7/31/07

Economics

Politics

Domestic

International War Against Radical Islam

We have not commented that much about the war in Iraq of late; however, a new opinion piece (in the New York Times no less) by two of the Democratic party’s most knowledgeable critics is worth reading:

http://www.nytimes.com/2007/07/30/opinion/30pollack.html?_r=2&oref=slogin&pagewanted=print&oref=slogin

The Market

Technical

Fundamental

A couple of things happened yesterday that are, we think, significant. First, Citadel Investment Group, a hedge fund, is buying the soured credit holdings of another hedge fund, Sowood Capital (article in the WSJ). Second, Goldman Sachs announced that it had nearly doubled its commitment to its corporate credit fund and was expanding its private equity unit’s commitment to middle market companies.

The importance of these developments is that they start to define the credit risk in the financial system. We have stated several times that what worries us the most about the current credit market problems is that our only way of knowing the extent of the problem depends on the participants in these markets acknowledging those problems and that wouldn’t likely happen until bankruptcy was imminent. What this new information tells us is that the risk of defaults are not an all pervasive industry problem--that there remain investment groups with plenty of assets to provide liquidity. This doesn’t mean that there won’t be further bankruptcies (bad news) that could upset the Markets; but it does mean that we are starting to get a grip on the downside risks to the financial system.

Accordingly, this morning the Dividend Growth Portfolio will add to it holding of Hershey (HSY-$46--remember, this Portfolio previously bought the stock, Sold Half, and the stock has since retreated) and the Aggressive Growth Portfolio will Buy a one-half position in Commercial Metals (CMC-$32). Admittedly, these are not heroic moves and we still want to hold off Buying any stocks of companies that are credit or interest rates sensitive; but they reflect a lessening in our mind of the risk to the system. We will await more news before taking additional steps.

News on Stocks in Our Portfolios

Franklin Electric (Aggressive Growth Portfolio) reported second quarter earnings per share of $.28 versus $.70 recorded in the second quarter of 2006.

EPS: 2006 $2.43, 2007 $2.35, 2008 $3.15; DVD: $.47, YLD 1.0%

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

Johnson and Johnson (Dividend Growth Portfolio) is cutting its work force.

http://healthcare.seekingalpha.com/article/42989

Automatic Data Processing (Dividend Growth Portfolio) reported 2007 fiscal year operating earnings of $1.80 versus $1.45 reported in FY 2006.

EPS: 2006 $1.45, 2007 $1.83, 2008 $2.15; DVD: $.83, YLD 1.9%

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

Market Analysis

More Cash in Investors’ Hands

7/30/07

Economics

protectionism (Free trade is a major positive for world and US economic growth.). More protectionist mischief:

http://www.clubforgrowth.org/2007/07/protectionism_ramps_up_in_sena_1.php

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.). Earmarks in the defense appropriations bill:

http://porkbusters.org/2007/07/spirit_of_1776.php

More on the farm bill:

http://www.heritage.org/Research/Agriculture/wm1566.cfm

All the doomsayers laments about the lack of saving in the US--it was a statistical error:

http://www.poorandstupid.com/2007_07_22_chronArchive.asp#1376676195825574738

Politics

Domestic

A look at the House’s fight with Alberto Gonzales:

http://www.realclearpolitics.com/articles/2007/07/attorney_controversy_is_about.html

International War Against Radical Islam

The Market

Technical

Elliott Wave analysis:

http://www.bloggingstocks.com/2007/07/30/elliott-wave-sees-bear-market-ahead/

Fundamental

A positive story of Forward Air (Aggressive Growth Portfolio):

http://www.bloggingstocks.com/2007/07/30/forward-air-corp-taking-your-portfolio-forward/

News on Stocks in Our Portfolios

Donaldson (Aggressive Growth Portfolio) raised its quarterly dividend 11% to $.10 a share.

EPS: 2006 $1.55, 2007 $1.80, 2008 $2.00; DVD: $.36, YLD 1.0%

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

Laclede Group (High Yield Portfolio) reported second quarter earnings of $.43 versus $.13 in the comparable quarter of 2006.

EPS: 2006 $2.37, 2007 $1.90, 2008 $2.00; DVD: $1.45, YLD 4.0%

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

CH Group (High Yield Portfolio) reported second quarter earnings of $.33 versus $.26 in the same quarter of 2006.

EPS: 2006 $2.56, 2007 $2.70, 2008 $2.85; DVD: $2.16, YLD 4.4%

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

Verizon Corp (High Yield Portfolio) reported second quarter earnings of $.58 in line with expectations and versus $.45 in last year’s second quarter.

EPS: 2006 $2.54, 2007 $2.35, 2008 $2.65; DVD: $1.62, YLD 3.8%

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

Medivation (10 Bagger) announced treatment of its first patient for Huntington’s Disease using Dimebon.

http://www.marketwatch.com/news/story/story.aspx?guid={5B0BD72B-36C1-424C-B7F8-5D0E14169252}&siteid=nbs&symb=

Market Analysis

More Cash in Investors’ Hands