9/9/08

Economics

Recent Data

July consumer credit grew by $4.5 billion versus expectations of a $6.2 billion increase. This was the slowest rise of the year although the June rise of $14.3 billion was the largest since November 2007. Conclusion: volatility but not contraction.

Other

The impact of the ethanol mandate:

http://mjperry.blogspot.com/2008/09/demon-ethanols-great-disruption-100.html

Another indicator of recession (this one is positive):

http://mjperry.blogspot.com/2008/09/based-on-hours-worked-no-recession.html

Politics

Domestic

International War Against Radical Islam

This is a very long article about what is going on inside Pakistan, but it is worth the time to read it:

http://www.nytimes.com/2008/09/07/magazine/07pakistan-t.html?pagewanted=all

The Market

Technical/ Fundamental

A not too positive look at US stock valuation:

http://www.capitalspectator.com/archives/2008/09/still_searching.html#more

Chart porn on stock performance post labor day in a Presidential election year:

http://bespokeinvest.typepad.com/bespoke/2008/09/post-labor-day.html

**********************************

Great rally. Unfortunately neither index (DJIA 11510; S&P 1267) was able to break above the upper boundary (DJIA 11517; S&P 1280) of the May/August short term down trend; though the S&P did regain the March 2008 support level (1256). Clearly the Averages have some work to do just to establish themselves in a trading range; and until they do, we need to be extra careful.

Adding to that sense of caution is that fact that as nice as a DJIA +289 point day may have been, the internal pin action was schizophrenic. The stock groups that were getting whacked last week were either down or rallied so pathetically that we have to assume these stocks have more downside. On the other hand, the stocks that had been performing well in last week’s decline continued to move up strongly.

The point here is that the inconsistency of the stock price action among various industry groups results in a seemingly inconsistent investment strategy and is really a continuation of what we witnessed last week: energy, materials and technology stocks acting terrible even when the Market is up while financial and consumer stocks are doing very well even when the Averages are down.

By way of illustration:

http://bespokeinvest.typepad.com/bespoke/2008/09/financial-secto.html

http://bespokeinvest.typepad.com/bespoke/2008/09/sp-energy-secto.html

In yesterday’s price spike some of our holdings actually moved into their Sell Half Range while others were not only unable to recover to the lower end of their Buy Value Range, they declined. Needless to say this is making our stated strategy of selling stocks when the Market is up and buying them on declines a little difficult; witness that today we are selling both stocks that have had truly great performance and those where we are trying to protect profits.

Subscriber Alert

The stock prices of Northern Trust (NTRS-$84) and Proctor & Gamble (PG-$72) traded into their Sell Half Range. Accordingly, at the Market open this morning, the Dividend Growth Portfolio will Sell sufficient shares to reduce these holdings to a normal size.

The stock price of Nokia (NOK-$19) couldn’t even muster an up tick, so the Dividend Growth Portfolio will Sell its remaining share of this position.

The stock price of Penn Virginia (PVR-$22) below the lower boundary of its Buy Value Range. The High Yield Portfolio will Sell approximately 20% of this position.

The stock prices of American Vanguard (AVD-$13) and Suncor Energy (SU-$46) also did poorly in yesterday’s Market. The Aggressive Growth Portfolio is reducing these positions to one half of normal.

The High Yield Buy List

Company Close 9/9 Buy Value Range

Dow Chemical $33.03 $32-37

Gannett 18.50 18-21

Pfizer 19.14 19-22

Plains All American 46.09 45-52

RPM Int’l 21.10 19-22

News on Stocks in Our Portfolios

Altria (High Yield Portfolio) is acquiring UST for $11 billion.

http://www.thestreet.com/story/10436175/1/altria-agrees-to-buy-ust.html?puc=_htmlbtb

A positive review of Avon Products (Aggressive Growth Portfolio):

http://www.zacks.com/newsroom/commentary/?id=8020

More Cash in Investors’ Hands