Pacific NW Stocks - Update

Hopefully, Pacific NW stocks continue to point towards a economic recovery in the Puget Sound Area.  Most stock have done quite well since my post in October. 

 Amazon powered ahead for another 12% run.  They are apparently winning their war on retailers.  Side beneficiaries of their victory have been the package delivers, Federal Express and UPS.  Looks overbought and in need of a price correction.

 Costco hit its target of 70 (for a 10% run), and then a funny thing happened this week.. they announced better than anticipated earnings pushing the stock higher.  Costco is also overbought, taking profits is in order.

 Starbucks exceeded its target of 32 (for a 14% run) by hitting 33 this week. 

 Nordstroms hit its target of 42 (16% increase) and decided to move a little higher.  It's currently consolidating within its base.  It looks like a better option to see where it settles out rather than buying now.

 Boeing can't seem to get out of its own way.  Delay after delay on the Dreamliner is trying investors patience.  The stock got hit with multiple downgrades after the latest announcement.  The stock has moved to the bottom of its base.  New purchases should have a stop at $63 with a new target of $70.

Weyerhaeuser almost made it to its target of $19 before getting downgraded this week.  It did make it to $18, for a 16% move.

Interest Rates

Interest rates appear to finally be making the move higher, in a big way.  In defiance of the Federal Reserve, it appears the bond vigilantes are making a stand.

 The 5 year note based out at 1.0% (1% interest to lock your money up for 5 years, that had to be some sort of joke).  5 year rates look headed to 2.3%.

The 10 year rate also bottomed in October.  Next stop is 3.8%.

Major Averages

It's been a great run for the major averages as they zero in on their targets.

The Nasdaq Composite has been the strongest, but is nearing overbought.

 2700 is the 1st target.  The indicators are nearing overbought so a correction should be expected.

 The Dow Industrial has been the weakest but still has a shot at its target of 12,000.

The S&P 500 broke to a new 2 yr high this week as it zeros in on its target of 1288.

The overbought nature of the averages suggest caution in the weeks ahead.

New Apartments

Both Harbor Properties and Su Development have announced plans to build new apartments.  It's good to see Developers start to make bold moves.  According to REIS, nationwide vacancy rates are still at record highs.

In the meantime, CB Richard Ellis has seen fit to call this the top in vacancy rates.  If the top is in, then Apartment sale prices ought to be rising, which is exactly what Moody's is seeing:
"Apartment buildings have led prices higher, rising almost 16 percent in the third quarter from a year earlier, Moody’s reported. An index of retail properties fell about 12 percent in that time, while industrial buildings dropped 1.2 percent. Office property values increased 4.4 percent."
Seattle's Apartment market is doing substantially better than nationwide.  Dupre + Scott have come up with a 5.7% vacancy rate in the Seattle Market.

The amount of rent incentives appears to have peaked, and, rent decreases seem to be over.  With all this good news for the Seattle Apartment market, both Harbor and Su ought to benefit by being the first out of the ground.

Home Prices

It appears the Winter blues are setting in on home prices.

 Case Shiller and Corelogic indices track fairly close together with both attempting to measure repeat sales.  Both report a 3 month moving average.  The above prices are for the 3 month period ending in August.  The tepid nature of the home price recovery is pretty evident.  With the expiration of the Gov't price support stimulus, prices look heavy heading into Winter.

 The Rate of Change is dropping.  I imagine the ROC is being supported by strong pricing in June, which will drop off the average next month.  As the slower Winter months work their way into the averages in the months ahead, the ROC will be negative.

 Taking a closer look at Seattle's Case Schiller index shows 2010's pricing top in May, as the stimulus was leaking out of prices.  Low Tier homes are dropping the fastest.

More recently, Zillow released their September report.  It claims Seattle home prices dropped another 1.5% during September.  In addition, upstart Clear Capital, which claims to have the most timely price information, reports that Seattle prices have breached new lows in October.  Anecdotal information supports the idea that Sales have dried up, leaving prices no where to go but down.  Prices should bottom in Feb and March of next year, just like they did last year.  Inventory levels and foreclosure activity ought to be the main determinants on where prices settle.

Real Estate Stocks

The Homebuilders sprang to life last week after wallowing most of the Summer.  Perhaps the market is anticipating a somewhat stronger Spring season than previously thought.

 The Homebulder ETF had a nice 10% run last week.  $16 is now strong support.  $18 is a good target.

The REITs continue their torrid year, breaking out to new 52 week highs.  Having direct access to the capital markets have positioned the REITs to take advantage of bargain basement prices.

 VNQ has no overhead resistance so the low $60s should be achievable.  Strong support is at $53.5.

Home Improvement stocks look poised for a breakout.  The giant, Home Depot, has enjoyed an 18% run since Sept. 

 Should HD break its downtrend line it should challenge its April high of $36.

Ten Year treasury rates have plummeted 37% since May.  I suppose the only certainty is that they can't go below 0%.

 It's hard to imagine a similar plunge going forward, but the Fed seems hellbent on trying. 

