10/25/07

Economics

protectionism (Free trade is a major positive for world and US economic growth.). The benefits of free trade:

http://www.ibdeditorials.com/IBDArticles.aspx?id=278028687267492

And it doesn’t impoverish US workers:

http://www.poorandstupid.com/2007_10_21_chronArchive.asp#5906990647076982634

Politics

Domestic

International War Against Radical Islam

A thorough review of the circumstances surrounding the recent Israeli attack on Syria:

http://article.nationalreview.com/?q=NTc0NjIzYTY3ZGM5MjFhY2M1ODIxMTcxYWU2Y2ViMWU=

The Market

Technical

Fundamental

Yesterday’s intra Market 200 point rebound was pretty impressive. If you were watching, stocks got whacked early on lousy news from the financial sector [a much bigger Merrill Lynch earnings write off than expected--a concern that I voiced Tuesday] then rebounded on a rumor that the Fed would lower the discount rate ahead of next week’s FOMC meeting (in which it is being speculated the Fed will lower the Fed Funds rate by another 50 basis points). The Fed rate cut may happen; and stocks may rally further in anticipation of lower interest rates. But I don’t think that one should assume that yesterday’s intra day reversal means that stocks are ready for another move up because (1) the news out of the financial institutions just seems to be getting worse by the day, (2) if the Fed is going to lower the Fed Funds rate another 50 basis points, it likely means that it thinks that the probabilities of a recession have increased--which as I pointed out a couple of weeks ago has never been priced into the Market, and (3) lest we forget, stocks in general are fairly valued to slightly overvalued. The whole point here is that there is sufficient economic uncertainty to keep investors in their current schizophrenic state for some time to come and current equity valuation leaves little room on the upside for more bad news.

Barry Ridholz’s take on the likely effectiveness of another rate cut:

http://bigpicture.typepad.com/comments/2007/10/can-housing-be-.html

News on Stocks in Our Portfolios

Chicago Mercantile Exchange, whose name has changed to CME Group, (Aggressive Growth Portfolio) reported third quarter earnings per share of $3.87 versus $2.95 recorded in the comparable 2006 quarter. The company also announced its intent to buy a 10% stake in the Brazilian Mercantile and Futures Exchange.

EPS: 2006 $11.80, 2007 $13.75, 2008 $16.15; DVD: $3.44 YLD 0.6%

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

Microsoft (Aggressive Growth Portfolio) has agreed to invest $240 million in Facebook which is valued at $15 billion by this deal.

EPS: 2006 $1.20, 2007 $1.42, 2008 $1.70; DVD: $.49 YLD 1.4%

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

Eli Lilly (Dividend Growth Portfolio) announced that it is stopping the late stage Phase II trial for its blood thinning drug (a potential block buster) in order to re-do the trial protocol.

EPS: 2006 $3.18, 2007 $3.50, 2008 $3.75; DVD: $1.70 YLD 3.0%

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

Graco (Dividend Growth Portfolio) reported third quarter earnings per share of $.60 versus $.54 recorded in the comparable 2006 third quarter. The company attributed this strong performance to robust international sales and its stock buy back program.

EPS: 2006 $2.17, 2007 $2.30, 2008 $2.60; DVD: $.66 YLD 1.7%

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

Not much additional fall out following yesterday’s WalMart analysts meeting dust up which was over the relative amount of capital expenditures spent domestically versus internationally. While the rhetoric from the people I talk to has been dialed down considerably, some damage to the management/Street relationship has nevertheless been done. However, for the moment, as long as the stock isn’t getting clocked, I would like to wait and see who will be proved correct in management’s disagreement with the analysts on the company’s capital expenditure strategy. Were it to be management, analysts are apt to be forgiving.

Alcon (Aggressive Growth Portfolio) reported third quarter earnings per share of $1.38 versus expectations of $1.35 and $.76 recorded in 2006’s third quarter.

EPS: 2006 $4.35, 2007 $5.25, 2008 $5.90; DVD: $2.06 YLD 1.5%

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

Reynolds American (High Yield Portfolio) reported third quarter earnings per share of $ versus expectations of $1.21 and $. recorded in 2006’s third quarter.

EPS: 2006 $4.10, 2007 $4.50, 2008 $4.75; DVD: $3.20 YLD 5.3%

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

More Cash in Investors’ Hands