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.). More on W and earmarks:
Politics
Domestic
http://gregmankiw.blogspot.com/2008/01/clinton-plan.html
Highlights of Romney’s record as
http://hughhewitt.townhall.com/blog/g/6d68ba85-85bc-4844-8ecc-54eb8bfe9e95
International War Against Radical Islam
More on the 6 party talks (or lack thereof) on the disarmament of
http://pajamasmedia.com/xpress/claudiarosett/
The Market
Technical
Yesterday got awfully close to the classic description of a selling climax. The Market opened down a couple of hundred points then rallied 600+ points to finish up on strong volume. In the morning sell off, both the DJIA and the S&P tested the prior day’s low which in the case of the S&P just happened to the level of the 1982-present up trend line (circa 1258); and while the DJIA (12270) didn’t rally back above its 1982-present up trend line (circa 12319), it got awfully close. Finally, once again the financial and retail stocks performed well when stocks in general were doing poorly. That reinforces the notion that the Market has been struggling for a bottom.
In other words, my confidence that the Market has seen a bottom has graduated from yesterday’s statement that it “may have been the first meaningful attempt at a Market bottom’ to today’s--it seems a reasonable probability that the Market has seen a bottom. I don’t think that this means that stocks don’t have some further work to do before any sustained up trend can resume. I also am not so foolish to think that there isn’t a reasonable probability that I am wrong. But the point is that the weight of evidence is shifting towards the conclusion that the worst may be over.
For the moment, the key points to watch are DJIA 12319 on the upside (if it were to close above that level today or tomorrow, from my non purist technical point of view, I would simply judge the last three days’ action as a long test of that up trend line; but until it does, it will remain a bothersome factor) and DJIA 11600 and S&P 1258 on the downside.
Fundamental
In yesterday’s Morning Call, under ‘The Bad News’, I quote point #4:
‘a 75 basis point cut in the Fed Funds rate was a great start; but we still need two, possibly three, other events to take place to be sure the sub prime crisis has passed: [a] the Fed needs to grow the monetary base, [b] the European central banks need to lower their rates, [c] the monoline insurers {MBIA, Ambac} are in danger of bankruptcy; if that were to occur all those investment banks that bought insurance against the sub prime products are in more trouble. This may require intervention from the federal government.’
We received speculative news on two of those points yesterday: (1) the European Central Bank (ECB) could lower its bank rates [though it is being officially denied], (2) NY State regulators are meeting to consider a possible bailout of the sub prime insurers. To be clear, there is nothing firm in either case; but those in a position of power to take corrective actions are considering doing so. Were this to happen, it would provide a huge move forward in providing visibility to the resolution of the sub prime credit crisis.
So what to do? Our Portfolios will start buying (1) those stocks that have remained within their
As in most volatile periods, the Portfolios will average into these new holdings a third or a half position at a time. This will allow us to take advantage of any downside volatility. It will also serve to at least partially limit the Portfolios’ exposure if I am wrong.
Accordingly, Northern Trust (NTRS-$71), Manulife Financial (MFC-$36), McGraw Hill (MHP-$40) and Johnson Controls (JCI-$32) are being Added to the Dividend Growth Buy List. At the Market open this morning, the Dividend Growth Portfolio will Buy a one third position in each. It will also buy a second one third position in T Rowe Price (TROW-$52).
http://finance.yahoo.com/q?s=NTRS
http://finance.yahoo.com/q?s=MFC
http://finance.yahoo.com/q?s=MHP
http://finance.yahoo.com/q?s=JCI
http://finance.yahoo.com/q?s=TROW
Added to the High Yield Buy List are Kimco Realty (KIM-36) and Rayonier (RYN-$43). The High Yield Portfolio will purchase a one third position in each of these securities at the Market open this morning.
http://finance.yahoo.com/q?s=KIM
http://finance.yahoo.com/q?s=RYN
Added to the Aggressive Growth Buy List are American Eagle Outfitters (AEO-$23) and Luxoticca (LUX-$26). The Aggressive Growth Portfolio will purchase a one third position in each at the Market open this morning, In addition, it will buy an additional one quarter position in Mastercard (MA-$190) and buy back the one half positions that it sold in the 10 Bagger names: Medivation, H2 Diesel and ParkerVision.
http://finance.yahoo.com/q?s=AEO
http://finance.yahoo.com/q?s=LUX
http://finance.yahoo.com/q?s=MA
http://finance.yahoo.com/q?s=MDVN
http://finance.yahoo.com/q?s=HTWO
http://finance.yahoo.com/q?s=PRKR
Frankly, I would have liked to put more money to work, but so many of the names on our watch list bounced so hard, they got away to the upside. As I suggested above, if indeed the Market has found a bottom, there should be some backing and filling that will provide the opportunity to Buy these names cheaper. That list is largely made up of those stocks which broke below their Stop Loss Price but have since recovered and might be bought if they continue to trade above their Stop Loss Price. They include (1) in the Dividend Growth Universe, 3M,
http://finance.yahoo.com/q?s=MMM
http://finance.yahoo.com/q?s=ITW
http://finance.yahoo.com/q?s=IR
http://finance.yahoo.com/q?s=VFC
http://finance.yahoo.com/q?s=O
http://finance.yahoo.com/q?s=BEN
http://finance.yahoo.com/q?s=SSD
Finally, a caveat: you know that this is a risky business; we are at what I believe to be a crucial turning point in Market direction. I believe that the call that I am making is the correct one. Regrettably, the way the system works, we won’t know that till after the fact--but wrong I could be. I do my best to mitigate the potential loss from this by averaging into new holdings and by not getting too invested in being right. If I am wrong, our Sell Discipline will let us know soon enough and I will act accordingly.
Watch Lists**
Dividend Growth Watch List: Avery Dennison, Bank of Nova Scotia, Brown Forman, Canadian Nat’l RR, Chevron, Clorox, Emerson Electric, Fortune Brands, Genuine Parts, General Electric, Illinois Tool Works, Ingersoll Rand, Johnson Controls, Johnson and Johnson, 3M, Manulife Financial, McGraw Hill, MDU Resources, Proctor and Gamble, Sysco, T Rowe Price, UPS, VF Corp.,
High Yield Watch List: A.J Gallagher,
Aggressive Growth Buy List: Accenture, American Eagle Outfitters, American Vanguard, Amphenol, Avon Products, Best Buy, Bucyrus Int’l, CME Group, Donaldson, Eaton Vance, Expeditors Int’l, Factset Research, Fastenal, Franklin Resources, Landstar, Luxoticca, Mastercard, Nordstrom, Quest Diagnostic, Rockwell Collins, Rocky Mountain Chocolate Factory, Ross Stores, SAP, Schwab, Simpson Manufacturing, Staples,; and of course I want to re-build the holdings on the 10 Bagger List: US Global Shares-Gold, Medivation, H2 Diesel, ParkerVision
**For the benefit of new subscribers, I started using Watch Lists during severe Market declines. These lists include stocks on our Buy Lists but also equities whose prices has fallen below both their
News on Stocks in Our Portfolios
Penn Virginia Resource Ptrs. (High Yield Portfolio) raised its quarterly distribution per unit from $.43 to $.44.
http://finance.yahoo.com/q?s=PVR
Abbott Labs (Dividend Growth Portfolio) reported fourth quarter operating earnings per share of $.83 versus estimates of $.82 and $.75 recorded in the comparable 2006 quarter.
http://finance.yahoo.com/q?s=ABT
More Cash in Investors’ Hands
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