3/5/08

Economics

The Federal Budget dissected (this is a little long but not overwhelming; and it is a must read):

http://www.heritage.org/Research/Taxes/wm1829.cfm

The economics of drug development:

http://www.american.com/archive/2008/march-02-08/protecting-patents-saving-lives

New data on who pays taxes:

http://www.taxfoundation.org/news/show/22652.html

Politics

Domestic

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.). John Boehner on Medicare:

http://article.nationalreview.com/?q=OTQxMGE0MDc1ZGQ3NWE0MzJmY2MxZGZmYzU4ZjA4YmM=

International War Against Radical Islam

The Market

Technical

How the current correction stacks up (length and depth) historically:

http://bespokeinvest.typepad.com/bespoke/2008/03/how-the-decline.html

Fundamental

One o’clock yesterday afternoon I thought that we were in the midst of the kind of emotional Market flush that would either help confirm the January 2008 low or demonstrate that it was just another minor support level on the way to lower lows (as you know my vote is with the former). Then of all things we got some good news (more clarity on solving Ambac’s capital problems) and stocks rallied. My gut tells me that the real test is yet to come; but it could be that yesterday was it. So I want to put some money to work (see Subscriber Alert below). This, of course, assumes that (a) any slowdown/recession is discounted in stock prices and (b) the Fed/government knows enough about the extent of the liquidity problem that it will take whatever actions are necessary to prevent a crisis [I know I’m a cockeyed optimist] and (c) therefore the January low is the bottom of this decline.

That said, I also think that this Market is not going to resume any meaningful up trend until (1) there is near perfect clarity to the current liquidity problem, (2) the Fed adjusts policy to deal with potential inflation, and (3) we know the outcome of the 2008 election. In other words, I am reiterating my opinion that stocks are likely in a trading range. So while I want to Buy stocks that have held up in this latest decline, I want to Sell the weak Holdings on any rallies. So my objective is to pull down the cash position in our Portfolios to around 15% in these dips (Buying the stocks that have performed well) and raise it to 20% on rallies (Selling those stocks that can’t move out of that zone between the lower boundary of their Buy Value Range and their Stop Loss Price).

Here’s a look at how tough this Market has been; note that our US Global Gold Shares are among the best performing funds:

http://www.thestreet.com/s/a-worse-bear-market-than-2001/funds/retirement-strategies/10406119.html?puc=_htmlbooyah

This is not a good sign for near term Market performance:

http://bespokeinvest.typepad.com/bespoke/2008/03/high-yield-spre.html

Subscriber Alert

At the Market open this morning, the Canadian National Railway (CNI-$52 is being Added to the Dividend Growth Buy List and a one half position is being Bought by the Dividend Growth Portfolio. In addition, Praxair (PX -$79) is also being Added to the Dividend Growth Buy List. Since the Dividend Growth Portfolio already owns this stock, no additional shares will be purchased.

The High Yield Portfolio will Buy the second one half of a position in Pfizer (PFE-$22).

The Aggressive Buy List will Add Reliance Steel (RS-$57) and Franklin Resources (BEN-$94) and a one half position will be purchased in each by the Aggressive Growth Portfolio.

Both CNI and RS are stocks that had been previously bought then sold when they hit their Stop Loss Prices. Since then those stocks have recovered and now trade in their Buy Value Range. Getting Stopped Out of a stock in the midst of an emotional decline, then having to Buy it back at higher prices is one of the shortcomings of my Price Disciplines. However, I am ready to live with it because I can’t know in advance how far down a stock will trade so I developed our Sell Discipline’s with the primary purpose of avoiding large losses. I could of course ignore the stock afterwards to avoid the seemingly embarrassing predicament of having to Buy it back at higher prices; but in my opinion that would simply compound the shortcoming.

News on Stocks in Our Portfolios

Sun Hydraulics (Aggressive Growth Portfolio) reported fourth quarter earnings per share of $.31 versus $.23 reported in the comparable 2006 quarter.

American Vanguard (Aggressive Growth Portfolio) reported fourth quaqrter earnings per share of $.28 versus $.20 recorded in the 2006 fourth quarter.

More Cash in Investors’ Hands