Local surviving Banks are starting to mend.  Banner Bank hit rock bottom last week after the "lock up" period expired, subsequent to their massive secondary offering in June.

There is still a ton of supply at $2 which will impede upside progress, but the bottom is in.

There is plenty of work still to be done in the Real Estate arena, but the signs of improvement abound. 

Pacific NW Stocks

Hopefully recent stock price action for NW companies are pointing towards better times ahead.

It looks like frugality is the "new normal" and a couple of NW are taking advantage of it.

 Amazon declared war this week suggesting it will be the low price leader this holiday season.  The stock is up nearly 40% since September to a new 52 week high.

Costco has been another favorite of the "new normal".  After a 20% run in September the stock has reset and looks ready for a run to 70.  My stop is at 62.95.  It will be interesting to see if Initiatives 1100 & 1105 have any effect on the price.

Not to be left out, local "luxury" retailers have been making the move also.

 Starbucks has made the move to a new 52 week high on big volume.  I can attest to the popularity of the new frappucino.  My wife is a huge fan of the Caramel.  The stock is currently extending but should be able to hit 32.

After a 35+% move in September, Nordstrom has pulled back to the 50 day ema.  It's a buy in the low 36's.  Stop is at 34.85.  The target is 42.

Some of the older Puget Sound names are also showing signs of life.

Boeing is bumping up against resistance after a 20% run since September.  I'd like to get back in at 69 with a protective stop at 66.85.  A break above 72 should lead to a new 52 week high in the upper 70s.

Even venerable Weyerhaeuser looks poised to make a move even though it missed out on September's rally.  A breakout above 16 targets 19.  If it makes the "up and out" move above 16, stops at 15.5 keep it conservative.

Hopefully, the stock market is performing its job as a forward looking indicator of future economic activity.  If so, things ought to be looking up for The Puget Sound area in the Spring.

New Home Stats

Statistics for August were released this week and the results were generally weak.

Monthly new home sales for August came in at 25,000.

That was a new record low number of sales for the month of August.  With the peak selling months behind us, monthly new home sales will drop below 20,000, if only due to seasonality.

On an annual basis, new home sales are poised for the worst year ever.

New home starts are creeping along at 2009 levels, at nearly 30% of the bubble year levels.  Average monthly starts are at 36,000.  Starts may appear to be a little high compared to average monthly sales of 25,000, but seasonality is coming into play.  Homes started now will not be completed until the Spring, aka, the selling season.  Inventories are nearing record lows.
 

Builders continue to reduce inventories in the face of stiff competition from the used home market. 


Even with low inventories, the low sales level is keeping the months supply uncomfortably high.

While the August statistics were gloomy, I anticipate that the results for the balance of the year will look even gloomier.  The good news is the worse the market looks the closer it is to the bottom.  Consider this...if, for whatever reason (IMO the probable cause will be lower pricing spurring demand, unless, of course, the laws of economics have been repealed) Spring's monthly sales average is something where around 2008's of 50,000 there will quickly be no inventory available.  Additionally, builder's older, misconceived & overpriced product has been getting weeded out over the last 2 years.  Current inventory is smaller, less appointed, better priced for the market product.  Opportunity is knocking.

Interest Rates

Maybe this is time.  Interest rates might be bottoming here.  They have broken a 5 month downtrend line with the indicators buried.  A bounce to 32.5 is in order.

Silver Update

Silver has blasted off its triangle launch pad.  It's up over 10% since mid-August.  Looking for a target of $23 on this move.

Yen Update

The Yen finally cracked.  The negative divergences in the Indicators became too much for the Yen.  The election pledge of Japan's new Prime Minister, Naoto Kan, to pursue competitive devaluation of their currency in a "Beggar thy Neighbor" policy move was enacted by the Bank of Japan on Wednesday.  Expectations of further currency competitive devaluations spiked the precious metals during the week.
  The Yen in hanging on the 50day ema, by a thread.  A break of the channel & the 50day opens the door to $112.50.

Yen

The Yen is starting to look heavy.  The most recent push up has not been confirmed by the Indicators.

Looking to get short the Yen at 119.5 with a stop just over 120.  Targets 112.5.

Puget Sound Home Sales

Another nice monthly wrap up by Redfin.

So far in August, we have seen record numbers of Redfin customers touring properties in Seattle, but buyers are very picky, and in no rush. Prices are going to stay down for the rest of the year, and probably longer.

This game of "chicken" will last until the Sellers realize that they have no pricing power.  If you need to sell you have about 6 weeks left in the selling season.  Otherwise, expect to hold your property until the Spring where you will be able to holdout for a lower price than now.  Buyers...continue to wait it out and make low ball offers otherwise risk paying more than you could purchase for at Xmas.

Interest Rates

Wow!  5 Yr Note Rates have been halved since April.  Looks like they need some sort of bounce, but that has been a losing proposition.

