When Bad News is Good News

Last week on February 11th, initial jobless claims jumped 24k job to 304k claims. This is up from the 280k in January.

S&P Profits have stalled YoY, essentially corporate profits are eroding.

Retail sales dropped by twice as much as expected with the worst back to back month decline since 2009.

But stocks went up… Makes no sense right?

Well the market now looks like a drunk driver is at the controls. With this crazy unpredictable volatility it seems like common sense has been thrown out the window. All of this is because most of the stock market is actually traded by robots, advance logarithms and huge institutional players. As they now are factoring in multiple QE programs, negative interest rates at central banks (as they each race to the bottom) to prevent deflation in Europe and China.

Given the 6 year run up in value of the stock market these are typically a tell-tale signs that the stock market is priming for a sizable correction. For 2015 the year looks to be mostly volatile, with all sorts of movement in all sectors. As many global issues unfold; Greece plays chicken with the Euro, Russia and the Ruble strain with low oil prices, China is all over the board with currency issues and Japan continuing to print money with no end in sight.

But all that bad news is good news according to the market because the new norm as of late has been Quantitative Easing will step in and make more debt and simply kick the can down the road.

So why is bad news good news for the US and in particular real estate?

Well our take is that as there is more volatility in the stock market people get apprehensive and will simply take their profits of the last several years off the table and exit. A portion of those investors will sit on cash just as a safeguard but they ultimately will seek alternative places to invest their funds. The most logical choice would be solid assets, especially real estate.

As a result of more money funneling out of the stock market and into real estate, the general rule of supply and demand are that prices will go up given an increase in demand. Especially if you look at the lack of supply in portions of the market. There are several other variables that factor into what areas of real estate will experience better than average returns and those which will under perform. But, as we have stated before we are not specifically investing based on speculation of future values but it doesn’t hurt when we get the occasional bump in value when the winds are blowing in our direction.

God Bless and Happy Investing