The Closing
Statistical Summary
Current Economic Forecast
2007
Real Growth in Gross Domestic Product: 2.0- 2.5%
Inflation: 2 - 2.5 %
Growth in Corporate Profits: 6-8%
2008 (revised-again)
Real Growth in Gross Domestic Product (GDP): -1.0 - +1.0%
Inflation: 2-3%
Growth in Corporate Profits: 0-5%
Current Market Forecast
Dow Jones Industrial Average
2008
Current Trend:
Short Term Up trend 11415-12220
Medium Term Downtrend 10791-12726
Long Term Trading Range 7100-14203
Year End Fair Value (revised): 13450-13850
2009 Year End Fair Value (revised): 13850-14250
Standard & Poor’s 500
2008
Current Trend:
Short Term Uptrend 1276-1355
Medium Term Downtrend 1167-1395
Long Term Trading Range 750-1527
Long term Up Trend 1317-1797
Year End Fair Value (revised): 1533-1577
2009 Year End Fair Value 1595-1635
Percentage Cash in Our Portfolios
Dividend Growth Portfolio 18%
High Yield Portfolio 18%
Aggressive Growth Portfolio 18%
Economics
The economy is a neutral for Your Money. The data continue to paint a picture of a struggling economy. Housing remains a black hole, the consumer is gasping for air while the industrial sector is generating what growth there is in today’s economy. Meantime, the inflation readings inch ever upward. That said, the strengthening dollar, collapsing gold price and the narrowing of the TIPS spread suggest that this risk may be behind us. Bottom line: the economy looks to be in a mild recession; and it may be at its most negative right now. So to inflation. This week’s reports:
(1) once again the only housing statistic is weekly mortgage applications {secondary indicator} and once again they were off--this time 1.5%,
(2) measures of consumer health were generally below expectations: [a] the International Council of Shopping Centers reported weekly sales of major retailers down 1.1% from the prior week but up 2.6% on a year over year basis; Redbook Research reported month to date retail chain store sales rose 1.5% versus the comparable period in 2007, [b] July retail sales as reported by the Commerce Department fell .1% versus expectations of a .3% decline; ex autos, they were up .4% versus estimates of a .5% rise, [c] weekly jobless claims were down 10,000 versus forecasts of a 13,000 decline, [d] finally, the University of Michigan reported its preliminary August index of consumer sentiment at 61.7 versus expectations of 62.0 but up from July’s 61.2 reading,
(3) every measure of industrial activity came in above estimates: [a] June business inventories grew .7% versus forecasts of an increase of .5%; but repeating the recent pattern, June business sales rose more than inventories {+1.7%}, driving down the inventory to sales ratio, [b] July industrial production increased .2% versus {i} expectations that it would remain unchanged and {ii} +.5% reported in June, [c] July capacity utilization came in at 79.9 versus estimates of 79.8 and June’s 79.9 report, [d] the August New York Fed manufacturing survey {secondary indicator} was reported at +2.77 versus an anticipated reading of -5.55 and -4.9 recorded in July,
(4) the macroeconomic data were mostly negative, though a shrinking trade deficit provided some positive news: [a] the July consumer price index {CPI} jumped .8% versus expectations of a .4% increase; core CPI rose .3% versus estimates of +.2%--that brings the year over year core CPI to +2.5%, above the 1-2% comfort range of the Fed, [b] the June international trade deficit was reported at $56.8 billion--much better than the anticipated $62 billion level, [c] the July Federal budget deficit came in at $102.8 billion versus estimates of $97 billion and $36 billion recorded in July 2007.
The Economic Risks:
(1) the economy is weaker than expected.
(2) Fed policy (reading the data correctly).
(3) a disruption in global oil supplies (It is not the price of oil but its availability that will cause severe economic dislocation.).
(4) protectionism (Free trade is a major positive for world and
(5) 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.).
(6) a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.)
Politics
Both the domestic and international political environments are a negative for Your Money.
Obama is moving to the middle on economic policy and that makes the domestic political environment less of a negative:
http://article.nationalreview.com/?q=MmQ1NGRkNDVlYjg4NTY3NTY0YjBmZWU2NzZlMmYwNTA=
The Market-Disciplined Investing
Technical
The DJIA (11659) and the S&P (1298) remain within two easily identifiable trends: (1) a short term uptrend off their July 2008 low defined by DJIA circa 11415-12220 and S&P circa 1276-1355 and a longer term downtrend off their October 2007 highs defined by DJIA circa 10791-12726 and S&P circa 1167-1395.
The more time and distance stocks put between themselves and the July lows, the greater the likelihood that those lows were the bottom. That, however, is not the same thing as saying that the July low was the bottom.
Fundamental-A Dividend Growth Investment Strategy
The DJIA (11659) finished this week about 13.7% below Fair Value (13516) while the S&P closed (1298) around 16.5% undervalued (1555).
This week our Portfolios moved from a short term strategy of primarily focusing on protecting profits and avoiding losses to managing their cash positions between a low of 15% (buying stocks on price weakness) to a high of 20% (selling stocks on price strength). Buy candidates are those stocks (1) whose positions were either partially or totally reduced previously to protect profits in those holdings AND have regained price stability and (2) which are trading within their
Our investment strategy is:
(a) defense is still important--protect profits and avoid losses,
(b) watch Market technicals for confirmation that a bottom has been made; and in the mean time on a short term basis, resume buying positions in great quality companies whose stocks are trading within their
(c) on a longer term basis, recognize that there remain fundamental factors that argue for caution and therefore to proceed carefully with our Buying, keeping a larger than normal cash position in anticipation of valuation and strategy changes that could result from a potentially new domestic economic agenda.
DJIA S&P
Current 2008 Year End Fair Value 13650 1570
Fair Value as of 8/31//08 13516 1555
Close this week 11659 1298
Over Valuation vs.8/31 Close
5% overvalued 14192 1632
10% overvalued 14868 1710
Under Valuation vs. 8/31 Close
5% undervalued 12840 1477
10%undervalued 12164 1400
15%undervalued 11488 1322
20%undervalued 10813 1244
The Portfolios and Buy Lists are up to date.
Company Highlight:
C.H. Robinson Worldwide is one of the largest third party logistics companies in
http://finance.yahoo.com/q?s=CHRW
Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 38 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.
