Economics
fiscal profligacy (Government spending as a percent of GDP is too high and the looming explosion in entitlement expenditures will make it worse. There is no good solution save spending discipline.). On the new health care bill:
http://article.nationalreview.com/?q=OTZlZmJlNDkxODBlY2ViNThlOTJkZmRlMDBkY2NhYjI=
On the CPI’s accuracy in measuring inflation:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2SUCQ3Bslk0
Politics
Domestic
International War Against Radical Islam
The Market
Technical
Existing home sales and the consumer confidence index were reported yesterday; both were terrible; and the Market went up. But behind the headline number, financial stocks and retailers got whacked and the industrials and materials (global growth) stocks did very well--continuing a trend that has been in place for some time. We observed earlier this year that we didn’t see how the Market indices, especially the S&P, could advance without a significant improvement in the price action of the financial stocks (since they are about 25% of the total weighting of that Average). Indeed it those precise mathematics that explain why the DJIA has achieved new heights (financials are a small percentage of this Average), while the S&P has struggled in its trading range since 2000.
I am an amateur when it comes to technical analysis but I do listen to guys who spend all day worrying about these things; and my point here is that it is the opinion of those guys that this kind of dichotomy in Market performance among industry groups usually resolves itself by the industry groups that have been performing well declining versus the industry groups that have been performing poorly rising. In other words according to this analysis, our recent sales (Sell Half transactions) in Smith International, ConocoPhillips and ExxonMobil and our purchases in the financial and retail sectors (Citigroup, Merrill Lynch, Schwab, Federated Investors, Walmart) seem right on. I will continue to closely monitor our holdings in the industrials and materials sectors.
I know that strategy may sound somewhat contradictory to my enthusiastic embrace of the global growth thesis; but it really isn’t. My point with global growth is that it will improve the consistency and rate of growth of earnings. I still believe that is the correct analysis. However, the above point is one of valuation--because so many investors have accepted this thesis, they are driving stock Valuations to unjustifiable levels.
I also know that this seems at odds with owning gold. In my opinion, the point of owning gold is not to benefit from rising global demand from industry or consumers, but investor demand driven by the geopolitical consequences of the militant strategy of radical Islam and the economic (inflationary) consequences of a potentially more liberal political agenda (higher taxes, higher spending, more regulation, protectionism) in the US.
Fundamental
Here is an interesting article on dividends versus buybacks. The author favors buybacks. While I love companies that are buying their own stock back, I happen to disagree that buybacks are a more important use of cash than dividends for exactly the reason he cites as favoring buyback--management flexibility in how corporate earnings are distributed. Frankly, I don’t want management thinking in those terms. I want them disciplined, i.e. management will make a lot fewer poor capital expenditure/new product/acquisition decisions if they know that they have a large financial obligation to the shareholders (a big dividend that needs funding) versus not (if a capital expenditure decision turns out badly, the stock buy back simply gets reduced).
http://seekingalpha.com/article/46876-the-case-for-stock-buybacks-vs-dividends
News on Stocks in Our Portfolios
Medivation (10 Bagger) has selected as one of the inaugurally companies in the NASDAQ Neuroinsights Neurotech Index.
http://www.marketwatch.com/news/story/story.aspx?guid={A6D05861-0B5D-48C6-B4B3-DA173B50178A}&siteid=nbs&symb=
BP (Dividend Growth Portfolio) issues earnings warning:
http://money.aol.com/news/articles/_a/bp-plc-shares-drop-after-ceos-warning/n20070925064009990014
Microsoft (Aggressive Growth Portfolio) is interested in buying a piece of Facebook:
More Cash in Investors’ Hands
Chevron is buying back $15 billion of its common stock.
No comments:
Post a Comment