharp rise in property taxes in many areas of the U.S. and the disadvantage new homes have (often assessed much higher than an equal, but older property) combined with demographic shifts suggest single-family home sales and construction could remain below their long-term average for much longer and possibly even indefinitely. 
Lastly, the NAHB Housing Market Index (HMI) tends to be a good leading indicator for overall housing market health. HMI has frequently risen and fallen in advance of weakness in sales and starts data. This was clearly the case back in 2005 and 2006. HMI was upped briskly higher in 2012 just as the housing market recovery really began to gain traction and accelerate. Unfortunately, HMI appears to have topped in October 2015 and has slipped in 2016 perhaps signaling the current trend in housing is on the verge of slowing or worse yet reversing.
[Housing Market Chart]
ETF Portfolio Updates
As is typically the situation in late-August, the Almanac Investor ETF Portfolio is rather slim with just 8 total positions and a defensive posture. August and September are the worst two months of the year, on average, for the market. In election years, the market has historically exhibited strength in August and has done so thus far and the market is not exactly running away either. This strength has afforded no opportunity to purchase iShares NASDAQ Biotech (IBB) or iShares DJ US Tech (IYW) yet. IBB and IYW can still be considered on dips below their respective buy limits
Market strength also resulted in the sale of ProShares UltraShort S&P 500 (SDS). The market appears to have stalled out, but continues to flirt with new all-time highs resulting in SDS being stopped out on August 5 at $16.52, for a 5% loss. SPDR Energy (XLE) was shorted on August 8 using its average price that day as it gapped through resistance. XLE was subsequently stopped out when it traded above its stop loss of $70.05 on August 18 for a 2.7% loss. U.S. dollar volatility and renewed expectations for an OPEC production cut or freeze supported crude oil and the associated stocks of companies in the energy sector.
This month’s Seasonal Sector Trades idea, SPDR Gold (GLD) was added to the portfolio using its average daily price on August 5 when it gapped below its buy limit. GLD is on Hold. GLD’s next move will likely depend on what the U.S. dollar does next and whether the stock market can regain lost momentum or not. Gold’s bullish seasonality typically lasts until late-September or early-October.
Despite the market’s resilience, defensive positions in AGG and TLT have held up. As of yesterday’s close, TLT was the best up 5.4%. AGG and  TLT are on hold. Our position in Ranger Equity Bear (HDGE) has not performed, but the position’s loss could shrink if there is a modest market pullback. Continue to Hold HDGE
[Almanac Investor ETF Portfolio – August 22, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in AGG, HDGE, SDS and TLT.