Economics
More on increasing the regulatory authority of the Fed:
http://online.wsj.com/article/SB121617135288456339.html?mod=opinion_main_commentaries
And this:
http://www.american.com/archive/2008/july-august-magazine-contents/bear-necessities
Barry Ridholtz’s take:
http://bigpicture.typepad.com/comments/2008/07/idiots-fiddle-w.html
Politics
Domestic
International War Against Radical Islam
The Market
Technical/ Fundamental
A graphic look at over sold/over bought stocks:
http://bespokeinvest.typepad.com/bespoke/2008/07/what-a-differen.html
A look at the frequency of 2% up days in a bear Market and what happens next:
http://bespokeinvest.typepad.com/bespoke/2008/07/2-up-days-in-be.html
As of the close Tuesday night, bearish sentiment was at an all time high:
http://bespokeinvest.typepad.com/bespoke/2008/07/investors-intel.html
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There were a number of positives in yesterday’s Market action: (1) the volatility index spiked to over 38 during the opening hour--clearly there was capitulation in the financials; just look at the price action both on the downside and the recovery of two of our stocks: Wells Fargo and US Bancorp, (2) the shorts, especially those in the financial stocks got their lungs ripped out and (3) oil continued to decline. The precipitating event that spawned the sharp recovery was a better than expected earnings report and a dividend hike from Wells Fargo. As usual, it was one of those ‘emperor’s new clothes’ moments, when the entire Market is seeing one thing (devastation in the financial sector) and suddenly realty impinges (a major financial institution is not only not going under but it beats analysts’ earnings forecasts and it ups the ante by raising its dividend 10%). In retrospect, I wish I had been smart enough to recognize what was happening late Tuesday and caught yesterday’s price explosion--but alas, I was not.
Nonetheless, yesterday’s pin action was enough for me to at least concede that some sort of low has been made. The $64,000 question is, is it a major bottom from which stocks will trade back toward Fair Value or is it just a rally in a bear Market? I don’t have a clue. But I do think that (1) the stocks have been beaten down enough, (2) the technical factors have turned positive enough, (3) the Averages have traded close enough to support levels (the DJIA trade as low as 10827 intraday versus the 2006 double bottom at 10633; the S&P traded as low as 1198 intraday versus its 2005 bottom of 1167) and (4) with cash positions in our Portfolios between 33-42%, the risk is that we don’t put some money to work here.
So I think we have to play this bounce. We do so by treating it as a major bounce in a bear Market which carries with it the benefit of not leaving our Portfolios at the gate if it is a major bottom. This strategy is made easier by the fact that both major indices are in well defined downtrends (DJIA circa 10707-11595; S&P 1208-1301). If the Averages trade up but can’t penetrate the top end of this range, then we assume that it is indeed at rally in a bear Market and resume our strategy of protecting profits and limiting losses; hopefully, we will have made at little money for our trouble. If the Averages trade through the upper boundary of their downtrend, then we give more weight to the ‘major bottom’ alternative and focus on buying any subsequent dips.
Hence, at the Market open this morning, our Portfolios will be re-investing some cash. We are doing so recognizing that (1) there are still plenty of risks to the economy, that both our elected and appointed officials are making a mess of their responsibilities and that investor pessimism is rampant, and (2) accordingly, this may be the wrong move; but also recognizing that (1) it is at times like these that bottoms are made and (2) if it is the wrong move, our Sell Discipline will keep us whole.
Subscriber Alert
The Dividend Growth Portfolio is currently 33% in cash. Today it will spend approximately 20% of that amount, leaving it with a cash position of 25%.
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Million Dollar Portfolio Challenge
Portfolio 1 (90.9): Sold: ExxonMobil
Bought: T Rowe Price
Positions: T Rowe Price, Kimberly Clark, WalMart, Mastercard
Portfolio 2 (87.7%): Sold: Chevron, XTO Energy
Bought: Nike, Mastercard
Positions:
Nike
Portfolio 3 (92.6%): Sold: Smith Int’l, XTO Energy
Bought:
Positions:
Portfolio 4 (88.0%): Sold: Chevron, Suncor
Bought: Blackrock, Eaton Vance
Positions: Blackrock, Eaton Vance, Nike, SAP
News on Stocks in Our Portfolios
Northern Trust (Dividend Growth Portfolio) reported second quarter earnings per share of $.86 versus expectations of $1.05 and $.92 recorded in the comparable 2007 quarter.
VF Corp (Dividend Growth Portfolio) reported second quarter earnings per share of $.94 versus $.93 reported in last year’s second quarter.
Coca Cola (Dividend Growth Portfolio) reported second quarter operating earnings per share of $1.01 versus $.80 recorded in the comparable 2007 quarter.
http://finance.yahoo.com/q?s=KO
United Technologies (Dividend Growth Portfolio) reported second quarter earnings per share of $1.32 versus $1.16 recorded in the comparable 2007 quarter.
http://finance.yahoo.com/q?s=UTX
Nokia (Dividend Growth Portfolio) reported second quarter operating earnings per share of $.57 versus $.56 recorded in the comparable 2007 quarter.
http://finance.yahoo.com/q?s=NOK
More Cash in Investors’ Hands
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