8/7/07

Economics

protectionism (Free trade is a major positive for world and US economic growth.)

http://www.realclearpolitics.com/articles/2007/08/the_democrats_dither_on_trade.html

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Fundamental

If you are getting seasick with all the ups and downs, join the crowd. We said yesterday morning that the key to the short term movement in the Market likely depended on whether or not the DJIA and S&P could close back above their respective support levels--admittedly having not the slightest clue that stocks would bounce as violently as they did. Today, we would make two points:

(1) it is a good sign that the Averages immediately bounced back above the support levels to which we have previously referred [DJIA 13200 and S&P 1449]. From our perspective, that now means that investors have become aggressive buyers twice at those levels--each time following major negative news events; which suggests that in aggregate investors see value at those price levels. We don’t think that it necessarily follows that the worst is over; but it does increase the probability that it is. A short term key to Market direction will be some sort of acknowledgement by the Fed in its meeting today that it is aware of the crisis in the credit markets [meaning that it is prepared to act if the worse case develops].

(2) the financial stocks fully participated in this latest bounce, also suggesting that investors are becoming at least slightly more sanguine about likelihood [or lack thereof] of a disaster in the credit markets. We frankly have our doubts that there aren’t further shoes to drop in this sector. That said, the credit market problem isn’t new and most investors by now probably appreciate the likelihood of further bad news--which means that those risks are starting to be discounted in equity prices.

The stocks of a number of major participants in the credit markets have traded into their Buy Value Ranges, Accordingly, they are being Added to our Buy Lists BUTARE NOT BEING BOUGHT AT THIS TIME. The point of this exercise is to let you know that (1) we think that the time to Buy the financial stocks may be getting closer--though it still isn’t here, (2) as we suggested in yesterday’s blog, when the time to Buy comes, it is likely to be very volatile to the upside and (3) therefore, a quick response on our part may be necessary.

The second successful test of the DJIA/S&P support level raises our confidence that the credit problem is becoming a more contained which prompts us to continue to average into non-financial related stocks; however, we think it prudent to get today’s Fed meeting behind us, just in case they say something stupid.

The new names that are being Added to our Buy Lists are:

Dividend Growth Buy List

Merrill Lynch (MER-$70)

EPS: 2006 $6.64, 2007 $8.75, 2008 $8.70; DVD: $1.40 YLD 1.6%

http://finance.yahoo.com/q?s=MER

High Yield Buy List

Citicorp (C-$48)

EPS: 2006 $4.25, 2007 $4.45, 2008 $4.95; DVD: $2.16 YLD 4.5%

http://finance.yahoo.com/q?s=C

Aggressive Growth Buy List

Schwab

EPS: 2006 $.80, 2007 $.95, 2008 $1.20; DVD: $.20 YLD .9%

http://finance.yahoo.com/q?s=SCHW

We stress that our Portfolios are NOT taking positions in these stocks; we will notify you when purchases are made.

News on Stocks in Our Portfolios

Emerson Electric (Dividend Growth Portfolio) reported its third fiscal quarter earnings per share of $.72 versus expectations of $.69 and $.59 reported its 2006 third fiscal quarter.

EPS: 2006 $2.24, 2007 $2.55, 2008 $2.90; DVD: $1.08 YLD 2.2%

http://finance.yahoo.com/q?s=EMR

Otter Tail (High Yield Portfolio) reported second quarter earnings per share of $.53 versus $.37 recorded in the comparable 2006 quarter.

EPS: 2006 $1.69, 2007 $1.65, 2008 $1.75; DVD: $1.17 YLD 3.7%

http://finance.yahoo.com/q?s=OTTR

Market Analysis

More Cash in Investors’ Hands

Wells Fargo is buying back 50 million shares.