5/9/08

Economics

a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.) And pundits wonder why approval ratings are so low:

http://article.nationalreview.com/?q=MGI5NDYyNDNlMjI3NWZkMWNlY2UyODU2YTgxMDI4YmQ=

Guess what happens if congress extends W’s tax cuts (hint: you taxes rise anyway):

http://gregmankiw.blogspot.com/2008/05/coming-tax-hike.html

The Farm Bill goes to W’s desk; can you say oink?:

http://www.examiner.com/a-1380637~Oink__Oink__Oink__Congress_goes_hog_wild_with_farm_bill.html

Politics

Domestic

Hillary’s and Obama’s voting record in 2007:

http://nj.nationaljournal.com/voteratings/votes.htm

International War Against Radical Islam

The Market

Technical

Fundamental

Subscriber Alert

The stock prices of Home Depot (HD-$27), Coca Cola (KO-$57) and Automatic Data Processing (ADP-$42) have traded into their respective Buy Value Ranges. Accordingly, they are being Added to the Dividend Growth Buy List. The Dividend Growth Portfolio already owns KO; but the size of this holding is such that additional shares could be purchased. However, none will be bought at this time. Further, no shares of HD or ADP will be purchased at this time.

The stock prices of ConocoPhillips (COP-$89) and General Dynamics (GD-$91) have traded into their respective Sell Half Ranges. Therefore, at the Market open this morning, the Dividend Growth Portfolio will Sell sufficient shares of each to adjust their position to a normal sized holding. I should note that both stocks have traded in their Sell Half Range previously and shares were Sold on those occasions. So this morning’s sales involve only an additional 100-200 shares each.

The stock price of Kimco Realty Trust (KIM-$40) has declined below the upper boundary of its Buy Value Range. Accordingly, it is being Added to the High Yield Buy List. The High Yield Portfolio already owns KIM, so no additional shares will be purchased.

The stock price of Realty Income Trust (O-$25) has traded below the lower boundary of its Buy Value Range, Therefore, it is being Removed from the High Yield Buy List. O’s stock trades well above its Stop Loss Price; so for the moment, the High Yield Portfolio will continue to Hold this stock.

The stock prices of Peabody Energy (BTU-$70) and Smith International (SII-$82) have traded into their respective Sell Half Ranges. Accordingly, at the Market open this morning, the Aggressive Growth Portfolio will Sell sufficient shares in each to reduce the holdings of these stocks to a normal size. In the case of BTU this amounts to the sale of approximately one third of the position. As to Smith International, this stock has traded into its Sell Range previously and shares were Sold. Today sale will be only 100 additional shares.

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At the risk of stating the obvious, a number of stocks have traded into their Sell Half Ranges in the last two weeks. While I am clearly please, this unexpectedly pleasant surprise is having two interrelated affects:

(1) in the first instance, it complicates our current cash management strategy; that is, part of my original vision had been to build cash (from 10% to 15%) during Market advances by Selling the stocks of companies that weren’t fitting our Valuation Model as a result of underperformance. However, what is happening now is that our Portfolios are building cash because some stocks have performed too well. Since I still want to gradually eliminate the poorer performing holdings, this most likely means that at least temporarily the upper boundary of our Portfolios’ cash position will exceed 15%,

(2) however, it is also causing me to seriously rethink our current strategy. Usually, when a number of stocks trade into their Sell Half Range, the Market is approaching a top, it is time to let our cash positions build and I need to refrain for striving too hard to put that cash back to work. But generally in those circumstances, the inherent tendency of our Discipline to build cash at Market highs is reinforced by the lack of names on our Buy Lists because most stocks are at the very least fairly valued. Yet today, our Buy Lists contain a volume of names that is reminiscent of past Market lows. Furthermore, the indices tend to be Over Valued by at least 10%; not 5% Undervalued as they are today. So this is a bit perplexing. The easy answer is that we have a dramatically bifurcated Market; and that may indeed be the case. But it may also not be the case. I make the point not because I have an answer but to alert you that this is an unusual circumstance. that I need to think and study on it some more and that it could lead to an unexpected switch in investment strategy.

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