Patience is still a virtue
Steve Cook on Disciplined Investing


Have You Seen This?


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Have You Seen This?


   This Week’s Data

    September construction spending fell .3% versus expectations of a .8% decline; however, the July and August reports were revised down.

    The Institute for Supply Management reported its October manufacturing index at 38.9 (anything under 50 signifies contraction) versus estimates of 41.4 and 43.5 recorded in September.

    More dismal numbers from the auto industry:

    The problem with raising capital gains tax rates:



Today puts an end to a process that we probably all wish could have been shorter.  If one believes the polls then we are going to wake up tomorrow with a Democratic president and quite likely a filibuster proof senate.  I have fretted a lot about such a result to the extent that it seems likely to lead to more regulation, higher trade barriers and higher taxes, none of which are good for Your Money.  Not included in the list of the above woes are higher spending which W and a spendthrift Republican congress have already foisted on us and higher inflation with which the Fed is now playing Russian roulette.    

All that said, to those of you who are discouraged by these events, I would voice a little caution.  For one, you would have to be blind, deaf and dumb not to know that polls have Obama as an overwhelming favorite.  That suggests to me that investors have collectively discounted their worst fears.  Second, I have already factored these developments into our Valuation Model (though I could clearly be wrong about their order of magnitude) and stocks are still dramatically undervalued.  Finally, events have a way of overwhelming the best laid plans.  Obama is if nothing a consummate politician and I am not sure that the economic environment is going to be conducive to any radical shift in policy whatever his motives may be.  Furthermore, Joe Biden’s comments about an early testing of Obama’s steel could very well be closer to the truth than any of us want; and historically, a major realignment in economic policy is tough to pull off in the midst of a foreign policy crisis.  Bottom line: before I start discounting a scenario worse than I already have in our Model, I think that we need more evidence of it occurring.

As a final note, I suppose that there is some probability that McCain could pull an upset or that the Republicans could retain enough seats in the Senate to sustain a filibuster.  That would surely bolster investor confidence and improve equity valuation metrics irrespective of the depth or length of the current slowdown.

  International War Against Radical Islam

The Market
    Technical/ Fundamental

    Technical update from Traderfeed:

    Update of third quarter S&P earnings:


Yesterday, the indices (DJIA 9319, S&P 966) stayed within a trading range (DJIA 7853--9707; S&P 839--1062).  The volatility index fell once again (54) and closed well below the lower boundary of the uptrend off the early September low.  Nevertheless, it is still at an historically elevated level, i.e. it is approximately where it was immediately following 9/11.  Volume continues to show a lack of interest.

    The good news is that (1) we lived through another day with no late sell off from margin calls/fund redemptions and (2) despite the fact that I don’t think we have a very good idea about the depth and breadth of the impending (current?) slowdown, we are, nevertheless, getting enough discouraging data with sufficient regularity [as we did yesterday--see above] that clarity on the downturn develops daily. 

    Two points: one fundamental, one technical.

(1)    I hesitate to assume that improving visibility means that the worst economic case is priced into stocks today because I over rated the clarity we got early on in the financial crisis; as you may recall that led me to wrongly assume that the July low was the bottom and prematurely commit cash reserves.  I don’t want to make that same mistake again.

(2)    it is tough coming off the volatility ‘high’ October spawned; I keep looking for an excuse to trade.  However, this current move in Market sentiment back toward normalcy is good news; and in normal times, nothing (not trading) is often the best thing to do.  While it still may be a bit premature to loosen up on the tight Stop Loss Prices set during the turmoil in October, I am nonetheless working right now on expanding the technical parameters I used in that high volatility environment.  I have long believed that except in extraordinary circumstances too tight a Valuation Range or technical range results in unnecessary and costly trading expenses that negatively impact performance.  Right now a deep breathe and broadened perspective is the right prescription.
So in the absence of a move above DJIA 9707/S&P 1062 on strong volume, I remain content to await a pull back before trading our Portfolios’ cash position from 25% down towards 15%.
    News on Stocks in Our Portfolios

    Mastercard (Aggressive Growth Portfolio) reported third quarter earnings per share of $2.47 versus expectations of $2.22 and $2.32 recorded in the comparable 2007 quarter.

    Positive comments on Mastercard:
  More Cash in Investors’ Hands

Posted 11-04-2008 8:17 AM by Steve Cook