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Here are the factors that we are weighing:
(1) So does a DJIA 340 point decline represent capitulation? And does a reversal and a close almost on the 12855 number indicate the worst is over?
(2) Does the fact that many of the financial stocks, which led this Market down, were up even at yesterday’s Market lows mean that (a) they are leading the Market up and (b) all or most of the bad news in these stocks has been discounted?
(3) Is the Fed’s recent injections of liquidity plus today’s lowering of the discount rate sufficient to normalize transactions in the non-sub prime credit markets?
We are not smart enough to answer any of those questions; but it feels like investors are struggling to find a bottom. In fact two of the conditions we mentioned in yesterday’s blog as preconditions for committing funds may have been addressed (“but to act we need either more information on sub prime loans from financial institutions, a resumption of normalized transactions from the non-sub prime financial sector, assistance from the Fed to effect those normalized transactions or an exhausted Market that has discounted the worst case (capitulation).” our emphasis added) That doesn’t mean that there isn’t more bad economic/financial sector news to come. Nor does it mean that the extreme volatility of recent weeks is going away--indeed with option expiration today, volatility may be off the charts.
A little history on that point:
http://usmarket.seekingalpha.com/article/44874
However, we are impressed enough with what looks like an emotional reversal and the Fed’s action today (lowering the discount rate) that we going to commit a little cash. Therefore, the Dividend Growth Portfolio will buy back a portion of the positions that it Sold in Synovus Financial (SYN-$28), Wilmington Trust (WL-$39) and Bank of Nova Scotia (BNS-$45). Remember that some while back, the Dividend Growth Portfolio Sold one half of its position in each of these stocks--hence each stock is now a one-half position. The new purchases will be approximately one half of the aforementioned sale; in other words, the Dividend Growth Portfolio is raising its position in SYN, WL and BNS from one half to three quarter sized holdings.
The Dividend Growth Portfolio is also Buying a one half position in Federated Investors Inc (FII-$33). The price of FII’s stock had fallen below the upper boundary of its
The High Yield Portfolio is buying back one half positions in Duke Realty (DRE-$32) and Mack-Cali Realty Co (CLI-$35). You will recall the High Yield Portfolio Sold all of its positions in both of these stocks.
The High Yield Portfolio is also initiating a one half position in Citigroup (C-$48)--a stock recently Added to the High Yield Buy List.
These are clearly tentative steps attempting to balance what appears to be the Market’s attempt to make a bottom with the uncertainty that still surrounds the credit market problems. But the bottom line is that our Price Discipline simply won’t allow us to ignore the growing number of companies being Added to our Buy Lists. (We will Add more stocks to our Buy Lists later today; but we wanted to get our actions out to you before the Market opens.)
News on Stocks in Our Portfolios
A positive report on Synovus Financial:
http://www.thestreet.com/p/_htmlrmm/rmoney/investing/10374504.html
More Cash in Investors’ Hands
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