2/7/08

Economics

protectionism (Free trade is a major positive for world and US economic growth.) The candidates and free trade:

http://online.wsj.com/article/SB120226001164146025.html?mod=opinion_main_commentaries

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.). Earmark update:

http://republicanleader.house.gov/News/DocumentSingle.aspx?DocumentID=83280

And observations on W’s budget:

http://www.nypost.com/seven/02062008/postopinion/editorials/bushs_bungled_budget_489241.htm

The real scandal in the housing mess:

http://mjperry.blogspot.com/2008/02/real-scandal-how-feds-invited-mortgage.html

Politics

Domestic

McCain on the economic stimulus plan:

http://www.breitbart.com/article.php?id=D8UL614O0&show_article=1&catnum=0

International War Against Radical Islam

This is a bit long, but provides some good perspective on the state of the Iraqi government:

http://www.longwarjournal.org/archives/2008/02/inside_iraqi_politic.php

Iran in Nicaragua; this doesn’t look good:

http://www.nysun.com/article/70934?page_no=1

The Market

Technical

Fundamental

Another buy candidate (Aggressive Growth Buy List in the line of recession resistant companies:

Alcon is a global medical specialty company that develops, manufactures and markets pharmaceuticals, surgical equipment and devices and consumer eye care products to treat diseases and disorders of the eye. The company earns 30%+ return on equity and has grown earnings and cash flow at an 18% annual rate. We believe that this performance will continue as the company:

(1) expands internationally; it is currently moving into France, Germany and Japan,

(2) builds its product line; recently added offerings include a once daily ocular allergy product, an intraocular lens for post-cataract surgery and a preservative free synthetic corticosteroid for ocular inflammatory conditions unresponsive to topical corticosteroids,

(3) adds complementary add on products through either acquisition [in 2007, it bought WaveLight AG which manufacturers innovative refractive laser and diagnostic systems] or joint venture--ACL recently entered into agreements with [a] Amgen for the joint research, development and commercialization of new ophthalmological products and [b] Eli Lilly for the co-promotion of a LLY drug for severe nonproliferative diabetic retinopathy,

(4) benefits from the recall of two competitive contact lens disinfectants.

Alcon is rated A by Value Line, has virtually no debt and its stock yields about 1.5%.

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

Subscriber Alert

Yesterday, we got clocked with our first really big problem (CME Group) in a long time. The WSJ reported (which I initially missed) that the Justice Department has submitted a letter to the US Treasury Department (which is reviewing financial regulatory policies) stating that futures’ exchanges (CME Group among them) ownership of their ‘clearing’ (trade processing) operations serves as an impediment to new entrants into the market--this after it (the Justice Department) approved without conditions the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade last year.

The stocks of the exchanges dropped big time because the clearing operations are a major source of revenues and earnings and have been for over 100 years. So clearly the Justice Department’s allegations strike at the core of the exchanges’ business model. Consequently, one can only assume that they will muster every asset available to fight these allegations. Of course, that doesn’t mean that they will win. The point here is that from a fundamental standpoint that leaves us in a no man’s land. If CME fights the proposed Justice Department action and wins, its Valuation Model remains unchanged; if it loses, the Model is dramatically altered to the negative.

As you know, CME is a long time (profitable) holding of the Aggressive Growth Portfolio, so yesterday’s damage is painful enough. But because at the close of the Market on Monday, CME’s stock price had declined into its Buy Value Range, we re-Added it to the Aggressive Growth Buy List that evening. To say unfortunate timing would be a clear understatement.

My pride aside, the question, of course, is what to do now? At the moment, even with whackage experienced yesterday, we still have a profit in this holding. Further, while the price decline drove the stock below the lower boundary of its Buy Value Range, it remains above its Stop Loss Price. So my bottom line is that (1) I will be working very hard to get a handle on the merits of the Justice Department’s complaint [the company had a conference call yesterday afternoon in which management pooh, poohed the DOJ case; but that is to be expected], (2) in the meantime, [a] CME is being Removed from the Aggressive Growth Buy List and [b] if CME’s stock price remains above its Stop Loss Price, I will continue to Hold until I can get a handle on whether or not its business model [and therefore its Valuation Model] has changed, [c] however, if the stock trades below its Stop Loss Price, I will Sell it.

In other action, some of the stocks I mentioned yesterday as having traded fractionally below the lower boundary of their Buy Value Range did in fact trade even lower today. Accordingly, the following steps are being taken:

Manulife Insurance (MFC-$36) and Chevron (CVX-$75) are being Removed from the Dividend Growth Buy List. The Dividend Growth Portfolio will continue to Hold MFC. It never Bought CVX, so no further action is needed with respect to this stock.

Kimco Realty (KIM-$35) and Realty Income Trust (O-$23) are being Removed from the High Yield Buy List. The High Yield Portfolio will continue to Hold KIM. It does not own O, so no further action is needed.

Abercrombie & Fitch (ANF-$75), Expeditors Int’l (EXPD-$44) and FactSet Research (FDS-$52) are being Removed from the Aggressive Growth Buy List. The Aggressive Growth Portfolio will continue to Hold EXPD and FDS. It never owned ANF, so no further action is needed with respect to this stock.

Finally, the stock price of Microsoft (MSFT-$29) has fallen below the upper boundary of its Buy Value Range. Therefore, it is being Added to the Aggressive Growth Buy List. The Aggressive Growth Portfolio already owns this stock so no further shares will be purchased.

News on Stocks in Our Portfolios

Parkervision (10Bagger) received a second patent on its technology:

http://www.marketwatch.com/News/Story/Story.aspx?guid={A1DAF65C-508F-43F5-94CC-20D5F484F18C}&siteid=nbs

BP Plc (Dividend Growth Portfolio) raised its quarterly dividend per share 25% to $.812 from $.6495

Alcon Inc (Aggressive Growth Portfolio) reported fourth quarter and full year operating earnings per share of $1.31 and $5.25 respectively versus $1.16 and $4.37 recorded in the comparable 2006 periods.

More Cash in Investors’ Hands