10/29/08

Economics

This Week’s Data

The International Council of Shopping Centers reported weekly sales of major retailers up .5% versus the prior week and 1.3% on a year over year basis; Redbook Research reported month to date retail chain store sales rose .7% versus the comparable period in 2007.

The Conference Board reported a stunning decline in its October consumer confidence index to 38.0 versus estimates of 52.0 and 59.8 recorded in September; that is the lowest reading in the past 40 years.
http://bigpicture.typepad.com/comments/2008/10/consumer-confid.html

The FOMC meets today and we get an announcement on Fed policy (the Fed Funds rate) this afternoon. For all practical purposes, the Fed has already cut its rate:
http://mjperry.blogspot.com/2008/10/fed-has-already-cut-fed-funds-rate-to-1.html

Other

What’s wrong with capital gains taxes:
http://www.realclearmarkets.com/articles/2008/10/why_obama_gets_capitalgains_ta.html

Update on the Case Shiller index (housing prices):
http://bigpicture.typepad.com/comments/2008/10/home-price-decl.html

More evidence of the ‘unfreezing’ of the credit markets:
http://econompicdata.blogspot.com/2008/10/commercial-paper-release-hounds.html

But not all the news is positive:
http://calculatedrisk.blogspot.com/2008/10/ny-times-lenders-begin-to-curb-credit.html

Politics

Domestic

International War Against Radical Islam

The Market

Technical

An interesting perspective on how ‘bad’ things are in the Market:
http://bigpicture.typepad.com/comments/2008/10/how-far-back-ar.html

TraderFeed thinks that yesterday was a breakout:
http://traderfeed.blogspot.com/2008/10/stock-market-breakout-and-other-tuesday.html

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Stocks ripped yesterday (DJIA 9065, S&P 940) though they remain well within a DJIA 7853--9707; S&P 839--1062 trading range. The volatility index was off 16% but is still extraordinarily high (67) and stays above the lower boundary of an easily identifiable up trend off an early September low. All in all, not particularly encouraging. In addition, volume was disappointingly low, suggesting more of an absence of sellers than aggressive buyers.

There were two encouraging things to note: (1) many of our stocks that had traded below their October 10 lows bounced back above those levels and (2) recall I suggested in an earlier post that when stocks went up on bad news that would be a very positive sign that the worst was over. Well yesterday the Conference Board reported its October consumer confidence index which was disastrous (see above)--and stocks rallied big.

Fundamental

As you know, our Portfolios lightened up on some holdings in the last hour of trading yesterday. (Yes, I know; yesterday morning, I said that our Portfolios were going to buy if stocks weakened--but that was 900+ points ago. The way this Market is trading, time is a meaningless concept; it is all about distance.) The focus of those sales was on stocks that had traded below their October 10 lows and hadn’t recovered; and even though stocks closed a couple of hundred points above where our sell orders went in, most of these sell candidates remained below their 10/10 level.

I may live to regret not re-investing the proceeds of those sales; but until stocks prove that they are not in a trading range (DJIA 7853--9707; S&P 839--1062), I think we stick with our current strategy of selling strength and buying weakness within the trading range. Remember, we are likely facing an economic down turn; and because until very recently investors have been apoplectic about the health of the financial system, they are just now starting to focus on the impact that the credit crisis will have on the economy. My guess is there is some backing and filling ahead of us till there is at least a modicum of visibility on the shape of the economy in 2009.

Aggressive Growth Buy List

Company Close 10/28 Buy Value Range

Balchem Corp $21.16 $21-24
Harley Davidson 21.28 21-24
Mastercard 136.01 119-137
Peabody Energy 28.95 24-28
Qualcomm 38.91 35-41
Reliance Steel 21.12 20-23
Styrker 51.43 48-55
TJX Corp 25.38 25-29

Subscriber Alert

Yesterday’s rally pushed the stock price of Westamerica Bancorp (WABC) above the upper boundary of its Buy Value Range. Hence, it is being Removed from the Aggressive Growth Buy List.

News on Stocks in Our Portfolios

BP (High Yield Portfolio) reported third quarter earnings per share of $.43 versus $.23 recorded in the similar period in 2007.

Boeing (Dividend Growth Portfolio) has reached a tentative agreement with the machinist union.
http://www.thestreet.com/story/10444501/1/boeing-union-reach-tentative-accord.html?puc=_htmlbtb

Positive comments on Smith Int’l (Aggressive Growth Portfolio):
http://www.zacks.com/blog/post_detail.html?t=15561

Proctor & Gamble (Dividend Growth Portfolio( reported its first fiscal quarter earnings per share of $1.02 versus expectations of $.99 and $.92 reported in the comparable 2008 fiscal quarter.

