Economic Comments 

In May and early June we see more of the same slight improvement in the economy with confusing counter stories and limited strength in most numbers. New home starts declined 3.3% in May after a large increase last month. Home Price numbers were up 0.9% to reach a record level of 5% for the year as a seasonal adjustment. Durable goods dropped 0.5% in April, while business investment rose. Shipments of core capital goods rose 0.8% in April. The employment index for the 1st quarter was a seasonally adjusted 0.7% vs 0.5% compared to the expected 0.6%.

Jobless claims in late May were 282,000 for the week of May 17-23, which was above expectations but the last 15 reports have been below 300,000 new claims. The good news is that layoffs are at a record low! 

Russia Offers Insight

We discuss capitalism as an economic concept versus statism, Communism, socialism and central planning.  Recent examples of the perils of heavy handed government were shown in Russia. Due to all the adventuresome activity of the Russian military under Putin,  April logged a 9.8% drop in retail sales. Considering there is a natural tendency of people to buy food and goods for living, there is a built in level of buying . So a 10% drop in retail is HUGE and almost catastrophic. That is what happens when the government scares it’s people

Growth On

The US seems well positioned for growth, despite housing related and energy related sluggishness. The US and the Federal Reserve are planning to begin the process of normalizing interest rates, by raising fed funds target rates this year.  Subsequent increases are likely to be gradual and it will likely take a number of years until interest rates are back to a normal level. FED Chair Janet Yellen cited impressive moves in the labor market with growing job openings and wage increases. The first quarter had been a negative growth quarter with productivity down 1.9% due to the cold snowy winter and labor disputes at west coast ports. Most of the problems should prove to be transitory.   


Early May indicators showed commodities up 28 tally scores. This is the first positive commodity trend since last years drubbing of oil companies and prices and the last three years of difficult commodity prices. US Stocks were down 5 tally scores which is the largest drop in a year. Markets are acting sloppy as most of the first quarter gains have been given up. The bright spot still seems to be the international markets in US dollar terms. While the economies of Europe and Asia are sputtering, the economic recovery of those areas are being signaled by the market action. The equity markets usually bottom 6-12 months before the economy releases numbers showing a recovery. Economic recovery usually begins with the market action we are seeing in European stocks of developed countries and Asian Emerging markets. If this holds we could see a recovery early next year.   


Naturally the portfolios that contain components of the international shares, like our Dynamic models, of which there are three, and of course the direct International Growth Rotation Model are showing the best recovery at this point. The US equity indexes are trading between flat and up 2% on the year. Relative Strength as a selection plan continues to outperform with most portfolios trading with excess gains between 1 and 3 % above relevant benchmarks as we enter June.