The retail sales number should have been expected; an interview with Charlie Munger
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Economics

   This Week’s Data

    March business inventories fell 1.0%; but once again, business sales declined at an even faster rate (1.6%).

    Weekly mortgage applications (secondary indicator) were up very slightly, +.05%.

    Weekly jobless claims jumped 32,000 versus expectations of a 11,000 increase (auto shutdowns were the force behind the large up move).
    http://www.calculatedriskblog.com/2009/05/unemployment-claims-continued-claims.html
   
    The April Producer Price Index (PPI) was reported up 0.3% in line with estimates while the core PPI rose 0.1% versus the forecast of +0.2%.
    http://econompicdata.blogspot.com/2009/05/producers-price-index-april.html

   Other

    The Baltic Dry Index has turned up again:
    http://mjperry.blogspot.com/2009/05/bdi-closes-at-7-month-high.html

Politics

  Domestic

Martin Feldstein on Obama’s tax plan:
http://online.wsj.com/article/SB124217336075913063.html

    Just released documents from the infamous Paulson ‘you will take government money’ meeting:
    http://www.judicialwatch.org/news/2009/may/judicial-watch-forces-release-bank-bailout-documents

  International War Against Radical Islam

The Market
    
    Technical

    Yesterday was a rough day.  The Averages (DJIA 8284, S&P 883) sold off with (1) both closing well below the lower boundary of the short term uptrend off their March lows [8479, 916], [2] the DJIA closing below its old 8401 support level, but [3] the S&P remaining above its comparable level [876]. 

    Given my hesitancy to categorically accept the violation of a support/resistance level on a one day move, I will withhold judgment on whether the short term up trend has been breached till at least the Market close today.  However, the magnitude (distance) of the DJIA/S&P’s close below that uptrend line, it looks highly probable that a break has indeed happened.

    The old 8401/876 resistance level that became short term support now appears to be the next battlefield between buyers and sellers.  As noted above, the DJIA blew right through 8401 and by a considerable margin while the S&P finished the day modestly above 876.  The good news scenario would be a price recovery with the DJIA closing above 8401.  That would add strength to the support provided by that level.  The bad news scenario would have the S&P busting below 876; in that case, the next visible support occurs at 7437, 740. 

    TraderFeed’s take on yesterday’s pin action:
    http://traderfeed.blogspot.com/2009/05/look-at-high-momentum-decline-and-what.html

    And Bespoke’s take:
    http://bespokeinvest.typepad.com/bespoke/2009/05/sp-500-pullback-reaches-5.html

   Fundamental
   
    A look at the math behind the bear’s case for S&P 500:
    http://www.forbes.com/2009/05/11/price-earnings-ratio-interest-rates-stock-opinions-contributors-shiller.html

    The absurdity of the EU’s anti trust decision against Intel. 
    http://mjperry.blogspot.com/2009/05/computer-prices-have-fallen-by-90-over.html

Even worse--the lack of response from our own government to a blatant misuse of anti trust law to accomplish a political/economic end.  Oh wait, I forgot about Chrysler.

An interview with Charlie Munger (Warren Buttett’s partner):
http://www.nakedcapitalism.com/2009/05/munger-on-phony-accounting-cultural.html

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

    Yesterday’s headlines impacting the Market:

(1)    leading off was over night news that Chinese exports were below expectations--calling into question how much economic benefit the rest of the world is [will] deriving from the Chinese government’s stimulus plan and thereby calling into doubt one of the ‘green shoots’ helping the US economic recovery,

(2)    that was followed quickly by those disappointing April retail numbers reported before the Market open yesterday and noted in the Morning Call.   That this would come as a big surprise to investors, I find a little baffling.  To be sure retail numbers have been improving recently and the April numbers were clearly a surprise.  But investors know that economic recoveries, in general, are rocky and that the one that we are in will be particularly rough.  They know that improvement is not linear.  So not to know that sooner or later, an economic statistic would be reported that didn’t reflect a recovery in progress is absurd.  Hence, this number in and of itself, I think, is much to do about nothing.

More important, my contention from the start of recent upturn was that it was driven simply by relief that the worst wasn’t going to happen--that economy was in or about to be in a bottoming process and wasn’t going off a cliff.   That’s it.  Further, I have stressed that we don’t have a clue about the magnitude or extent of any recovery.  Therefore, the retail sales number is simply a manifestation of that rocky recovery road that this economy is on.
http://www.capitalspectator.com/archives/2009/05/betwixt_and_bet.html#more
http://econompicdata.blogspot.com/2009/05/decline-in-retail-sales-is-surprise.html

(3)    more big brother government: I linked to both the ‘soda pop tax’ and the proposal to control employee salaries of non TARP recipients stories in yesterday’s Morning Call.  Neither  plan if enacted would be terrible; but it is the cumulative effect of one scheme after another to tax and control our economy that is starting to wear thin.  As you know, part of my thesis arguing for a very clouded and uncertain economic outlook is grounded in just this kind of constant pressure to tax, spend and regulate an ever increasing percentage of the US economy.





Posted 05-14-2009 8:17 AM by Steve Cook