7/11/07

Economics

fiscal profligacy (Government spending as a percent of GDP is too high and the looming explosion in entitlement expenditures will make it worse. There is no good solution save spending discipline.). Here is a scorecard on how all Senators rank as devotees of pork. Check out your Senators:

http://porkbusters.org/scorecard.php

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Once again the DJIA couldn’t breach the 13690 level and the S&P after trading briefly above 1527 fell below it. The headline reasons for the sell off were (1) trouble in the sub prime market--S&P put a slew of bonds on credit watch, Moody’s downgraded some securities and rumors on the Street are that six junk bond deals can’t get done, (2) trouble in housing and (3) trouble in the retail sector. The question is, is there any rationale behind these reasons or is this action just the recognition by investors that at the DJIA 13690 [S&P 1527] level, they are unwilling to pay higher prices?

As for the retail news, it was company specific--Sears is a merchandizing disaster and Home Depot is struggling; so for the moment, we are not going to translate that to mean retailers are doing poorly in general and, therefore, we wouldn’t this as a reason for the Market to decline.

Housing is a bit more of a problem. Before we left on vacation, we noted that it looked like housing was starting another leg down. Unfortunately, there has been no news since to suggest otherwise; however, the bears have been relentless in their pessimism on this sector for the last year. Even though we may have been more positive, it is not likely that this latest lousy housing news was unexpected--again not providing an adequate explanation for the whackage.

The sub prime market is the big unknown. We said a couple of weeks ago that we won’t know how bad things are in the sub prime market until we look back over our shoulder and then it will be too late. That was the reason why we made some modest sales of the financial stocks. We still count this as the big unknown and the most likely source for exogenous bad news.

http://www.bloggingstocks.com/2007/07/10/subprime-industry-hit-again/

The most likely sign as to whether this sell off was the result of buyers stepping back after a nice run or that the sub prime market is about to tank and will take the rest of the Market with it will be in the follow through. So in our opinion we need to keep one eye on the Market and the other focused on the news or lack thereof out of the sub prime credit market.

Fundamental

News on Stocks in Our Portfolios

Rocky Mountain Chocolate Factory (Aggressive Growth Portfolio) reported it first fiscal quarter operating earnings per share of $.17 versus $.14 recorded in the comparable quarter of 2006. The company also announced a 5% stock dividend and a $5 million stock buyback.

EPS: 2006 $.74, 2007 $.88; DVD: $.29, YLD 2.7%

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

Cramer loves ConocoPhillips (Dividend Growth Portfolio):

http://www.thestreet.com/s/cramers-mad-money-recap-fill-er-up-with-conocophillips/funds/madmoneywrap/10367177.html?puc=_tscwrap

Medivation (10 Bagger) is being added to the Russell 2000 Index.

Market Analysis

More Cash in Investors’ Hands

Gerdau is acquiring Chaparral Steel for $4.2 billion in cash.

7/10/07

Economics

a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.) On the new government mandates on fuel efficiency:

http://www.washingtonpost.com/wp-dyn/content/article/2007/06/28/AR2007062801793.html?sub=AR

Politics

Domestic

International War Against Radical Islam

Syria invades Lebanon. We haven’t seen this report anywhere else. Don’t sell your oil stocks.

http://www.michaeltotten.com/archives/001483.html

The Market

Technical

Fundamental

News on Stocks in Our Portfolios

Johnson & Johnson (Dividend Growth Portfolio) announced a $10 billion stock buy back.

EPS: 2006 $3.76, 2007 $4.05, 2008 $4.35; DVD: $1.62, YLD 2.6%

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

And some positive comments: http://healthcare.seekingalpha.com/article/40596

ConocoPhillips (Dividend Growth Portfolio) announced a $15 billion stock buy back.

EPS: 2006 $9.99, 2007 $8.65, 2008 $8.55; DVD: $1.64, YLD 2.1%

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

The Chicago Board of Trade approved its acquisition by the Chicago Mercantile (Aggressive Growth Portfolio).

EPS: 2006 $11.60, 2007 $14.00, 2008 $16.25; DVD: $3.44, YLD 0.6%

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

ParkerVision (10 Bagger) hasn’t really done much in the recent rally; however, the company continues to work with potential customers on their wireless system design which would incorporate PRKR’s technology. Remember the company has already received one contract which we believe validated that technology. Given the timing of the major cell phone manufacturers’ product cycle, if the company is going to get a new contract this year (which we think it will), it will likely occur sometime before the end of September. This clearly doesn’t make Parker a ‘must buy’ today; but we think that if you don’t own this stock, you probably should before the end of summer. Remember that the 10 Bagger holdings are ¼ to 1/3 of a normal sized position.

Market Analysis

More Cash in Investors’ Hands

7/9/07

Economics

Most the economic data reported during our absence was an improvement over what we had been receiving in the prior two weeks and hence supported our current forecast. That is encouraging.

Politics

Domestic

More on border security or the lack thereof (read this):

http://powerlineblog.com/archives/018175.php

International War Against Radical Islam

The Market

Technical

The Market reflected the better tone of the economic statistics last week. The key technical points to be watching now are on the upside--13690 on the DJIA and still 1527 of the S&P.

This website has lots of statistical data on Market performance. It is most useful for traders:

http://www.cxoadvisory.com/blog/internal/blog-calendar-effects/

Fundamental

This is a great article on the rationale for using average rather than current earnings and multiples to judge Market (stock) under/over valuation. Our Valuation Model does much of this but in a slightly different way;

http://www.hussmanfunds.com/rsi/adjustingpes.htm

News on Stocks in Our Portfolios

Some thoughts on gold:

http://gold.seekingalpha.com/article/40389

While we were gone, rumors arose on the potential buyout of Quest Diagnostics. This stock still qualifies as a Buy in our Aggressive Growth Portfolio. Here is an article on its stock’s valuation:

http://biotech.seekingalpha.com/article/40460

EPS: 2006 $3.22, 2007 $2.80, 2008 $3.25; DVD: $.40, YLD .8%

Marshall and Ilsley is buying First Indiana Corp, a financial services firm, for $529 million in cash.

EPS: 2006 $3.22, 2007 $3.35, 2008 $3.55; DVD: $1.20, YLD 2.6%

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

Ecolab is acquiring Eagle Environmental Systems, an Australian pest elimination business, for an undisclosed amount of money.

EPS: 2006 $2.54, 2007 $2.85, 2008 $3.15; DVD: $.46, YLD 1.2%

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

Market Analysis