The only certainty is that rates can't get below zero, but a 50% haircut since April doesn't bode well for the economy going forward.  One obvious beneficiary is mortgage holders who flocked to the refi market recently.

The good news is that those refinancing are less likely to be putting their home on the market anytime soon.  Reducing the amount of potential "shadow" inventory will help the housing market recovery sooner.

China

China stocks looked poised to make a run.  LFC is coiling up in a potential triangle.  The stop is around 62.35.  I'll be adding around 63.  If it breaks 67.5, will be holding for 79, but fasten your seat belt because it's volatile.

PMs

Precious Metals are firming up.  Silver holds some triangle potential.  Great support at the 20/50 ma's.  The stop is at 17.47.  Triangles often produce strong thrust up and out.  Target is 21.

Lot Sales

According to Bizjournals, Banks are making the move at dumping lots.  With apparent discounts somewhere between 25% and 66% from cost, investors appear to be getting pretty good deals.  As I estimated back in February, according to the LRV formula, lots should have been down over 32%.  If you find the right motivated seller, deals at 2/3rds off start to become available.

Banner Bank vs Cowlitz

Has the world gone mad, or, is it deja vu all over again?

Cowlitz is subject to a Consent Order and threatened with delisting.  How does the stock react?

It goes from $1.50 to over $6.50.  I've said it before and I'll say it again.  Why would any white knight come into save the bank when they can buy the property/note from the FDIC/takeout bank for much less than book.  I think I've seen this movie before with Frontier Financial.

From $2.50 to over $7.50.  Oops!  No white knight...taken under by the FDIC...down to $.35.  CWLZ deserves no higher price than Frontier ended up with.

In the meantime, a respectable bank like Banner does a share offering to shore up its capital base and stay in the game.  How does the market like that?  Obvious dilution of the shares outstanding, but there not in any immediate danger of a FDIC takeunder.

At least it's still trading near it's secondary offering price of $2.00. 

Has the world gone mad?  Banks on the verge of being taken under see their shares soar, sounder Banks acting responsible get no credit.

Case Shiller 4/10

The Case Shiller Indices crept up for the 3rd month in a row in April with a .4% gain over March.  You would have hoped that the market stimulus would have provided a little more price impetus than it appears.  The price rebound looks shaky at best.  I continue to expect lower prices by years end with low tier, mid tier and high tier prices dropping 5%, 7% and 10%, respectively.
 

Year over year, the 20 city index has gained 3.8%.  I'm sure that anything above 0% is music to the ears of Lenders.  Fllat pricing allows them to curtail loan loss provisions, thereby, stemming the financial bleeding.  This would provide an opportunity to shift their loss provisions to commercial properties which appear to be woefully under reserved.  Of course, following FAS 157, and not writing off anything is giving them a chance to shore up their capital base (which many Washignton Banks have been ordered to do) in hopes of living to fight another day.

City Center Plaza

City Center Plaza is being bought by Cole.  At $310,000,000, it's about $540/sf.  Premium pricing, but with the building 99% leased to Microsoft, it might be worth it.

The price/sf exceeds what the Expedia Tower got, by quite a bit.  It appears the market for leased up, Class A property in CBDs continues to strengthen buoyed by deep pocketed investors looking to take advantage of depressed market conditions.  Of course, the coup of the decade still belongs to Northwest Mutual's steal of the WAMU Center last year.  The lessons of WAMU Center are that it pays to look for a motivated Seller with a low cost basis (JP Morgan got it almost free as part of the Washington Mutual rescue, and, didn't want it) and have tenants waiting in the wings to move in (Northwest Mutual is the parent of Russell Investments who is moving into the tower).

Housing Starts

New Single Family Starts decreased 17% from April.  Builders remain tightfisted with their starts determined to drive down their inventory levels.  As new home sales recede after the expiration of the tax credit, spec starts are losing their appeal.  Over time, this is going to boost Builder's profitability since it appears they will be focusing on presales.

S&P 500

A nice closing rally pushed the S&P 500 above it's downtrend line late Friday.  Next resistance is at the 1100 level.

Roller Coaster

The Indices haven't made much overall progress, one way or the other, since 5/20, but it has certainly been quite a ride.  200 pt days on the Dow are back in vogue.  Unfortunately, if you haven't been positioned correctly at the open you either missed the ride or got thrown off it.  Need to see a decisive break one way other the if you want to get a longer ride.

Peak Lumber?

After yesterday's post I ran across the following article: Peak Wood

An interesting idea considering I grew up during the "Trees - America's Renewable Resource" PR Campaign.

Lumber

Along with the rest of the Commodities markets, Lumber has gotten hammered by the Dollars recent rally. Lumber is down some 30% off its recent highs. Possible support is evident between $220 and $225.Until New Home Starts make some sort of turnaround its hard to see Lumber screaming higher. While Builders have made great strides in reducing their Inventories (w. help from their tight-fisted lenders).....

...there is going to need to be a significant reduction in Used Homes available for Sale. Unfortunately, Used Home Inventories took a pretty steep seasonal run higher.