More Cash in Investors’ Hands

10/28/08

Economics

This Week’s Data

September new home sales rose 2.7% versus expectations of a 1% decline. Inventories dropped to a 10.4 month supply versus 11.4 in August; the median price of a home fell 9% year over year--again an unfortunate necessity of returning the housing market to health.
http://bigpicture.typepad.com/comments/2008/10/new-home-sales.html

Charts on both new and existing home sales:
http://bespokeinvest.typepad.com/bespoke/2008/10/new-and-existing-home-sales-charts.html

Other

Another study refuting the stagnation of middle class income:
http://mjperry.blogspot.com/2008/10/fed-claims-of-middle-class-stagnation.html
http://mjperry.blogspot.com/2008/10/census-income-inequality-unchanged.html

A none too optimistic assessment of the economy from Art Laffer:
http://online.wsj.com/article/SB122506830024970697.html

And a possible solution:
http://www.american.com/archive/2008/october-10-08/a-sound-dollar-is-the-key-to-recovery

Update on the credit crisis indicators from Calculated Risk:
http://calculatedrisk.blogspot.com/2008/10/credit-crisis-indicators-progress.html

More data on the sharing of the tax burden:
http://mjperry.blogspot.com/2008/10/middle-income-tax-burden-lowest-level.html

Politics

Domestic

Here is a democrat, whose opinion I respect, take on the Obama ‘redistributionist’ interview:
http://www.slate.com/blogs/blogs/kausfiles/archive/2008/10/26/kausfiles-goes-rogue.aspx

International War Against Radical Islam

On the US raid into Syria:
http://article.nationalreview.com/?q=NDVlMmE2ODA5MDkzZDJkYjQ0ZjI3OTkyMWVjMzI1YjU=

The Market

Technical/ Fundamental

If you buy muni’s:
http://econompicdata.blogspot.com/2008/10/muni-delever.html

An update on the volatility index:
http://econompicdata.blogspot.com/2008/10/vix-calendar-skew.html

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The Averages (DJIA 8175, S&P 848) struggled inside my hypothesized trading ranges (DJIA 7853--9707; S&P 839--1062). The volatility index remains very high (75) and volume is pathetically low--neither a positive sign for an advance. In addition. stocks once again sold off in the last hour, suggesting that margin calls/redemptions are still a problem. Granted on the surface yesterday’s 200 DJIA point decline was mild relative to trading over the last 2-3 weeks, but there was severe whackage in many of the small cap names where liquidity can be a problem in normal times. (The last couple of trading days have been particularly rough on the Aggressive Growth Portfolio.) Bottom line--there is little to imply that the current water torture we are going through might be coming to an end.

In the meantime, the government’s plan to ease the credit crisis moves onward: yesterday the Treasury announced that investments were being made in additional banks and the Fed began buying commercial paper.

All that said, the indices closed in the bottom 15% of the trading range (DJIA 7853--9707; S&P 839--1062). So I was all set to buy stocks at the open this morning; but the futures are up a couple of hundred points. I am going to hold off and see if we get another late day sell off. If we do our Portfolios will Buy small portions of the indicated stocks. ( I will let you know via a Subscriber Alert) This will reduce cash in the Dividend Growth Portfolio from 24% to 22% and in the High Yield Portfolio from 21% to 19.5 %. Because of the on going destruction in the small cap sector, there aren’t enough stocks that appear to have found a bottom to warrant making purchases. Hence, nothing will be Bought in the Aggressive Growth Portfolio:

In the Dividend Growth Portfolio: Boeing (BA), Nokia (NOK), Automatic Data Processing (ADP), Emerson Electric (EMR) United Technologies (UTX).

In the High Yield Portfolio: Zenith Insurance (ZNT) and WP Carey (WPC)

Company Highlight

Nucor Corp is a manufacturer of steel and steel products (hot rolled steel shapes and cold finished bars, joists and deck. The company has grown profits and dividends at a 20%+ pace over the last 10 years earning a 20%+ return on equity. While current economic conditions will slow that growth over the short term, the longer term outlook for NUE remains bright because:

(1) a large percentage of sales are covered by long term contracts, stabilizing its production, and surcharges allowing it to pass on higher raw material costs,

(2) management’s focus on innovative and cost efficient ways to produce steel,

(3) an aggressive acquisition program that concentrates on purchases that are accretive via new cost saving technologies or add-ons to its product line.

Nucor is rated A++ by Value Line, carries a 28% debt to equity ratio, is pursuing a major stock buy back program and its stock yields over 5%.
http://finance.yahoo.com/q?s=NUE
10/08

News on Stocks in Our Portfolios

More Cash in Investors’ Hands

10/27/08

Subscriber Alert

Today, several stocks are being added to our Portfolio Buy Lists. However, none will be bought.

In the Dividend Growth Buy List: Kimberly Clark (KMB) and Commerce Bancshares (CBSH).

In the High Yield Buy List: Mercury General (MCY) and Leggett and Platt (LEG).

In the Aggressive Growth Buy List: Westamerica Bancorp (WABC)