10/28/08

Economics

This Week’s Data

September new home sales rose 2.7% versus expectations of a 1% decline. Inventories dropped to a 10.4 month supply versus 11.4 in August; the median price of a home fell 9% year over year--again an unfortunate necessity of returning the housing market to health.
http://bigpicture.typepad.com/comments/2008/10/new-home-sales.html

Charts on both new and existing home sales:
http://bespokeinvest.typepad.com/bespoke/2008/10/new-and-existing-home-sales-charts.html

Other

Another study refuting the stagnation of middle class income:
http://mjperry.blogspot.com/2008/10/fed-claims-of-middle-class-stagnation.html
http://mjperry.blogspot.com/2008/10/census-income-inequality-unchanged.html

A none too optimistic assessment of the economy from Art Laffer:
http://online.wsj.com/article/SB122506830024970697.html

And a possible solution:
http://www.american.com/archive/2008/october-10-08/a-sound-dollar-is-the-key-to-recovery

Update on the credit crisis indicators from Calculated Risk:
http://calculatedrisk.blogspot.com/2008/10/credit-crisis-indicators-progress.html

More data on the sharing of the tax burden:
http://mjperry.blogspot.com/2008/10/middle-income-tax-burden-lowest-level.html

Politics

Domestic

Here is a democrat, whose opinion I respect, take on the Obama ‘redistributionist’ interview:
http://www.slate.com/blogs/blogs/kausfiles/archive/2008/10/26/kausfiles-goes-rogue.aspx

International War Against Radical Islam

On the US raid into Syria:
http://article.nationalreview.com/?q=NDVlMmE2ODA5MDkzZDJkYjQ0ZjI3OTkyMWVjMzI1YjU=

The Market

Technical/ Fundamental

If you buy muni’s:
http://econompicdata.blogspot.com/2008/10/muni-delever.html

An update on the volatility index:
http://econompicdata.blogspot.com/2008/10/vix-calendar-skew.html

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The Averages (DJIA 8175, S&P 848) struggled inside my hypothesized trading ranges (DJIA 7853--9707; S&P 839--1062). The volatility index remains very high (75) and volume is pathetically low--neither a positive sign for an advance. In addition. stocks once again sold off in the last hour, suggesting that margin calls/redemptions are still a problem. Granted on the surface yesterday’s 200 DJIA point decline was mild relative to trading over the last 2-3 weeks, but there was severe whackage in many of the small cap names where liquidity can be a problem in normal times. (The last couple of trading days have been particularly rough on the Aggressive Growth Portfolio.) Bottom line--there is little to imply that the current water torture we are going through might be coming to an end.

In the meantime, the government’s plan to ease the credit crisis moves onward: yesterday the Treasury announced that investments were being made in additional banks and the Fed began buying commercial paper.

All that said, the indices closed in the bottom 15% of the trading range (DJIA 7853--9707; S&P 839--1062). So I was all set to buy stocks at the open this morning; but the futures are up a couple of hundred points. I am going to hold off and see if we get another late day sell off. If we do our Portfolios will Buy small portions of the indicated stocks. ( I will let you know via a Subscriber Alert) This will reduce cash in the Dividend Growth Portfolio from 24% to 22% and in the High Yield Portfolio from 21% to 19.5 %. Because of the on going destruction in the small cap sector, there aren’t enough stocks that appear to have found a bottom to warrant making purchases. Hence, nothing will be Bought in the Aggressive Growth Portfolio:

In the Dividend Growth Portfolio: Boeing (BA), Nokia (NOK), Automatic Data Processing (ADP), Emerson Electric (EMR) United Technologies (UTX).

In the High Yield Portfolio: Zenith Insurance (ZNT) and WP Carey (WPC)

Company Highlight

Nucor Corp is a manufacturer of steel and steel products (hot rolled steel shapes and cold finished bars, joists and deck. The company has grown profits and dividends at a 20%+ pace over the last 10 years earning a 20%+ return on equity. While current economic conditions will slow that growth over the short term, the longer term outlook for NUE remains bright because:

(1) a large percentage of sales are covered by long term contracts, stabilizing its production, and surcharges allowing it to pass on higher raw material costs,

(2) management’s focus on innovative and cost efficient ways to produce steel,

(3) an aggressive acquisition program that concentrates on purchases that are accretive via new cost saving technologies or add-ons to its product line.

Nucor is rated A++ by Value Line, carries a 28% debt to equity ratio, is pursuing a major stock buy back program and its stock yields over 5%.
http://finance.yahoo.com/q?s=NUE
10/08

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