The Closing
The Bottom line
Statistical Summary
Current Economic Forecast
2007
Real Growth in Gross Domestic Product (revised): 2.0- 2.5%
Inflation: 2 - 2.5 %
Growth in Corporate Profits (revised): 6-8%
2008
Real Growth in Gross Domestic Product (GDP): 3-3.25%
Inflation: 1.75-2%
Growth in Corporate Profits: 7-9%
Current Market Forecast
Dow Jones Industrial Average
2007
Current Trend:
Medium Term Uptrend 13030-14592
Long Term Uptrend 11757-23751
Year End Fair Value (revised): 13250
2008 Year End Fair Value (revised): 14250
Standard & Poor’s 500
2007
Current Trend:
Medium Term Uptrend (?) 1449-1585
Long Term Uptrend 1225-2400
Former Long Term Trading Range (?) 750-1527
Year End Fair Value (revised): 1525
2008 Year End Fair Value (revised): 1640
2008 Year End Fair Value: 1625
Percentage Cash in Our Portfolios
Dividend Growth Portfolio 7%
High Yield Portfolio 30%
Aggressive Growth Portfolio 5%
Economics
Three points following a big week:
(1) the Fed’s action Tuesday means that a recession isn’t assured; but that doesn’t mean that it still isn’t a decent probability. The economic statistics remain worrisome. Our forecast [the ‘soft’ landing] is not changing but seems to becoming progressively less likely.
(2) we said last week that the Fed has a choice between two evils: recession and inflation. It chose to attempt to avoid recession--with which we agree. Unfortunately, we must now contend with the lesser evil: the risk of a resurgence in inflation--and at time when we have our political eye focused on November 2008, i.e. the increasing probability of the Democrats taking control of both the executive and legislative branches and our belief that their current platform fosters inflation. Bottom line: any weakness in gold prices will likely prompt us to raise our Portfolios’ commitment to USERX.
(3) the narrative in the financial press notwithstanding, the poor housing market was, in our opinion, only a peripheral cause of the Fed’s rate cut. The freeze up in corporate credit was the primary culprit--Uncle Ben was worried that corporate
The Economic Risks:
(1) the economy is weaker than expected.
(2) Fed policy (reading the data correctly).
(3) a disruption in global oil supplies (It is not the price of oil but its availability that will cause severe economic dislocation.).
(4) protectionism (Free trade is a major positive for world and
(5) 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.).
(6) a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.)
Politics
Domestic
International War Against Radical Islam
The Market
Technical
The DJIA is in an up trend defined by the approximate boundaries of 13030 and 14592. The S&P remains in its seven year trading range with boundaries of 750-1527.
Fundamental
The DJIA (13820) finished this week more than 5% over valued (13751) while the S&P (1525) is right on Fair Value (1525).
Our investment strategy is:
(1) use our Price Disciplines to take advantage of the ongoing heightened volatility to upgrade the quality of our Portfolios by taking profits in our weakest holdings when prices spike to the upside and buying the stocks of great companies when opportunities present themselves,
(2) insure that our Portfolios can ride out any further turmoil brought on by trouble in the credit markets
DJIA S&P
Current 2007 Year End Fair Value 13250 1525
Fair Value as of
Close this week 13820 1525
Over Valuation vs. 9/30 Close
5% overvalued 13715 1578
10% overvalued 14368 1653
Under Valuation vs. 9/30 Close
5% undervaluation 12409 1427
10%undervaluation 11755 1352
The Portfolios and Buy Lists are up to date.
News on Stocks in Our Portfolios
Market Analysis
Company Highlight:
Background Analysis
The Numbers
Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 38 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.
