3/14/08

Economics

More news under the heading of ‘increased visibility on the resolution of the credit crisis’ yesterday.

(1) Treasury Secretary Paulson outlined reforms that a W appointed study group will recommend. They include additional regulation of mortgage originators, improvement in the way credit agencies rate various financial instruments and changes in how bank capital in computed and maintained. Note to Hank: where were you six months ago? The horse is out of the barn. My point being that if implemented, none of this will help the current situation although it should improve investor confidence going forward,

(2) a large hedge fund indicated that one of its entities was insolvent. This is nothing new and there is going to be more,

http://bigpicture.typepad.com/comments/2008/03/what-are-broker.html

(3) S&P stated that, in its opinion, the financial system was about half way toward working it through the sub prime mess. Right. These guys have a vested interest in this problem being over--after all, they are the ones that rated all the junk paper AAA,

(4) Barney Frank announced that he would propose legislation allowing the FHA to guarantee troubled mortgages but only if the lender recognizes its loss of interest and principal on the loan. Further, this facility would not be available for loans on second homes or investment property. The positive is that [a] it forces lenders to do the inevitable, i.e. take their loss and [b] the FHA guarantee would allow the mortgages to be sold [liquidity]. The question is do the beleaguered lenders have the courage to do this?

But don’t get me wrong, these all contribute in their own small way to clarity.

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A survey of CFO’s regarding a recession:

http://bigpicture.typepad.com/comments/2008/03/cfos-recession.html

And this one from economists:

http://bespokeinvest.typepad.com/bespoke/2008/03/updated-consens.html

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.). The Senate votes Yea on earmarks:

http://www.clubforgrowth.org/2008/03/demint_amendment_fails_2971.php

And farm subsidies:

http://mjperry.blogspot.com/2008/03/millionaire-farmer-safety-net.html

Politics

Domestic

McCain’s voting record:

http://www.dynamist.com/weblog/archives/002727.html

Clinton and Obama’s tax plan:

http://taxprof.typepad.com/taxprof_blog/2008/03/comparing-the-c.html

International War Against Radical Islam

The Market-Disciplined Investing

Technical/FundamentalA Dividend Growth Investment Strategy

The Market action yesterday had a lot of the marks of a firm test of the January lows--an emotional sell off early in the day, the Averages testing support levels (DJIA-11900, S&P 1282) then a bounce to finish the day on the plus side. I know that this sounds like a triple bottom which I have steadfastly maintained almost never happens--which I assume means that either the January lows are about to be taken out with a vengeance or that my skills as a technician are questionable or that almost is the operative word.

In any case, at the close yesterday, my attitude regarding the Market was somewhat improved not only because I liked yesterday’s Market action but also because of the accumulated surfeit of clarifying news this week on the credit crisis. Not that I think that the Market is off to the races, but rather that I am more comfortable in the assertion that January was the bottom of this Market cycle. To be clear, this only means that I think that the risk of further Market declines below the January low is decreasing while the probability that the Market could trade about the upper boundary of its current trading range is increasing; and it does nothing to change our current strategy of buying fundamentally and technically strong stocks when the Averages trade down in the low end of their current range and selling the weaker performing holdings when stocks trade up. Nor does it alter my longer term concerns about a shift in this country’s economic agenda.

Fundamental

Subscriber Alert

The stock prices of Northern Trust (NTRS-$69) and Emerson Electric (EMR-$49) traded below the upper boundary of their respective Buy Value Ranges. Accordingly, they are being Added to the Dividend Growth Buy List. Since the Dividend Growth Portfolio already owns both these stocks, no additional shares will be purchased.

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

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

The stock price of Mastercard (MA-$209) has risen above the upper boundary of its Buy Value Range. Therefore, MA is being Removed from the Aggressive Growth Buy List. The Aggressive Growth Portfolio will continue to Hold this stock.

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

The stock price of Accenture Ltd (ACN-$34) has traded below the upper boundary of its Buy Value Range. Accordingly , it is being Added to the Aggressive Growth Buy List. Since the Aggressive Growth Portfolio already owns this stock, no further purchases will be made.

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

News on Stocks in Our Portfolios

Look at this chart on gold:

http://bespokeinvest.typepad.com/bespoke/2008/03/golddollar-rati.html

Our Portfolios may lighten up soon.

More Cash in Investors’ Hands