Economics
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.). W and the 2008 fiscal budget:
http://thehill.com/business--lobby/late-in-the-game-eads-promises-more-alabama-jobs-2008-01-15.html
Politics
McCain on drilling in the Alaska Wildlife Reserve:
http://hughhewitt.townhall.com/blog/g/528e8170-9ca6-45eb-b1e9-56ad9b161cb4
Domestic
International War Against Radical Islam
W’s discussion with
http://www.slate.com/id/2182071
The Market
Technical
Yesterday was abysmal from a technical perspective. The DJIA (12159) scooted through the 1982-present uptrend line (12400 + or -) like a scalded dog. A level of minor support appears to be around 11900. Meanwhile, the S&P (1333) blew through its August low (1370) but remains well above the up trend line (1261 + or -) off the 1982 low. So watch DJIA 11900 and S&P 1261, if a new challenge occurs.
A hopeful sign that we may be approaching a bottom:
http://bigpicture.typepad.com/comments/2008/01/nyse-of-stocks.html
Fundamental
Of course, technical or no, it was still an awful day. I had no intent of being prophetic in yesterday’s Morning Call when I alluded to a 300-500 point down day (‘on any given day, the Market could be down 300-500 points on the open then recover on record volume and I’d be have half our cash reserves at work by 8:45 the next morning’); unfortunately I was prophetic by one half since there was no recovery.
Three points following yesterday action:
(1) I think what drove this Market lower was the pathetic performance of Bernanke in his congressional testimony. For those of you who watch CNBC you know that it went on for hours; for the rest, let me distill his remarks down to what is relevant to the Market and the economy. He said that the old Keynesian formula of throwing cash at voters was a great idea; no mention of any incentive to produce, invest or create a job. In other words, he was pandering to politicians who are fretting about a recession that may not occur.
Unfortunately, that is not the worst of it. It is what he didn’t say that matters; like: ‘the growth in the monetary base has been flat for a year which acts as a restraint on economic expansion plus at present the Fed Funds rate is higher than the long term lending rate which means that there is no incentive for credit institutions to make loans; so congressmen relax, there are plenty of things the Fed can do to help head off a recession; plus the Fed can do them quicker--like tomorrow versus a two or three month process for you guys [if you’re lucky]’ or maybe perhaps something more simple yet striking like ‘the Fed will lower the Fed Funds rate by 75 basis points tomorrow morning’.
http://article.nationalreview.com/?q=ZmJmMGRjOGQ4M2JjNDU0MGEyZDE3ODRiYjA3MzliYzU=
(2) in the last couple of trading sessions, I expressed the hope that the recent positive relative performance of the financial and retail stocks was a sign that the Market could be bottoming. Well, yesterday the financial stocks got clocked again; although, the retail stocks by and large had a good day. The stocks in these two industry sectors may be struggling for a bottom, but at the moment it is so anemic that I don’t think we can base an investment decision on it,
(3) our Portfolios were not exempt from the carnage, so I am making the following changes:
(a) as a result of a stock price decline below the lower boundary of their respective Buy Value Ranges, American International Group (AIG-$54), Bank of Nova Scotia (BNS-$45), T. Rowe Price (TROW-$48) and General Electric (GE-$33) are being Removed from the Dividend Growth Buy List while Rayonier (RYN-$39) and Worthington Industries (WOR-$15) are being Removed from the High Yield Buy List. Out of this group, the only stocks that our Portfolios own are BNS and GE, neither of which is being Sold,
(b) as a result of a stock price decline to near their Stop Loss Price, the Dividend Growth Portfolio is Selling an initial one third of its position in 3M (MMM-$75), the High Yield Portfolio is Selling an initial one third of its position in Verizon (VZ-$41) plus the final one third position in Realty Income Trust (O-$22) and the Aggressive Growth Portfolio is Selling an initial one half of its position in Oshkosh Truck (OSK-$41). The sale of both 3M and Verizon are being made to protect substantial profits in these Holdings,
(4) finally, because the recent volatility will likely continue, rather than keep shuffling the Buy Lists, each day I am going to give you a Watch List, which will include all the stocks that are trading in their Buy Value Range as well as those that have traded through it and hit their Stop Loss Price but which could easily rebound to within their Buy Value Range if the Market put in a bottom. Once the decline is over, I will move the Watch Lists to the Buy Lists. In the meantime, we keep our powder dry.
Dividend Growth Watch List: Fortune Brands, Genuine Parts, McGraw Hill, Brown Forman, Clorox, Avery Dennison, UPS, MDU Resources, Proctor and Gamble, Sysco, Johnson and Johnson, Chevron, General Electric, Emerson Electric.
High Yield Watch List: US Bancorp, Quaker Chemical, Reynolds American, Buckeye Pipeline,
Aggressive Growth Buy List: Franklin Resources, Eaton Vance, Rockwell Collins, Bucyrus Int’l, Donaldson, Amphenol, Expeditors Int’l, Factset Research, Mastercard, Best Buy, Quest Diagnostic, Landstar, CME Group, Fastenal, SAP, Accenture; and of course I want to re-build the holdings on the 10 Bagger List: US Global Shares-Gold, Medivation, H2 Diesel, ParkerVision
News on Stocks in Our Portfolios
Proctor & Gamble (Dividend Growth Portfolio) will spin off its Folger’s Coffee division to shareholders.
http://finance.yahoo.com/q?s=PG
General Electric (Dividend Growth Portfolio) reported fourth quarter operating earnings per share of $.68, in line with expectations and up form $.64 recorded in the comparable 2006 quarter.
http://finance.yahoo.com/q?s=GE
More Cash in Investors’ Hands
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