Economics
This Week’s Data
Yesterday’s economic releases made for pretty grim reading:
August business inventories rose .3% in line with estimates; unfortunately, business sales once again declined, in August by 1.8%.
The September producer price index (PPI) fell .4% versus forecasts of a .3% drop; core PPI rose .4% versus expectations of a .2% increase.
Weekly mortgage applications (secondary indicator) were down very slightly (-.03%); however, mortgage rates have risen in the last couple of days and that doesn’t bode well for housing.
The October New York Fed’s manufacturing survey (secondary indicator) came in at -24.6 versus estimates of -10.0 and September’s reading of -7.4.
The Fed released its once every six week anecdotal look at the economy, the Beige Book; and it was generally gloomy, saying that the economy was weak across all geographic and industry sectors.
Weekly jobless claims fell 16,000 versus expectations of a 13,000 decline.
http://calculatedrisk.blogspot.com/2008/10/weekly-unemployment-claims.html
A closer look at yesterday’s September retail sales number:
http://www.capitalspectator.com/archives/2008/10/the_big_fade_on.html
Other
There is more than one positive (falling gasoline prices) to lower oil prices:
http://faustasblog.com/?p=6924
Eye candy on inflation--no problem here, for the time being:
http://econompicdata.blogspot.com/2008/10/impllied-inflation-below-1-over-next.html
A long term chart plotting bank failures:
http://mjperry.blogspot.com/2008/10/biggest-economic-nonsense-since-great.html
Politics
Domestic
More on ACORN:
http://www.commentarymagazine.com/blogs/index.php/rubin/37452
Obama’s tax plan:
http://powerlineblog.com/archives/2008/10/021767.php
International War Against Radical Islam
The Market
Technical
Up dates on charts of Market indicators:
http://traderfeed.blogspot.com/2008/10/midweek-look-at-stock-market-indicators.html
A long term chart of the DJIA:
http://econompicdata.blogspot.com/2008/10/dow-jones-long-term-perspective.html
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As I said in yesterday afternoon’s Subscriber Alert, it looks like we are already facing a test of last Friday’s lows (DJIA 7853, S&P 839)--something that I clearly wasn’t expecting judging by yesterday’s Morning Call. I also said that I thought that the massive forced liquidation of stocks resulting from hedge fund margin calls was largely over. As sickening as yesterday’s pin action was, that still may be the case. Checking around with traders after the Market close, I am told that the selling yesterday came as much from mutual funds that are suffering record share redemptions as it did from hedge funds--which to be sure is as much a forced sale as a margin call. Another positive sign that hedge fund liquidation may be nearing an end is that it is now a lead story on CNBC. So, if hedge fund liquidation is largely behind us, then while the supply/demand problem that we have had over the last couple of weeks hasn’t improved as much as I thought yesterday, it still appears that the ranks of sellers are shrinking.
On the fundamental side, I believe that the crescendo of fear over the collapse of the financial system was made last Friday. In my opinion, too many steps have been taken by too many entities for the ‘collapse’ scenario to occur. Nevertheless, that doesn’t necessarily assure an immediate rise in investor confidence that financial institutions have returned to sound footing; and, indeed, a look at the history of past credit crises suggests this process takes three to six months. (As an aside, I will say that there are some initial, very tentative signs of improved confidence, the most important of which is a decline in LIBOR rates.) So while it would help immensely for investor confidence to rebound immediately, that seems unlikely. On the other hand, I see no reason for it to act as a driving force for further equity price declines.
http://www.bloggingstocks.com/2008/10/15/private-equity-s-bigwigs-zero-in-on-deals/
That leaves us with fear of a severe recession as the primary driving force of yesterday’s decline. Lending some support to this notion was the relative performance of various sectors in yesterday’s Market. Not that there was a lot of comfort to be had from anything we own; but the financials we own while off big, still didn’t approach the price levels of last Friday. Materials and industrials, on the other hand, closed near and in many cases below their prices of last Friday.
So what have we got:: forced liquidation of stocks not over but still evidence that the end may be close, tentative signs of a return of confidence in the credit markets with investor attention starting to shift to the shape of the economy post credit crisis but with no clue what that shape is and stock prices down 35-40% from a year ago. Given this, I am still willing to bet that the low was last Friday; and our Portfolios reflected that taking cash from 25% to 22% yesterday afternoon. Following that the Market traded down another DJIA 300 points and is a mere 700 points above last Friday’s intraday low.
This morning our Portfolios are going to take cash from 22% to 20.5%. I should note that while this is a small dollar bet, it is probably the riskiest bet I have made since 2002. Clearly that risk is that last Friday’s low is not the bottom and that we still face THE FLUSH. Invest your own account accordingly.
Subscriber Alert
This morning, our Portfolios will Add to the following holdings:
Dividend Growth Portfolio: Wells Fargo (WFC), 3M (MMM), Coca Cola (KO), WalMart (WMT), Manulife Financial (MFC).
High Yield Portfolio: Bank of
Aggressive Growth Portfolio: American Vanguard (AVD), Balchem (BCPC),
Fundamental
Company Highlight
Qualcomm Inc develops and markets cutting edge integrated circuits used primarily in wireless applications. QCOM has grown profits at a 20%+ annual rate over the last 10 years; and has raised its dividend per share from an initial $.09 in 2003 to $.64 in 2008. It has done this while earning a 20% return on equity. The company future appears equally promising as a result of:
(1) it recently settled litigation with Nokia in which it will receive a substantial up front payment as well as ongoing royalties for NOK’s use of its patents in its mobile devices and infrastructure equipment,
(2) the strong worldwide demand for high end mobile devices which utilize QCOM’s technology,
(3) the expansion of the number of features and uses being developed by carriers (mobile computing, mobile video, mobile banking), all of which require QCOM’s technology.
The company is rated A by Value Line, has no debt but a huge cash position which can be used for R&D to pursue new strategic initiatives and its stock yields 1.6%.
http://finance.yahoo.com/q?s=QCOM
10/08
News on Stocks in Our Portfolios
Wells Fargo (Dividend Growth Portfolio) reported third quarter earnings per share of $.49 versus expectations of $.41 and $.64 reported in its 2007 third quarter.
Abbott Labs (Dividend Growth Portfolio) reported third quarter operating earnings per share of $.79 versus estimates of $.77 and $.46 recorded in the comparable 2007 quarter.
More Cash in Investors’ Hands
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