10/29/08

Economics

This Week’s Data

The International Council of Shopping Centers reported weekly sales of major retailers up .5% versus the prior week and 1.3% on a year over year basis; Redbook Research reported month to date retail chain store sales rose .7% versus the comparable period in 2007.

The Conference Board reported a stunning decline in its October consumer confidence index to 38.0 versus estimates of 52.0 and 59.8 recorded in September; that is the lowest reading in the past 40 years.
http://bigpicture.typepad.com/comments/2008/10/consumer-confid.html

The FOMC meets today and we get an announcement on Fed policy (the Fed Funds rate) this afternoon. For all practical purposes, the Fed has already cut its rate:
http://mjperry.blogspot.com/2008/10/fed-has-already-cut-fed-funds-rate-to-1.html

Other

What’s wrong with capital gains taxes:
http://www.realclearmarkets.com/articles/2008/10/why_obama_gets_capitalgains_ta.html

Update on the Case Shiller index (housing prices):
http://bigpicture.typepad.com/comments/2008/10/home-price-decl.html

More evidence of the ‘unfreezing’ of the credit markets:
http://econompicdata.blogspot.com/2008/10/commercial-paper-release-hounds.html

But not all the news is positive:
http://calculatedrisk.blogspot.com/2008/10/ny-times-lenders-begin-to-curb-credit.html

Politics

Domestic

International War Against Radical Islam

The Market

Technical

An interesting perspective on how ‘bad’ things are in the Market:
http://bigpicture.typepad.com/comments/2008/10/how-far-back-ar.html

TraderFeed thinks that yesterday was a breakout:
http://traderfeed.blogspot.com/2008/10/stock-market-breakout-and-other-tuesday.html

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Stocks ripped yesterday (DJIA 9065, S&P 940) though they remain well within a DJIA 7853--9707; S&P 839--1062 trading range. The volatility index was off 16% but is still extraordinarily high (67) and stays above the lower boundary of an easily identifiable up trend off an early September low. All in all, not particularly encouraging. In addition, volume was disappointingly low, suggesting more of an absence of sellers than aggressive buyers.

There were two encouraging things to note: (1) many of our stocks that had traded below their October 10 lows bounced back above those levels and (2) recall I suggested in an earlier post that when stocks went up on bad news that would be a very positive sign that the worst was over. Well yesterday the Conference Board reported its October consumer confidence index which was disastrous (see above)--and stocks rallied big.

Fundamental

As you know, our Portfolios lightened up on some holdings in the last hour of trading yesterday. (Yes, I know; yesterday morning, I said that our Portfolios were going to buy if stocks weakened--but that was 900+ points ago. The way this Market is trading, time is a meaningless concept; it is all about distance.) The focus of those sales was on stocks that had traded below their October 10 lows and hadn’t recovered; and even though stocks closed a couple of hundred points above where our sell orders went in, most of these sell candidates remained below their 10/10 level.

I may live to regret not re-investing the proceeds of those sales; but until stocks prove that they are not in a trading range (DJIA 7853--9707; S&P 839--1062), I think we stick with our current strategy of selling strength and buying weakness within the trading range. Remember, we are likely facing an economic down turn; and because until very recently investors have been apoplectic about the health of the financial system, they are just now starting to focus on the impact that the credit crisis will have on the economy. My guess is there is some backing and filling ahead of us till there is at least a modicum of visibility on the shape of the economy in 2009.

Aggressive Growth Buy List

Company Close 10/28 Buy Value Range

Balchem Corp $21.16 $21-24
Harley Davidson 21.28 21-24
Mastercard 136.01 119-137
Peabody Energy 28.95 24-28
Qualcomm 38.91 35-41
Reliance Steel 21.12 20-23
Styrker 51.43 48-55
TJX Corp 25.38 25-29

Subscriber Alert

Yesterday’s rally pushed the stock price of Westamerica Bancorp (WABC) above the upper boundary of its Buy Value Range. Hence, it is being Removed from the Aggressive Growth Buy List.

News on Stocks in Our Portfolios

BP (High Yield Portfolio) reported third quarter earnings per share of $.43 versus $.23 recorded in the similar period in 2007.

Boeing (Dividend Growth Portfolio) has reached a tentative agreement with the machinist union.
http://www.thestreet.com/story/10444501/1/boeing-union-reach-tentative-accord.html?puc=_htmlbtb

Positive comments on Smith Int’l (Aggressive Growth Portfolio):
http://www.zacks.com/blog/post_detail.html?t=15561

Proctor & Gamble (Dividend Growth Portfolio( reported its first fiscal quarter earnings per share of $1.02 versus expectations of $.99 and $.92 reported in the comparable 2008 fiscal quarter.

More Cash in Investors’ Hands