8/29/08

Economics

The benefit of lower tax rates (this is a bit long but a great analysis):

http://www.taxfoundation.org/publications/show/23534.html

A more in depth look at yesterday’s GDP/PCE report:

http://bigpicture.typepad.com/comments/2008/08/are-you-measuri.html

Here’s another look:

http://econompicdata.blogspot.com/2008/08/gap-between-gdp-deflator-and-cpi-widest.html

And Wednesday’s durable goods report:

http://bigpicture.typepad.com/comments/2008/08/durable-goods-d.html

July personal income was reported this morning down .7% versus expectations of down .4%. The worst economic news posted this week. Here is a graphic look:

http://econompicdata.blogspot.com/2008/08/real-personal-income-july.html

In addition, July personal spending was reported at down .4% versus estimates of down .2%

Politics

Domestic

Obama’s experience:

http://www.washingtonpost.com/wp-dyn/content/article/2008/08/28/AR2008082802852.html?sub=AR

International War Against Radical Islam

The Market

Technical

Stocks with the highest short interest:

http://bespokeinvest.typepad.com/bespoke/2008/08/stocks-with-the.html

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Both indices busted through the upper boundary of the descending trend off their May highs. In the case of the S&P (1300) as we have already noted, it has support in its January intraday 2008 and March intraday 2008 lows (1269, 1256 respectively). The only major visible resistance is the upper boundary of its October 2007 to present down trend (circa 1387). Unfortunately, the only support for the DJIA (11715) is its July 2008 intraday low (10809), although Thursday it did close above its January 2008 low (11634). Like the S&P, there is major resistance at the October 2007 to present downtrend upper boundary (12656).

All that said as you know, I generally don’t immediately assume a break out after a support/resistance level has been penetrated for only one day. So let’s see what happens tomorrow and next Tuesday. Another reason for tempering my enthusiasm is that the yardage the Market has racked up in the last couple of days has been on very weak volume (investor participation) and it will probably be lower today. To be sure, when stocks are up, they’re up no matter the volume. However, my point is that until all the players are present I am not going to start feeling all warm and fuzzy about this latest rally.

As a final thought, (1) in a perfect world given my belief that the July low was the bottom of this Market cycle, I would love to see the DJIA test its last low (11288) and hold before re-commencing putting our cash to work, (2) however, it is not a perfect world and as I outline below there are some fundamental reasons that argue for the Market’s continued advance; so as an alternative technical signpost, I am watching the August highs of both Averages (circa DJIA 11886 and S&P 1308) to see if investors are willing to push stock values above those levels.

Another sign that the worst may be over:

http://bespokeinvest.typepad.com/bespoke/2008/08/retailers-and-f.html

Fundamental

My uncertainty on the technicals is matched by the same on the fundamental side. The economic data has been very promising this week in the sense that in several ways they are suggesting that the worst of this current slowdown may be behind us (see comments on housing starts, durable goods orders and second quarter gross domestic product in prior Morning Calls); and they have clearly made an impression on investors. Oh, were it to be. And it maybe. It is just that one week’s worth of statistics does not a trend make. For the moment, we can be hopeful; but some skepticism this early on is necessary

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Subscriber Alert

The stock prices of US Bancorp (USB-$32) and ATT (T-$32) have risen above the upper boundary of their respective Buy Value Ranges. Accordingly, they are being Removed from the High Yield Buy List. The High Yield Portfolio will continue to Hold these stocks.

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

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

The stock price of CH Robinson Worldwide (CHRW-$53) has risen above the upper boundary of its Buy Value Range. Therefore, it is being Removed from the Aggressive Growth Buy List. The Aggressive Growth Portfolio will continue to Hold CHRW.

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

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Here’s a post by Barry Ridholtz on Street performance over the last 12 months and year to date. Below it, I listed the performance of our three Portfolios along with the S&P:

http://bigpicture.typepad.com/comments/2008/08/incredible-stat.html

last 12 months YTD

S&P -9.3% -1.2%

Dividend Growth -4.5% +.5%

High Yield -3.3% -1.0%

Aggressive Growth +.4% +8.4%

News on Stocks in Our Portfolios

Brown Forman (Dividend Growth Portfolio) reported its first fiscal quarter’s earnings per share of $.73 versus $.77 recorded in the comparable quarter in 2007. The problem related to production difficulties at a tequila distilling operation.

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

More Cash in Investors’ Hands