5/1/08

Economics

a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.) What to do about high oil prices:

http://www.washingtonpost.com/wp-dyn/content/article/2008/04/29/AR2008042902394.html

And the likely effect of suspending the gas tax:

http://bigpicture.typepad.com/comments/2008/05/high-oil-prices.html

Politics

Domestic

McCain on healthcare:

http://article.nationalreview.com/?q=OWE0ZWJiMGY1OWFiNDk2NDRhNGQwMTM3MjExZjM3NWE=

International War Against Radical Islam

The Market

Technical

Yesterday, the DJIA traded above the October 2007 to present downtrend line (which I have mentioned previously as a resistance point) but immediately reversed and closed below that level. In addition, the S&P traded up its November 2007 low (resistance point) and like the DJIA backed off. I don’t think that this is necessarily a big negative; but it does give us more definitive technical resistance points against which to manage our current short term investment strategy (i.e. the level at which we raise cash).

A look at ‘sell in May and go away’:

http://bespokeinvest.typepad.com/bespoke/2008/04/sell-in-may-and.html

Fundamental

Also worth mentioning, there were two items on the economic news front that investors were anticipating and that impacted Market action:

(1) first quarter gross domestic product came in a little better than expected. The operative words being ‘a little better’. Growth occurred in consumer spending [good, sort of], inventories [bad because that is not final demand], net exports [good] and government [you decide] while business investment and residential investment were negative. There is nothing in these numbers to alter my outlook, to wit, the economy is teetering on the brink of a decline, it may or may not slip into recession and if it does, it is not likely to fall off a cliff. That said, investors got jiggy with this report [stocks were up big in the morning] suggesting that most are more pessimistic about recession than me.

http://bigpicture.typepad.com/comments/2008/05/gdp-charts.html

And this opinion about the data:

http://bigpicture.typepad.com/comments/2008/04/congratualtions.html

(2) in addition, the Fed met and lowered both the Fed Funds rate and the discount rate another 25 basis points. In the commentary that accompanied its decision, it basically said that the economy was weak though it believed improvement was on its way and inflation was increasing as a problem. Without parsing the statement, my opinion was that the Fed didn’t emphasize inflation dangers enough; and on this score, investors apparently agreed because stocks sold off. I don’t see this as a huge problem; after all, the Fed has had a lot of very difficult issues with which to deal in the past six months. But inflation (and as a corollary the weak dollar) is an increasing threat and until the Fed deals with it, investor enthusiasm for stocks, in my opinion, will likely remain muted.

How Bernanke handled the credit crisis:

http://bigpicture.typepad.com/comments/2008/04/defending-berna.html

A look at monetary policy:

http://online.wsj.com/article/SB120951671713654689.html?mod=opinion_main_commentaries

Subscriber Alert

The stock price of Colgate Palmolive (CL-$71) has declined below the upper boundary of its Buy Value Range. Therefore, it is being Added to the Dividend Growth Buy List. The Dividend Growth Portfolio will not Buy share in CL at this time.

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

The stock price of Kimco Realty Trust (KIM-$40) has traded down into its Buy Value Range. Accordingly, it is being Added to the High Yield Buy List. Since the High Yield Portfolio already owns KIM, no additional shares will be bought.

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

The stock price of Reynolds American (RAI-$54) traded down by over 6% yesterday on a disappointing earnings report. It was already Selling below the lower boundary of its Buy Value Range. While it continues to Sell above its Stop Loss Price, at the Market open this morning, the High Yield Portfolio will Sell a one quarter position in RAI.

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

The stock price of Altria (MO-$20) fell below the lower boundary of its Buy Value Range. Therefore, it is being Removed from the High Yield Buy List. For the moment, the High Yield Portfolio will continue to Hold MO.

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

The stock price of Graco (GGG-$41) has traded above the upper boundary of its Buy Value Range. Therefore, it is being Removed from the Aggressive Growth Buy List. Since the Aggressive Growth Portfolio does not own GGG, no additional action needs to be taken.

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

The High Yield Buy List

Company Close 5/1 Buy Value Range

AJ Gallagher $24.57 $23-26

Buckeye Pipeline Ptrs 49.33 49-56

Rayonier 42.03 39-45

Realty Income Trust 26.31 25-29

Worthington Ind 18.00 16-18

Company Highlight

A.J. Gallagher & Co provides insurance brokerage, risk management and employee benefit services to commercial, industrial and government organizations. The company has grown profits at a 9-11% rate and dividends even more rapidly over the last 10 years while earning a 20%+ return on equity. While the pricing of property/casualty insurance premiums will likely be weak over the near term, AJG should still grow earnings as a result of:

(1) the company’s aggressive acquisition program [21 in 2007],

(2) strong internal growth of its risk management business,

(3) an ongoing cost reduction effort,

(4) international expansion,

(5) improving investment income,

AJG is rated A by Value Line, has a debt to equity ratio of 34% and its stock yields over 5%.

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

News on Stocks in Our Portfolios

A positive write up on American Vanguard (Aggressive Growth Portfolio):

http://seekingalpha.com/article/74826-american-vanguard-pest-free-investing

SAP (Aggressive Growth Portfolio) reported first quarter operating earnings per share of $.45 versus $.43 recorded in the comparable period in 2007.

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

Bucyrus Int’l (Aggressive Growth Portfolio) announced a 2 for 1 stock split effective 5/27/08.

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

ExxonMobil (Dividend Growth Portfolio) reported first quarter earnings per share of $2.03 versus expectations of $2.14 and $1.62 recorded in the comparable 2007 quarter.

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

More Cash in Investors’ Hands