6/17/08

Economics

The talking heads are abuzz over Robert Novak’s article predicting that the Fed won’t raise interest rates. His forecasting history leaves something to be desired:

http://bigpicture.typepad.com/comments/2008/06/novak-is-no-exp.html

A new study on government spending and economic growth:

http://online.wsj.com/article/SB121357899416776129.html?mod=opinion_main_commentaries

Politics

Domestic

Analysis of Obama’s social security proposal (from liberal blogger Mickey Kaus).

http://www.slate.com/id/2193674/#bigdonut

International War Against Radical Islam

The Market

Technical

A history of stock market performance during options expiration week:

http://bespokeinvest.typepad.com/bespoke/2008/06/option-expirati.html

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Technically speaking, yesterday the Market didn’t give us much additional information about its direction. DJIA (12269) closed about 6 points above its April 2008 low (12263); the S&P remains within the 1982 to present up trend. Neither index attempted to attack the May 2008 to present down trend line we discussed in our last Closing Bell. So the question before us remains, is DJIA 12263 truly a support level and will the May 2008 to present downtrend lines once again offer resistance? At the moment, I think that there is no clearly defined trend/trading range around which to base our cash reserve management strategy, i.e. raising cash reserves at the top end of a trading range and spending it at the lower end. Hence, we do nothing.

Fundamental

The price of oil versus the price of oil stocks:

http://bespokeinvest.typepad.com/bespoke/2008/06/oil-outperformi.html

Expected earnings growth for the second quarter:

http://bespokeinvest.typepad.com/bespoke/2008/06/expected-second.html

And for the next four quarters:

http://bespokeinvest.typepad.com/bespoke/2008/06/expected-earnin.html

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Subscriber Alert

Visit www.strategic-stock-investments.com to see what we are buying/selling today.

Company Highlight

Dow Chemical manufactures basic chemicals and plastics as well as specialty chemical products. While its 10 year record of profit and dividend growth has been sub par, recent improvements its operations has resulted in 25%+ annual earnings growth over the last five years and a return of equity in the 15-20% range. This trend should continue as a consequence of:

(1) its increased penetration of faster growing geographic markets,

(2) its business strategy of growth through the formation of joint ventures which [a] provide additional capital for deployment into faster growing, less cyclical specialty chemicals, [b] reduce earnings volatility, [c] improves margins,

(3) its improved operating results allows DOW to continue to make additional acquisitions, form additional joint ventures, buy back shares {50 million shares have been repurchased since 2006} and debt repayments.

DOW is rated A by Value Line, carries a 28% debt to equity ratio and its stock yields over 4%.

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

CNBC Million Dollar Portfolio Challenge

Portfolio 1 (86.6%): Sold: 3M

Bought: Johnson Controls

Positions: Automatic Data Products, Johnson Controls, Nucor,

Canon

Portfolio 2 (88.3%): Sold: Nokia

Bought: United Technologies

Positions: Franklin Resources, Graco, United Technologies,

Best Buy

Portfolio 3 (91.9%): Sold: none

Bought: none

Positions: Nucor, Ross Stores. ConocoPhillips, Federated Investors

Portfolio 4 (81.8%): Sold: Blackrock, Donaldson

Bought: Wells Fargo, Dow Chemical

Positions: Wells Fargo, Dow Chemical, Peabody Energy, Walgreen

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