9/6/07

Economics

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

http://thehill.com/leading-the-news/free-trade-deals-face-rocky-path-2007-09-04.html

The Market sold off after the release of the Fed’s beige book report yesterday. (you will recall that this report is a once every six week anecdotal look at the economy). It was generally upbeat about the economy--which was the problem; investors wanted a weak report to insure that the Fed would cut the Fed Funds rate at its next FOMC meeting. A brief summary:

(a) tighter lending standards in all districts [well, duhh],

(b) housing is weak but commercial real estate activity is expanding,

(c) retail sales are positive,

(d) the manufacturing sector is expanding.

Two points:

(a) in his speech last week, Bernanke emphasized that in reviewing the need to reduce the Fed Funds rate, he would be looking at ‘anecdotal’ data--a clear reference to this report--and as we indicated above, it is not exactly an argument for cutting rates. To be sure, we don’t think that economic activity over the last six weeks is particularly relevant to resolving the freeze up in the credit markets; the question is, does Mr. Bernanke?

(b) if it weren’t for the more negative monthly and weekly statistics reported over the last two months, we would be emphasizing how this current beige book report supports the ‘soft’ landing forecast. Unfortunately, we have to give more weight to actual versus anecdotal data; so we are not overly impressed with this report as an offset to those data points. The question is, is the Fed?

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Fundamental

The stock price of McCormick (MKC-$35) has traded below the lower boundary of its Buy Value Range. Coincidently, we finished a review of MKC last weekend and its financials have deteriorated--not to the point that McCormick’s financial strength has fallen below our minimum criteria but they are close. Coupling the stock price breakdown and the declining financial condition with a macro economic outlook that is becoming less clear, we are going to err on the side of caution and Sell the MKC position on the Market open this morning. As an aside, MKC has produced a 20%+ capital gain for the Dividend Growth Portfolio on top of its dividend yield.

News on Stocks in Our Portfolios

Parkervision’s (10 Bagger) stock price has been performing nicely of late. We think that it is related to the recent receipt of an FAA contract by ITT (remember, ITT has signed a contract to utilized PRKR technology in its wireless applications) for its (ITT’s) role in the rehabilitation of the air traffic control system. If the move in its equity price is related in any way to a new contract about which we have speculated in prior communications, we have no knowledge of it.

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