8/20/08

Economics

Fed policy (reading the data correctly). Brian Wesbury on the danger of inflation:

http://online.wsj.com/article/SB121910289433951323.html?mod=opinion_main_commentaries

And a repass:

http://mjperry.blogspot.com/2008/08/inflation-is-clear-and-present-danger.html

More chart porn (and perspective) on inflation:

http://bespokeinvest.typepad.com/bespoke/2008/08/feds-lacker-and.html

On the ‘Gang of 10’ energy proposals:

http://blog.heritage.org/2008/08/19/gang-of-10-energy-plan-is-gangrene/

Politics

Domestic

International War Against Radical Islam

The Market

Technical

The disappointing close yesterday for the DJIA (11348) and S&P (1266) put both indices below the lower boundary of their July 2008 to present up trends. As you know, I am not a believer that a one day penetration of trend line necessarily means that trend is broken--I tend to allow a little time and distance before making that judgment.

However, thinking ahead if we assume that the trend is broken (see below) the next visible support level for the S&P is near by--the March 2008 intraday low at circa 1255. The DJIA is not so lucky. For the Dow, the nearest support is its July 2008 intraday low (10762)

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A chart on the 10 Treasury Note:

http://bespokeinvest.typepad.com/bespoke/2008/08/treasury-yields.html

Fundamental

Initially dampening investor spirits yesterday were the morning economic reports on inflation (PPI was reported much higher than expectations; but the time period that this statistic measured didn’t incorporate the latest plunge in commodity and oil prices) and housing starts (which were horrible; but the only way we get an improvement in housing is to work off the current high inventories; and the only way to do that is to stop building new houses and sell the ones that are already built. So basically the bad housing number was a positive, in my opinion). Here are some charts that illustrate the housing and inflation situations:

http://bigpicture.typepad.com/comments/2008/08/housing-starts.html

http://econompicdata.blogspot.com/2008/08/producers-price-index-july-finished.html

I think that the real reason for the decline was that we are in the midst of another bout of doubt over the financial stocks--which makes my comment in yesterday’s Morning Call about Monday’s pin action being ‘garden variety profit taking’ look a bit vacuous. On the other hand, my observation with respect to widening credit spreads appears to have been right on. Indeed, I think that Monday and Tuesday’s stock price performance was recognition that investors were having one of those ‘emperor’s new clothes’ moments when suddenly everyone grasps a reality (deteriorating credit spreads signaling rising levels of risk in the financial markets) that has been staring them in face all along. (Comments from Barry Ridholtz on this mess:)

http://bigpicture.typepad.com/comments/2008/08/paulson-playing.html

Which likely means that yesterday will not prove to be ‘a one day penetration of a trend line’. Today our Portfolios are going to take a break from our strategy of ‘spending cash on Market weakness’. Let’s see how the Market does today and we’ll reassess our strategy for tomorrow after the close.

One other point: oil stocks continue to hold above prior lows even though the price of oil has been quite volatile and much of that to the downside. I repeat my observation of a week or so ago--if these stocks have stopped declining in face of weakness in the underlying commodity, they may be at a bottom and we should start re-building our Portfolios’ positions. More on that tomorrow also.

Company Highlight

Magellan Midstream Partners is a master limited partnership that is involved with the transportation, storage and distribution of refined petroleum products in the US. Since its founding in 2001, the partnership has grown earnings from $.95 a share to $2.60 in 2007 and dividends from $1.01 in 2001 to $2.75 in 2007. While these growth rates will slow, they nevertheless should continue to increase at an attractive rate due to:

(1) the company’s ability to raise fees and tariffs on a regular basis,

(2) an aggressive cost control plan,

(3) expansion of its capital projects, in particular, its marine and inland terminals (the company has over $500 million in projects under development),

(4) an active acquisition program.

MMP’s unit provides a current yield of 8% and management has stated its objective to grow its annual distribution by 9%. Value Line rates the company’s units B+ and the partnership carries a debt to equity ratio of approximately 50%.
http://finance.yahoo.com/q?s=MMP

News on Stocks in Our Portfolios

A positive write up on Accenture (Aggressive Growth Portfolio):

http://www.zacks.com/rank/zcommentary/?id=8346

Cramer interviewed the CEO of Wells Fargo yesterday. Here is a summary of that session. The Dividend Growth Portfolio doesn’t own this, but it is one I want to Buy when it is clear the financial stocks have bottomed.

http://www.thestreet.com/p/_htmlrmd/rmoney/jimcramerblog/10433922.html

More Cash in Investors’ Hands