I apologize for this; but I have a reunion to attend this coming weekend. We are leaving Friday after the Market close. So there will be no Closing Bell again this weekend.
Economics
Recent Data
Politics
Domestic
More on ACORN voter fraud:
http://jammiewearingfool.blogspot.com/2008/10/voter-fraud-you-can-believe-in-every.html
International War Against Radical Islam
On the removing of
http://article.nationalreview.com/?q=NGY3ODI1M2YyZjA2Yjk3NDdkM2VmMGRkZTNkNzEzYTc=
The Market
Technical
Ten charts from Barry Ridholtz:
http://www.thestreet.com/p/_htmlrmm/rmoney/investing/10442102.html
How this bear compares to those past:
http://bigpicture.typepad.com/comments/2008/10/how-this-bear-m.html
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The pin action yesterday (DJIA 9387, S&P 1003) was something else; the bonus being that for the first time in seven trading days, stock prices were up. I said last week that I believed that after a bottom had been made, we would see an explosion to the upside; and that is what we got. It is a little bothersome that the volatility index closed at 55 and that volume was paltry. On the other hand, banks may have been on a holiday but margin clerks weren’t; and the fact that there was no real selling pressure all day suggests to me that the worst of the force liquidation may be over.
All in all, I think that the indices made their bottom in this cycle (circa DJIA 7853 and S&P 839) Friday intraday. Of course I said that back in July and I was clearly wrong.
Fundamental
In my opinion, that doesn’t mean that it is now all roses and wine. While the collective and cumulative action by central bank authorities may have stemmed a collapse in the financial system (this morning the Treasury and Fed are going to announce a plan that is complementary to that of the Europeans in which among other things $250 billion of the $700 billion authorized by Congress will be invested in the equity of US banks, the FDIC will guarantee unlimited deposit insurance on business accounts and the government will guarantee interbank debt). (here’s a look at recent credit spreads, though this morning following the Treasury/Fed announcement, they are narrowing)
http://bespokeinvest.typepad.com/bespoke/2008/10/high-yield-sp-2.html
Investors may be relieved but our problems are not over. Soon if not immediately they begin assessing the extent to which the disruptions in the financial markets will impact economic growth; and beyond that there remains the issues of an enormous bulge that has occurred in the money supply which has to be reckoned with to avoid future inflation and the potential impact on future economic growth of a pro-tax, pro-spending, pro-regulation, anti-trade regime.
Bottom line: our strategy is going from defense, defense, defense back to managing our cash position within a trading range. The problem of course is that while we may know the bottom of the trading range (assuming that I am correct), we don’t know the top. Stock prices probably have more to go on the upside. The question in my mind is, will they get back to the level at which they traded before the capitulation started (DJIA 10890, S&P 1198). I, of course, don’t have a clue.
So what to do? First of all, the good news is that our Portfolios have gone from roughly a 43% cash position to a 28% cash position as of the Market close yesterday. Further, I know that until we have a clearer view of the extent of the impending economic malaise, I want a minimum of 15% cash. Finally, since I also believe that last Friday’s intraday lows will mark the bottom, I don’t think that our Portfolios’ cash position needs to be over 25%. (I note that as the economic outlook gains clarity, this 15-25% spread will go lower and the magnitude of the spread will narrow).
So our strategy for today is to take our Portfolios’ cash position down from 28% to 25%. At that point, I am ready to let our bet ride till stocks find a top to what I am theorizing will be a trading range.
Subscriber Alert
Here is what our Portfolios are buying today:
Dividend Growth Portfolio: Canon )CAJ), Wells Fargo (WFC), Nokia (NOK), Automatic Data Processing
(ADP), ConocoPhillips (COP), United Technologies (UTX).
High Yield Portfolio: Cato Corp (CTR), Quaker Chemical (KWR), Bank of Nova Scotia (BNS), RPM Int’l (RPM), Reynolds American (RAI), Plains All American Pipeline (PAA), Zenith Insurance (ZNT--another new name that will be Added to the Buy List).
Aggressive Growth Portfolio: Matthews Corp (MATW), Qualcomm (QCOM), Franklin Resources (BEN), SAP (SAP), Peabody Energy (BTU), Avon Products (AVP), Staples (SPLS), SEI Investments (SEIC), Reliance Steel (RS).
Company Highlight
Becton Dickinson produces a wide range of medical devices as well as products for the collection and transport of diagnostic specimens, instruments for analysis and testing for infectious diseases and research and clinical tools for the study of cells. The company has grown profits and dividends at a 13-15% annual pace over the last 10 years earning a 20%+ rate of return on equity. The company should sustain its growth via:
(1) growth of safety needle-free products. BDX is a world leader in this market which is growing at a 12% annual rate globally,
(2) the equally attractive rate of growth of the remainder of its well diversified product line [diabetes care, surgical equipment, ophthalmic systems, diagnostic systems and immunocytometric systems],
(3) a disciplined acquisition program to supplement organic growth. Recent purchases include two add ons to its diagnostics business: fast, easy and accurate tests and Pap smear and cancer diagnostics.
BDX is rated A+ by Value Line, has a debt to equity ratio of about 16% and its stock yields 1.3%.
10/08
News on Stocks in Our Portfolios
Johnson and Johnson (Dividend Growth Portfolio) reported third quarter earnings per share of $1.17 versus expectations of $1.11 and $.88 recorded in the comparable period in 2007.
More Cash in Investors’ Hands
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