8/6/08

Economics

Yesterday was Fed day; and the Fed left the Fed Funds rate unchanged. The statement accompanied it and investor reaction fit well with the current schizophrenic market; that is, the language in the statement was more hawkish, i.e. it suggested that the Fed’s perceived level of concern about inflation is rising and, therefore, there would be an increased likelihood of tighter monetary policy, but investors reacted as though it were more dovish, i.e. they assumed that Fed is more concerned about the continuing credit crisis and, therefore, is more likely to maintain an accommodative monetary policy. Why the seeming contradictory reaction? Oil and commodity prices continued to get whacked which was interpreted as a decline in inflationary pressures (which indeed it is) which in turn led to investors assuming that the Fed was bluffing. Bottom line: Fed policy is likely to remain easy for the foreseeable future.

A parsing of the Fed’s statement:

http://paul.kedrosky.com/archives/2008/08/05/first_lets_ban.html

http://www.bloggingstocks.com/2008/08/05/fomc-decision-doves-10-hawks-1/

Market performance following Fed days:

http://bespokeinvest.typepad.com/bespoke/2008/08/recent-fed-days.html

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A graphic on the Baltic Dry Index (not good):

http://bespokeinvest.typepad.com/bespoke/2008/08/baltic-dry-inde.html

More on the logic of a windfall profits tax on oil:

http://mjperry.blogspot.com/2008/08/oil-industry-ranks-60-by-profit-margin.html

Politics

Domestic

Obama’s presumptiveness:

http://hughhewitt.townhall.com/blog/g/848b9d7f-c718-46df-9030-449da99862dc

Obama on drilling in Alaska:

http://www.powerlineblog.com/archives2/2008/08/021165.php

International War Against Radical Islam

The Market

Technical

An ordinary guy could get a severe case schizophrenia is this Market. Yesterday, after three rough days in the marketplace of America, we were speculating about whether the indices would be able to hold a very short term up trend and give some added hope that stocks are making a bottom--or not and offer the possibility that a rough ride isn’t likely over. Twenty four hours and a rebound that more than recouped that aforementioned three day decline later, the question is, will those same indices overwhelm a sufficient number of resistance levels that the probability of bottom being made rises significantly?

Not only did the S&P [1284] (1) hold the July 2008 to present short term uptrend, (2) it blew through the January intraday low resistance level [1256] and the upper boundary of its May 2008 to present downtrend [1264]. The next resistance level is the former lower boundary of its 1982 to present uptrend [circa 1339]. The DJIA [11615] bounced off the May 2008 short term uptrend as well as remaining above the May 2008 to present downtrend; it is now a hair’s breadth below its January 2008 intraday low resistance level. The bottom line here is that we are now in the opposite position as we were yesterday; that is, yesterday morning we were watching and worried about stocks going lower and whether we might need to protect our profits in the energy/oil/commodity holdings; today, we watch with an eye to whether stocks have indeed established a bottom and we need to adjust our cash strategy.

Barry Ridholtz thoughts on the current rally:

http://bigpicture.typepad.com/comments/2008/08/looking-at-tues.html

Cramer’s thoughts on what is going on in the oil/commodity stocks:

http://www.thestreet.com/p/_htmlrmd/rmoney/jimcramerblog/10431998.html

Stock performance after a big up day:

http://bespokeinvest.typepad.com/bespoke/2008/08/an-equal-opport.html

Fundamental

Company Highlight

Altria is the holding company for Phillip Morris USA, John Middleton (machine made cigars), Phillip Morris Capital Corporation and owns a 28.6% interest in SABMiller (Miller brewing). As a result of the recent spin offs of Kraft Foods and Phillip Morris International, breaking out past return on equity numbers as well as dividend and earnings growth rates directly attributable to this entity is beyond our pay grade; plus we have yet to find any other analyst that has undertaken the task.

Looking forward, the primary attraction that MO holds for us is its dividend yield (5.6%) as well as its very high cash flow per share which should allow the company to increase its dividend annually as well as engage in a share buy back program.

That said, the company should be able to grow its earnings in the future as a result of:

(1) continued increase in US market share,

(2) product line extensions, such as a move into smokeless tobacco,

(3) an efficient distribution network,

(4) a strong sales force,

The most significant negative is the company’s legal liability; however, the recent trend in court rulings have been favorable to the tobacco industry. As a result this risk appears to be reflected in MO’s current price.

MO is rated B+ by Value Line.

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

News on Stocks in Our Portfolios

Proctor and Gamble (Dividend Growth Portfolio) reported its fourth fiscal quarter operating earnings per share of $.80 versus expectations $.78 and $.67 reported in the comparable 2007 quarter. Some analysis:

http://www.thestreet.com/p/_htmlrmm/rmoney/retail/10431939.html

http://seekingalpha.com/article/89414-proctor-gamble-tops-wall-street-in-management-feat

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

Here is a positive write up on Bucyrus Int’l (Aggressive Growth Portfolio). However, the stock is now caught up in the selling Cramer discusses above. At the moment it is sitting right on a major support level. If that gives way, the Aggressive Growth Portfolio will likely act to protect profits.

http://biz.yahoo.com/ts/080805/10431959.html?.v=1

More Cash in Investors’ Hands