2/8/08

Economics

Some perspective on the ISM nonmanufacturing index report which (supposedly) led to Tuesday’s Market sell off:

http://blogs.forbes.com/digitalrules/2008/02/low-chance-of-r.html

Politics

Domestic

Hillary and Obama on taxes:

http://www.townhall.com/columnists/DonaldLambro/2008/02/07/tax-and-spend_democrats_just_dont_get_it?page=full&comments=true

International War Against Radical Islam

The Market

Technical

Fundamental

Yesterday started with multiple reports of poor January same store sales by retail chain stores followed by another lousy housing number--this one being December pending homes sales which were off 1.5% versus expectations of a decline of 1.0%. Pop quiz: If at 8:00AM CST yesterday, I had told you these numbers were coming, would you have guessed that the Market would close the day up or down? Most people would probably put me in the optimistic camp because, as you know, I think that the Market has bottomed. Yet even I would have bet that under those circumstances the Market would close on the downside--shows you what I know.

The point here is that when two of the major reasons (a poor housing market and a lethargic consumer) that investors have been pointing to as the rationale for selling stocks are not longer prompting them to sell, something has changed; and usually what has changed is not the fact pattern (yesterday’s pending home sales data and the January’s retail sales numbers were indeed crumby), it is the interpretation of the fact pattern or as we commonly say--the bad news is already in the stocks.

Clearly the above interpretation of yesterday’s stock price action is a positive one; however even if you are a bear, you can’t think that it is unreasonable to suggest that we may just have one more bit of evidence that a bottom has been made. That does not mean that I think that the probability that a bottom has been made has gone from 55/45 to 90/10, but it does mean that when we get the down days (like Tuesday) I will be buying stocks with more confidence.

That said, (1) two of my favorite technicians are calling for much lower lows and betting money against them gives me the willies, (2) we still need some clarity on how the marketplace is going to handle the financial problems of the monoline insurers before I will really stop worrying about a major downturn, (3) even if I am correct [that a bottom has been made], there remains a decent chance that the DJIA lows [11600] could be tested [which will not likely be a fun experience] and (3) one can never rule out the possibility that some negative exogenous event could wreak havoc [e.g. war with Iran, another attack in the US, some inane political move to ‘save the economy’ on the lines of Smoot Hawley]. So our investment strategy hasn’t changed to ‘investing cash reserves as quickly as possible’; but the longer we go without clear evidence that our economy is in trouble and the more obvious it becomes that investors have incorporated ‘the worse case’ into stock valuations, the more cash reserves I will put to work.

One last thought: what happens if we get a positive exogenous event?

CME Group

I spent much of yesterday on CME Group and have two comments:

(1) I am told that the CFTC wrote the Justice Department yesterday with the basic message that the regulatory oversight of the futures exchanges in their responsibility not the DOJ--so back off.

(2) guys I talked to on the floor of the Chicago Exchange make the point that there is complete transparency in the futures clearing operations while there are untold cases of fraud and malfeasance in the securitization sector of the financial markets. Neither the Treasury nor the DOJ have the time or manpower to be messing with the futures exchanges in the face of reforms that need to be made in this area.

Another opinion:

http://www.thestreet.com/s/cme-rebounds-after-analyst-upgrade/newsanalysis/financial-services/10402584.html?puc=_htmlbooyah

At the moment, I see this as just another example of bureaucratic over step that will get corrected; so the Aggressive Growth Portfolio will continue to Hold CME.

Subscriber Alert

The stock price of Clorox (CLX-$57) has declined below the upper boundary of its Buy Value Range. Accordingly, CLX has been Added to the Dividend Growth Buy List. Since the Dividend Growth Portfolio already owns this stock, no further shares will be purchased.

At the Market open this morning, the Dividend Growth Portfolio will Buy additional shares in Accenture (ACN-$33).

At the Market open this morning, the High Yield Portfolio will Buy additional shares in LCA-Vision (LCAV-$17).

The stock price of Luxottica (LUX-$25) has fallen below the lower boundary of its Buy Value Range. Therefore, it is being Removed from the Aggressive Growth Buy List. LUX’s stock price remains well above its Stop Loss Price, so the Aggressive Growth Portfolio will continue to Hold this position.

The stock prices of Avon Products (AVP-$39) and Alcon (ACL-$154) have risen above the upper boundary of their Buy Value Range. Accordingly, they are being Removed from the Aggressive Growth Buy List. The Aggressive Growth Portfolio will continue to Hold these stocks.

The stock price of Amphenol (APH-$38) has fallen below the upper boundary of its Buy Value Range. Therefore, it is being Added to the Aggressive Growth Buy List. Since the Aggressive Growth Portfolio already owns this stock, no additional shares will be bought.

At the Market open this morning, the Aggressive Growth Portfolio will Buy additional shares in Microsoft (MSFT-$28).

News on Stocks in Our Portfolios

Reynolds American (High Yield Portfolio) reported fourth quarter earnings per share of $1.01 versus $.61 recorded in the comparable 2006 quarter.

Avon Products (Aggressive Growth Portfolio) raised its quarterly dividend per share from $.185 to $.20.

Good news for the oil companies:

http://www.bloggingstocks.com/2008/02/08/exxon-xom-wins-on-in-venezuela/

More Cash in Investors’ Hands