May 26, 2020
Understanding the Earnings of a Business
At my investment firm, Wilsey Asset Management, we often talk about understanding the earnings of a business and where those earnings come from. A good example is the recent earnings from Alibaba Group Holdings, which for the fourth quarter the profit fell 88% from a year earlier. The most recent quarter saw net income of only $447 million mostly because of a net investment loss of $1.09 billion. This reminds me a lot of the tech boom when earnings were coming from the compan ies investing in other technology companies. Worked out great until the investing party ended and revealed the lack of profits at many companies. As an investor you need to understand that you’re looking at earnings from operations, not from other activities such as equity investing by the company. The company did see its revenue rise 22% to 114.31 billion yuan which exceeded the expectations of analysts. Remember that US security regulators are looking very closely at this company as to why they do not have access to verify the accounting of the company. If Chinese companies do not comply they could be delisted off American exchanges. I continue to prefer US equities rather than these Chinese companies.
New Home Sales
Positive economic news came out today as New Home Sales rose nearly 1% in the month of April. This may not sound very exciting, but it is extremely impressive when you consider analysts were looking for a decline of 22% and given all the negativity around the pandemic, sales were down just 6% compared to April 2019. Entering the pandemic there was an extremely high amount of pent up demand for housing and I believe that demand is still there. I continue to like some homebuild ers at these levels as I believe they will benefit from the lack of existing homes for sale, low interest rates, and people being less interested in city living. Consumer confidence also came in at 86.6 compared to April’s level of 85.7 and above expectations of 82.3. This is extremely important as we reopen the economy, consumers need to feel confident purchasing goods and services to move the economy along. I was extremely pleased with this report as we head into the summer months.
May 27, 2020
Why An Investor Can Bet on the United States
Why an investor can bet on the United States. First: Natural resources. The United States is blessed with an unusual abundance of natural resources, from precious metals such as gold and silver to copper, nickel, iron, lead, uranium, bauxite, mercury, tungsten, zinc, oil and natural gas. Second: The legal system. Here in the United States we do not fear doing business because there are laws that protect us. Just think of other countries around the world that have no laws or g overnment rule, it’s buyer beware. Third: The transportation systems. There are 47,432 miles of interstate highways in the US for 2,000,000 semi-trucks to transport goods. As well as over 4 million miles of navigable roads. Trains have 140,000 miles of track to transport goods which also cross over 100,000 bridges. Yes, I will continue to invest in US companies for the long term!
Where to Place Your Short-Term Savings
Watch KUSI Segment: https://www.kusi.com/where-to-place-your-short-term-savings-now/?fbclid=IwAR3XL_Zg0uQ1B7gAVLQ7XYLt_jzCwbw_m3J3FV6n6voBNClOFWrNkqoNNZg
May 28, 2020
Another 2.1 Million People File for Unemployment in the U.S.
Jobless claims have been a closely watched economic measure during this crisis as they have been record-breaking. The headline number shows another 2.1 million people filed for unemployment which brought the total new claims since the Coronavirus was declared a pandemic to nearly 41 million. While this appears disastrous, the good news lies in the continuing claims number. People that have been collecting unemployment for more than 2 weeks fell by nearly 4 million to a total of approximately 21 million. It is important to remember continuing claims have a one-week lag and as more states have pushed forward with reopening I believe next week the report will look good once again.
Lumber Mills Cut Back Production
Building permits increased dramatically and home prices have risen substantially as well. There is a roadblock ahead, however. In preparation for a slow down because of the quarantine, lumber mills cut back production. Lumber futures for July have now increased 45% from a low on April 1. The surprise demand for lumber also from do it yourselfers heading out to Lowe’s will continue to place strain on the demand of lumber. It could take months to get the lumber mills back up and running to meet the new demand. Be prepared to pay more for that do it yourself wood project and as far as homes go, will this be passed on in the price of the homes which did hit a new high in April? Or will builders be able to absorb the extra cost? With the current demand in housing I think we will see a combination of the two.
May 29, 2020
Record savings rate of 33% in the month of April
I always enjoy hearing from the big bank CEOs as they have great insight into consumers and how the money is flowing. Brian Moynihan, CEO for Bank of America, said balances of checking accounts under $5,000 had 30 – 40% more money in them compared to 12 weeks ago. This makes sense given the record savings rate of 33% in the month of April. I see this is a major positive given the fact that all 50 states are now in some type of reopening. With all this cash, I believe there is pent up demand for people to get out and spend. This will take some time however as some are not ready to get back to normal activities, while others were ready several weeks ago. Other data from Moynihan showed that while transactions were down 30% in the month of April, it was down just 5-10% in May. I believe as we progress the data will continue to get better.
PPP Loans
Great news for small business owners with PPP loans! The Paycheck Protection Program Flexibility Act of 2020 passed the House of Representatives with a vote of 417-1. If passed by the Senate and signed into law, I’m 99.9% sure that will happen, the bill would extend the time to use the loan from 8 – 24 weeks, allow businesses to spend 60% of their loan on payroll and 40% on other operating expenses like utilities and rent (Before it was a 75/25 breakdown), and allows businesses to make a “good faith” effort to rehire employees by December 31st rather than June 30th. This would give more help to struggling small businesses and with bipartisan support in the House, I would be surprised if this does not get signed into law.
Do you understand forbearance of your mortgage payment?
Watch Video Clip: https://www.facebook.com/watch/?v=253639722412568
This newsletter is for informational purposes only and should not be used as investment advice. If you would like to discuss more in detail your investment needs or have other investment questions, feel free to call me at 858-546-4306 or visit our website at Smartinvesting2000.com.