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Steve Cook on Disciplined Investing

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Economics

   This Week’s Data

    November industrial production fell .6% versus expectations of a .8% decline and the promising October report of +1.3%; the resulting capacity utilization number came in at 75.4 versus estimates of 75.8 and 76.4 recorded in October.  This is another piece of evidence that the recent rebound in some economic data may have been an aberration.

    November housing starts plunged 18.9% versus forecasts of a fall of 6.4% while November building permits dropped 15.6% versus expectations of a decline of 4.1%.  These are terrible numbers but if there is a silver lining, it is that the inventory problem is being dealt with more expeditiously than had otherwise been thought.
    http://www.calculatedriskblog.com/2008/12/housing-starts-decline-to-record-low.html

   Other

    This is a great must read article regarding the Fed’s meeting today and the results we should be looking for.
    http://www.ritholtz.com/blog/2008/12/thoughts-ahead-of-an-unusual-fomc-meeting/

    CBS had a segment on 60 Minutes Sunday on Alt A and Option Arm mortgages.  Here is a brief article summarizing the point (which is not good):
    http://traderfeed.blogspot.com/2008/12/beyond-subprime-alt-option-arms-and.html

    Why a government stimulus program doesn’t work:
    http://mjperry.blogspot.com/2008/12/just-say-no-to-keynesian-leaky-bucket.html

Politics

  Domestic

  International War Against Radical Islam

The Market
    
    Technical

    The most notable aspect of yesterday’s trading was that both indices (DJIA 8564, S&P 868) once again closed below the lower boundary of the November to present uptrend (circa DJIA 8631, S&P 871).  And while they did so on light volume, the volatility index continued to inconveniently trade above a rising trend line (that’s a negative). 

Absent a recovery by the Averages today back above the November to present trend line, I am going to assume that a test of the 10/10 low (DJIA 8133, S&P 839) will be forthcoming.
   
   Fundamental

    As mildly disappointing as yesterday’s pin action was from the technical standpoint, it nevertheless held pretty darn well in the face of (1) lousy numbers out of the industrial sector [see above], (2) continuing confusion and inaction on the auto bail out--and regrettably it looks like W is going to kick this can down the road, leaving Obama to knuckle under to the unions  and (3) the widening stain of the Madoff fraud--I remain concerned about the ultimate consequences of this sad affair [loss of investor confidence plus giving a newly elected more liberal congress another reason to bash Wall Street].
   
    As long as investors absorb the bad news with little negative impact on stock prices, I feel comfortable that stocks will remain in a trading range.





Posted 12-16-2008 8:22 AM by Steve Cook