40 mintues on economically challenged political claptrap
Steve Cook on Disciplined Investing

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The Market
    
    Technical

    The indices (DJIA 10387, S&P 1098) traded up yesterday, closing within their current trading ranges (9645-10725, 1042-1149).  In addition to the top of the trading range resistance on the S&P also exists at 1107 (the down trend off the April 2010 high) and 1132 (the right shoulder of the existing head and shoulders pattern).

    Volume improved a bit, as did breadth; the VIX sold off but remains within the present pennant pattern.

    The funds flow remains terrible (short):
    http://www.zerohedge.com/article/retail-capitulation-stock-outflows-surge-just-under-10-billion-18th-consecutive-week-record-

    Bottom line: our internal indicator is suggesting that the S&P will trade above the 1107 level; however, I am not chasing prices up.  On the other hand, if they retreat to the 1042-1068 level, our Portfolios will resume nibbling.

    Gold is testing major resistance (short):
    http://www.bespokeinvest.com/thinkbig/2010/9/8/will-gold-break-out.html

   Fundamental
  
    Headlines

    Stocks got off to a good start yesterday as a result of the positive overnight performance of the European equity markets.  The prevailing assumption was that Euroinvestors were not that concerned about their sovereign debt problem.  As you know, I would disagree (that investors shouldn’t be concerned).  But what do I know? 

    The economic data (see below) did little to spoil the party.  Nor did Obama’s 40 minute mid afternoon economic (political) policy extravaganza in which He reiterated His proposals: (1) a new $50 billion stimulus measure which is meaningless when so much of the prior bill has yet to be spent [$179 billion], (2) a series of business tax cuts.  Unfortunately, they only last for a year which means that while they may shift some business investment from 2011-12 into 2010, in the end they will have no long term effect.  (3) finally, He said that He favors extension of the Bush tax cuts for low and middle income taxpayers but not for the upper brackets.  That is better than a sharp stick in the eye; but it is just more half assed policy making that will hurt small businesses and ignores the impact of the marginal propensity to spend among the wealthy.
    http://www.businessinsider.com/chart-of-the-day-stimulus-2010-9

As you can tell, I was a bit disappointed--I keep hoping this Guy will look at the polls and realize that the electorate is fed up with His policies.  That said, as you know, my assumption has always been that He is too much an ideological purist to ever make a Clintonesque conversion and pursue truly free market policies. 

The one item that did run counter to the positive bias of the day was the Fed’s Beige Book report (see below) on the economy which raised investor angst and pushed prices off their highs.  Attention focused on the ‘decelerating’ verbiage (the economy is growing but at a decelerating pace).  In my opinion, this was much ado about nothing because it isn’t anything that we don’t already know.

Bottom line: stocks, at least as measured by our Valuation Model, are somewhat undervalued.  However, as yesterday’s Beige Book illustrates, there is not likely to be an economic upside surprise anytime soon; and as Obama’s campaign speech yesterday makes clear we will probably not receive a positive political surprise before November.  That keeps me cautious which is to say that I am a buyer but only on weakness.
       
    The widening interest rates spreads may be pointing to problems ahead (medium):
    http://www.nakedcapitalism.com/2010/09/summer-rerun-why-the-happy-talk-about-the-credit-crisis.html
  
    Updated year consensus level for S&P (I am at 1250):
    http://www.bespokeinvest.com/thinkbig/2010/9/8/year-end-consensus-sp-500-price-target-drops-to-1205.html

Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers down 0.4% versus the prior week but up 1.8% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales down 0.2% versus the similar timeframe last month and up 3.0% on a year over year basis.  This is first sign of weakness in several weeks.

    The Fed released its once every six weeks Beige Book report whose basic message was that ‘the economy is growing but at a decelerating pace’--not really news.

    July consumer credit fell $3.6 billion versus expectations of a $5.3 billion decline.
    http://www.zerohedge.com/article/consumer-credit-declines-less-expected-federal-government-once-again-biggest-lender

    Weekly jobless claims fell 27,000 versus estimates of a decrease of 7,000.
    http://www.calculatedriskblog.com/2010/09/weekly-initial-unemployment-claims_09.html

   Other

    Minnesota Fed chief on unemployment (medium):
    http://www.zerohedge.com/article/richmond-feds-kocherlakota-admits-fed-now-powerless-solve-unemployment-deriving-job-mismatch

    August job postings are up (again) (short):
    http://paul.kedrosky.com/archives/2010/09/august_jobs_pos.html

    And here’s more data on job openings (short):
    http://mjperry.blogspot.com/2010/09/job-openings-have-improved-by-30-since.html

Politics

  Domestic

For the record: taxes and spending under Reagan (medium):
http://money.cnn.com/2010/09/08/news/economy/reagan_years_taxes/index.htm

    Why central planning never works (medium):
    http://www.nationalreview.com/author/56454/latest

  International War Against Radical Islam

    Tony Blankley on Obama’s Afghan policy (long):
    http://townhall.com/columnists/TonyBlankley/2010/09/08/dissension_in_the_ranks










Posted 09-09-2010 8:13 AM by Steve Cook