8/30/07

Economics

a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.) The absurdity of an increase in gasoline taxes:

http://article.nationalreview.com/?q=N2FhYTU2YjVlYzk1NTgyMjNmOTgwMDdiYzI5ODI5N2Q=

Another look at the causes of the credit crisis:

http://www.realclearpolitics.com/articles/2007/08/whos_to_blame_for_unstable_mar.html

Politics

Domestic

International War Against Radical Islam

The Market

Technical

There were two obvious positives in yesterday’s reversal: (1) Tuesday’s decline couldn’t reach the prior August 16^th low [meaning that this test halted at a higher low] and (2) it was almost as dramatic as the earlier rebound on the August 17^th [suggesting investors recognized that the decline was overdone].

Certainly, this doesn’t mean that we can be sure that August 16^th was The Low--but every time a support level is tested it suggests that investors are becoming increasingly convinced of stock values at that level. So while it may increase the probability that the low has been made, it is no guarantee (remember stocks bounced off the 13200 level four times before finally blowing through it like a hot knife through butter).

Fundamental

The financial press’ explanation for yesterday’s reversal was a letter Mr. Bernanke sent to Chuck Schumer stating that the Fed was ready to provide assistance should lack of liquidity again freeze up financial markets (?). That, of course, was precisely what was said in the minutes from the Fed’s August 7^th meeting as well as the press release that accompanied the announcement of the Fed’s reduction in the discount rate--so there was really no new news. Indeed, it simply confirms our statement in yesterday’s blog: “Further, it seems reasonable to us based on what the Fed has already done to think that it will take whatever additional necessary action is needed to alleviate any bottlenecks that have developed.” Our bottom line is that investors corrected an over reaction.

Of course, before any of us become completely weak kneed about the wisdom and benevolence of the Fed, we do need to see further action. So as we said yesterday, we will give them the benefit of the doubt, because they have earned it; but the financial system has problems that require attention and the Fed needs to get about the task of doing its part of solve them.

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That said, Tuesday/Wednesday’s market action suggests to us that the current credit problems along with the myriad of possible outcomes and solutions thereto are gradually being priced into the Market. This raises our confidence ever so slightly and leads this morning at the Market open to the Dividend Growth Portfolio buying the second half of its position in McGraw Hill (MHP-$50), the Aggressive Growth Portfolio buying the second half of its position in Bucyrus Int’l (BUCY-$33) and the High Yield Portfolio buying a full position in Alliance Resource Partners (ARLP-$33). ARLP had been Added to the High Yield Buy List at an earlier date.

EPS: 2006 $2.56, 2007 $3.05, 2008 $3.45; DVD: $.82, YLD 1.6%

http://finance.yahoo.com/q?s=MHP

EPS: 2006 $2.23, 2007 $3.50, 2008 $4.75; DVD: $.28, YLD 0.6%

http://finance.yahoo.com/q?s=BUCY

EPS: 2006 $3.03, 2007 $3.75, 2008 $3.32; DVD: $1.92, YLD 5.8%

http://finance.yahoo.com/q?s=ARLP

News on Stocks in Our Portfolios

Altria (Dividend Growth Portfolio) is spinning off its international division. It also raised its quarterly dividend by 8.7% to $.75.

EPS: 2006 $5.70*, 2007 $4.10, 2008 $4.50; DVD: $3.00, YLD 4.1%

http://finance.yahoo.com/q?s=MO

*not adjusted for Kraft spin off

Brown Forman (Dividend Growth Portfolio) reported its first fiscal quarter’s earnings per share of $.76 versus $.75 reported in the comparable quarter last year.

EPS: 2006 $3.15, 2007 $3.50, 2008 $4.00; DVD: $1.21, YLD 1.7%

http://finance.yahoo.com/q?s=BFB

More Cash in Investors’ Hands