1/9/08

Economics

The US economy--in need of a tax cut:

http://www.ibdeditorials.com/IBDArticles.aspx?id=284342701866778

Politics

Domestic

International War Against Radical Islam

A pretty harsh analysis from Col Ralph Peters on Monday’s ‘confrontation’ with Iran:

http://www.nypost.com/seven/01082008/postopinion/opedcolumnists/iran_1__usa_0_380577.htm

The Market

Technical

The Averages blew through the November intraday lows yesterday and are now perilously close to the August intraday lows (DJIA 12523; S&P 1370). If equity prices cannot sustain those levels, the next points of support are DJIA 11925 and S&P 1363. If those price levels are broken, the next support comes from the long term up trends, DJIA 11757 and S&P 1225. The technical picture is not pretty.

A technical study: when the December low is violated in the first quarter of the following year (like now), watch out:

http://bigpicture.typepad.com/comments/2008/01/stock-traders-a.html

Fundamental

Rough day and if I had to bet, it is going to get worse. This Market just has the feel of one that will end in one of those giant flushes; the $64,000 question is the price level at which that flush occurs. What is driving sentiment? My opinion hasn’t changed: a too tight Fed and a too populist field of leading Presidential candidates.

On the Fed, the minutes from its December meeting were released yesterday and they paint a picture of internal dissent, suggesting to me that the Fed is likely to stay too tight too long. I just can’t believe that these guys are that stupid and so I cling to some hope that they will do the correct thing. But at the moment, it is just that: ‘some hope’; and we can’t bet our money on it.

On the political front, here again I have to believe that voters will ultimately rebuke populist sentiments; but even if they do, it is going to be some time before that becomes obvious. (Barry Ridholtz makes a pretty good argument that I am wrong on this point, though it’s because I am likely right on the first point):

http://bigpicture.typepad.com/comments/2008/01/confusing-cause.html

So for the moment the best thoughts that I have are mostly repetitious from other high volatility periods: (1) keep losses small [pay strict attention to our Stop Loss Discipline], even if we have to buy a stock back later at a higher price, (2) keep populating our Buy Lists with stocks that are down but remain within their Value Ranges so that we know what we want to Buy when the flush comes, (3) I will keep doing my homework on the companies of those stocks that are falling out of their Value Range in order to either eliminate them from our Universe because of financial deterioration or set a new Value Range, (4) stay calm: we have plenty of cash, our Stop Loss Discipline will keep our losses small, we own a lot of great quality companies that are going to pay us an ever increasing dividend stream and we have our Buy Price Discipline that will keep us focused on buying strong companies at attractive prices.

Subscriber Alert

The stock price of T. Rowe Price (TROW-$51) fell below the upper boundary of its Buy Value Range. Accordingly, TROW is being Added to the Dividend Growth Buy List. The Dividend Growth Portfolio will not buy this stock at this time.

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

The stock prices of Genuine Parts (GPC-$42), Sysco Corp (SYY-$30) and Ingersoll Rand (IR-$40) have fallen below the lower boundary of their respective Buy Value Ranges. Therefore, these stocks are being Removed from the Dividend Growth Buy List. The Dividend Growth Portfolio does not own GPC or IR, so no further action is needed. The Dividend Growth Portfolio will continue to Hold SYY.

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

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

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

Today at the Market open, the Dividend Growth Portfolio will continue to average out of those stocks that have traded near or below their respective Stop Loss Prices. It will Sell the final one third position in Graco (GGG-$34) and a second one third position in Canon (CAJ-$45). In addition, it will Sell an initial one third position in Illinois Tool Works (ITW-$45).

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

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

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

The stock price of Worthington Industries (WOR-$17) has fallen below the upper boundary of its Buy Value Range. Accordingly, WOR is being Added to the High Yield Buy List. The High Yield Portfolio will not take a position in WOR at this time.

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

Today at the Market open, the High Yield Portfolio will Sell a one third position in Realty Income Trust (O-$22).

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

The stock prices of Quest Diagnostic (DGX-$51) and Accenture Ltd (ACN-$34) have fallen below the upper boundary of their respective Buy Value Ranges. Therefore, DGX and ACN are being Added to the Aggressive Growth Buy List. The Aggressive Growth Portfolio already owns these two stocks. No additional shares will be purchased.

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

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

At the Market open this morning, the Aggressive Growth Portfolio will Sell a second one third position in both Reliance Steel (RS-$47) and Simpson Manufacturing (SSD-$24), an initial one third position in Fastenal (FAST-$36) and its entire position in Rocky Mountain Chocolate Factory (RMCF-$14; see below).

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

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

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

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

News on Stocks in Our Portfolios

Rocky Mountain Chocolate Factory (Aggressive Growth Portfolio) reported its third fiscal quarter earnings per share of $.19 versus $.20 recorded in the comparable period of the prior fiscal year. While new store openings continued to grow, the lower results were a function of (1) the timing of the recognition of a sale to a major customer and (2) declining same store sales. While management said that they expect FY 2008 to be a record year, the declining same store sales in particularly troubling. I am revising downward the Value Range for RMCF; having done so, I think it makes sense to take our profit in this stock and retire to the sidelines.

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

Oshkosh Truck (Aggressive Growth Portfolio) announced a joint venture with Northrup to bid on the military’s replacement for the Humvee--a multi billion dollar contract.

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

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