9/4/08

Economics

Recent Data

July factory orders jumped 1.3% versus expectations of a .5% increase; in addition, June orders were revised upward from +1.7% to +2.3%. Following on the mildly disappointing construction spending and ISM manufacturing numbers, this is a welcome return to an upbeat performance from the industrial sector.

The International Council of Shopping Centers reported weekly sales of major retailers rose .1% from the prior week and 2.2% from the comparable period in 2007; Redbook Research reported month to date retail chain stores sales increased 2.3% on a year over year basis.

Auto (and light trucks) sales were down 15.5% versus expectations of a rise of 4%. Ugh.

http://bigpicture.typepad.com/comments/2008/09/auto-sales-crat.html

And some chart porn to go with it:

http://econompicdata.blogspot.com/2008/09/asia-based-autos-up-to-almost-50-of-us.html

The Fed released its latest beige book report (a once every six weeks anecdotal look at the economy). Its conclusions: business conditions are slowing nationwide, credit conditions are tightening, consumer spending is slowing, housing is lousy, manufacturing is weak and inflationary pressures are rising. There is not much new here; the only question I have is regarding industrial activity; to date the weekly data have not been bearing out the beige book conclusion.

Other

Analysis from Robert Samuelson on the latest economic scorecard (must read):

http://www.realclearmarkets.com/articles/2008/09/the_real_economic_scorecard.html

Barry Ridholtz’s last shot at last week’s GDP number (this is also a must read(:

http://bigpicture.typepad.com/comments/2008/09/taking-a-closer.html

Some thoughts from Roger Altman (former Treasury official) on the regulation of the financial markets:

http://bigpicture.typepad.com/comments/2008/09/can-the-fed-sav.html

Chart on the dollar:

http://bespokeinvest.typepad.com/bespoke/2008/09/dollar-golden-c.html

Chart on hourly wages plus fringe benefits:

http://mjperry.blogspot.com/2008/09/counting-fringe-benefits-average-worker.html

And median income per household member:

http://mjperry.blogspot.com/2008/09/five-problems-with-census-poverty.html

A windfall profits tax on corn?:

http://mjperry.blogspot.com/2008/09/windfall-profits-tax-on-corn-soybeans.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.). Farm values, crop prices and the farm bill:

http://mjperry.blogspot.com/2008/09/chart-above-for-farm-values-in-midwest.html

Politics

Domestic

International War Against Radical Islam

The Market

Technical

From the standpoint of the Averages, not much changed yesterday. Both remain in the May/August 2008 downtrend. Watch the S&P (1274) January/March intraday lows (1267/1256) as a signal for further downside.

Fundamental

A graphic of the S&P versus the ten year Treasury:

http://econompicdata.blogspot.com/2008/09/things-that-make-you-go-hmmmm.html

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On the other hand, my decision yesterday on delaying selling BP and Peabody Energy was wrong. BP rallied a little while BTU got smoked There was a modest rally in some oil/commodity stocks; but I think that investors decided that there were more problems coming in commodity fund land, so the selling basically continued. Accordingly we will plunge ahead with the strategy I outlined yesterday: selling sufficient shares to bring oil/commodity holdings down to a one half sized position under two circumstances (1) stocks that have fallen into the price zone between the lower boundary of their Buy Value Range and their Stop Loss Price or (2) stocks in which we have profits whose prices have broken a support level.

Listed below are the oil/commodity stocks held in each of our Portfolios. The column titled ‘First Stop’ is one of the two prices described above. The second column is the current long term Stop Loss on those stocks. Those prices marked in red are those where immediate action is needed. Therefore, at the Market open this morning, the indicated Portfolio will Sell sufficient shares of the Stocks indicated (MRO, BP, BUCY, BTU, SII) to lower the size of those holdings to 50% of normal. I marked Reliance Steel in blue to indicate that this holding was already at 50% of a normal size. You can also see that there are a number of stocks’ prices that are very close to the ‘First Stop’ price, so there may well be more transactions to follow.

Price 9/3 First Stop Final Stop Loss

Dividend Growth Portfolio

ConocoPhillips $79.09 $78.75 $56.84

Chevron 84.18 80.94 78.52

ExxonMobil 78.02 77.53 71.40

Marathon Oil 44.11 44.63 41.90

High Yield

BP 54.44 57.09 49.83

PennVirginia Resource Ptrs 23.56 22.45 20.40

Alliance Resource Ptrs 42.15 41.82 27.10

Aggressive Growth Portfolio

American Vanguard 14.84 14.72 10.94

Bucyrus Int’l 53.80 58.15 37.08

Peabody Energy 53.35 59.60 37.93

Reliance Steel 53.48 57.62 52.59

Frontier Oil 19.01 17.08 15.19

Schlumberger 88.69 88.67 78.73

Smith Int’l 64.99 66.34 42.50

Suncor Energy 50.57 46.51 38.99

XTO Energy 47.26 45.07 46.54

Company Highlight

C.R. Bard is a medical device manufacturer with products in three markets: vascular (angioplasty catheters and stents), urology (catheters, urine collection systems and incontinence aids) and oncology (gastroenterological, bladder, prostate, hernia, orthopedic and laparoscopic products). The company produces a 20%+ return on equity; has a very sound balance sheet with only 7% debt to equity ratio; and has grown earnings at approximately 15% for the past 10 years. Dividend growth has been slower but should pick up in the next 2 to 3 years. In addition, management has indicated that it intends to shrink its share base by 1% annually.

As you can tell by its product mix, Bard is well situated to benefit from an aging population and should be able to maintain above average profit and dividend growth because:

(1) a top notch R&D effort producing exciting new high margin products,

(2) strategic acquisitions to complement and enhance its current product line,

(3) an expanding marketing effort,

(4) an aggressive cost control effort.

BCR’s stock has been a stellar performer in our Portfolio having traded well past our Sell Half Price and is a great example of why we only sell half of a well performing position as long as the company continues to meet all our financial hurdles. While the current yield on the stock is only .7%, it yields 5% (nearly 50 basis points over the long Treasury bond yield) on our cost--again another great example of why we want to own the stocks of companies who consistently raise their dividend. The company is rated A by Value Line

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

9/08

News on Stocks in Our Portfolios

A positive comment on General Dynamics (Dividend Growth Portfolio):

http://www.zacks.com/rank/zcommentary/?id=8471

Staples (Aggressive Growth Portfolio) reported second quarter earnings per share of $.21 in line with expectations bur down 15% from the comparable 2007 quarter.

More Cash in Investors’ Hands