8/7/08

Economics

a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.) More taxes = less oil:

http://www.ibdeditorial.com/IBDArticles.aspx?id=302829283496153

A study on the impact that taxes, limited government and flexible labor laws have on economic growth:

http://www.american.com/archive/2008/july-07-08/the-path-to-prosperity

More data on unemployment:

http://www.thestreet.com/p/_htmlrmd/rmoney/marketcommentary/10432146.html

The impact of commodity prices on the daily cost of living:

http://bespokeinvest.typepad.com/bespoke/2008/08/the-cost-of-hig.html

Taxes paid by industry:

http://bespokeinvest.typepad.com/bespoke/2008/08/sector-cash-tax.html

Politics

Domestic

International War Against Radical Islam

Another opinion from the NYTimes on a withdrawal schedule from Iraq:

http://www.powerlineblog.com/archives2/2008/08/021174.php

The Market

Technical/ Fundamental

More on stock performance following a DJIA 300+ day:

http://bigpicture.typepad.com/comments/2008/08/300-point-dow-g.html

And a rebuttal:

http://bespokeinvest.typepad.com/bespoke/2008/08/dow-jones-300-p.html

A chart of the volatility index:

http://bespokeinvest.typepad.com/bespoke/2008/08/vix-back-below.html

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Yesterday’s Market action was interesting.

(1) Freddie Mac reported horrendous earnings that were below expectations; and while most financial stocks were down on the day, they weren’t crushed as they have been in prior instances when a highly visible troubled firm announced bad news.

Tentative conclusion: the more frequently the financial stocks DON’T react to more negative news, the more likely that all the negative news has been discounted.

(2) oil traded down, but most of the oil stocks were up big,

Tentative conclusion: over the past year, oil stock prices never advanced as fast or as far as the price of oil; so it seems reasonable to assume that in this decline, oil stock prices will either bottom well in advance of oil prices or if they bottom simultaneously, oil stock prices will not decline as fast or as far as the price of oil. Yesterday could be a signal that oil stock prices have bottomed irrespective of oil prices. ‘Signal’ is the operative word; but if the next couple of trading days reinforce this conclusion, our Portfolios will likely re-start re-building its positions in oil and related stocks.

(3) the DJIA [11656] traded above the January 2008 intraday low resistance level [circa 11636]. This puts both indices above the upper boundary of their May to present downtrend [resistance] line and their January 2008 intraday low [resistance] level. That is clearly a positive, but--

Tentative conclusion: even though the DJIA traded above the January 2008 intraday low, it wasn’t by much; so from my point of view, we need either time or distance to confirm this breakout. If we get it, then we will shift to a strategy of managing our Portfolio’s cash position between 15-20%; if not, we will hold on to our 20% cash position and hope that the July 2008 low holds as the bottom to this cycle.

I deliberately included ‘tentative’ in all the above conclusions because each of the three developments are interrelated to and could be in potential conflict with the other two. So each ‘tentative conclusion’ assumes ‘all other things being equal’, which we all know that they never are. My purpose is to point out the cross currents in the Market and how they might lead to an alteration of our investment strategy. However, as of this moment there is no change in our strategy.

Subscriber Alert

The stock price of Nike (NKE-$62) has risen above the upper boundary of its Buy Value Range. Accordingly, it is being Removed from the Dividend Growth Buy List. The Dividend Growth Portfolio will continue to Hold NKE.

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

The stock price of WalMart (WMT-$61) has once again traded into its Sell Half Price Range. Therefore, at the Market open this morning, the Dividend Growth Portfolio will again reduce the size of this holding to 3% of the Portfolio.

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

The stock price of Avon Products (AVP-$44) has risen above the upper boundary of its Buy Value Range. Accordingly, it is being Removed from the Aggressive Growth Buy List. The Aggressive Growth Portfolio will continue to Hold AVP.

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

At the Market open this morning, the Aggressive Growth Portfolio will Sell another one quarter of its position in US Global Shares-Gold (USERX) and the proceeds will be re-invested in a one quarter position in Schlumberger (SLB-$97).

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

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

The High Yield Buy List

Company Close 8/6 Buy Value Range

AJ Gallagher $25.69 $23-27

American Tel & Tel 30.87 28-32

Dow Chemical 38.90 32-37

Pfizer 19.43 19-22

Plains All American 45.11 45-52

RPM Int’l 20.27 19-22

US Bancorp 31.82 30-35

News on Stocks in Our Portfolios

More Cash in Investors’ Hands