Could Ben be getting the message?
Steve Cook on Disciplined Investing

Syndication

Have You Seen This?

News

  • Make money by accessing all our Portfolios, the supporting research and Price Disciplines using our paid subscription blog, Strategic Stock Invetments. Our work is focused on making money for our Portfolios not as some academic exercise in Internet investing. Check our performance (audited)--our Dividend Growth Portfolio has beaten the S&P by 500 basis points per year for the last seven years but with a beta of only .62. (Mandatory Disclaimer: past performance is not a guarantee of future results.) We give you everything you need to duplicate our results, in particular, a strict price discipline for both Buying and Selling.

Have You Seen This?


The Market
    
    Technical

    Another day of churning.  The indices (DJIA 11126, S&P 1182) were down in early trading but rallied back in the afternoon to close modestly lower.  Nevertheless, they remain within their current trading ranges (9645-11257, 1042-1220) and my hypothetically re-setting up trend (10429-13709, 1090-1494).  I continue to think that, barring some dramatic piece of exogenous news, the directionless volatility will be with us till late next week.

    Volume was flat; breadth was weak; the VIX once again traded up but remains within its current down trend.

    Gold was off.  It too has been trading in a volatile sideways manner for the last week or so.  Yesterday, it closed right on the lower boundary of its short term up trend.  That sets the red lights flashing.  As usual our time and distance discipline will apply; however, depending on the fundamental news, our Portfolios may still not contemplate a Stop Loss until the intermediate term up trend is threatened.
   
    Chinese ministry of commerce comments on gold (short):
    http://www.zerohedge.com/article/china-commerce-ministry-says-country-should-buy-more-gold-diversify-dollar-holdings

    Bottom line: the pin action is likely to be nerve wracking for the next 5-6 trading days--big intraday swings but with no break in either direction.  That is a Market I don’t want to get involved in with the exception of an individual stock hitting a trigger point on our Buy/Sell Discipline.
 
    Fund flows to bond funds versus stock funds (chart):
    http://www.businessinsider.com/chart-of-the-day-bonds-vs-stocks-valuation-2010-10?utm_source=Triggermail&utm_medium=email&utm_term=Clusterstock+Chart+Of+The+Day&utm_campaign=Clusterstock_COTD_102710

    Technical view of the Market in the next six months (4 minute video)
    http://blog.stocktradersalmanac.com/post/Bulls-Win-Battle-Between-Elephants-and-Donkeys

    Chart on long Treasury futures (they are breaking support):
    http://www.bespokeinvest.com/thinkbig/2010/10/27/long-bond-breaks-support.html

   Fundamental
      
    Headlines

    As has been the case lately, investors ignored the reported economic indicators yesterday (which were pretty darn good), focusing instead on QE2.  The issue du jour (the magnitude of QE2) was generated by a WSJ article suggesting that QE2 will be much less than expected.  Given my comments on rising inflationary expectations in yesterday’s Morning Call, this wasn’t a particular surprise to me.  Initial investor response was dollar up, stocks down, gold down; but that moderated throughout the day.  In fact, as much of a ballyhoo that has been made tying the September/October Market spike to the prospects of QE2, I would have thought that stocks would have taken a much bigger licking than they did.

    Of course, I have been questioning this line of reasoning from the outset simply because I think that QE2 at $1-2 trillion is bad news for the economy (fuel inflationary expectations) and stock prices (rising inflation, drives bond yields up and the discount factor [p/e] on stocks down).  So for the moment, I am sticking with the opinion that the more the Fed backs off of the rumored $1-2 trillion additional liquidity to be pumped into the system, the better it is for US equities.

    The record of prior quantitative easings (medium):
    http://pragcap.com/evidence-qes-failures

    Now even Peter Orzag doesn’t like QE2 (medium):
http://www.zerohedge.com/article/qe2-trashing-trifecta-peter-orszag-joins-gross-and-grantham

    Here is yet another take on QE2 and why it may continue (medium):
    http://advisorperspectives.com/commentaries/tcw_102710.php

    If you couple this assumption with that of a republican sweep November 2 to be followed by a significant change in fiscal policy, I think that stocks could soar.  That said, I will repeat the point that I made yesterday that there are so many potential variables, outcomes and combinations thereof relating to the election, QE2 and foreclosure-gate that we will learn in the next week, that making a bet on a specific investment scenario is beyond my level of prescience.  

    Expert opinions on how the markets will react to a more tame QE2 are all over the lot.  Here is the first of what I am sure will be many:
    http://www.minyanville.com/businessmarkets/articles/todd-harrison-stock-market-economy-federal/10/27/2010/id/30787?camp=featuredslide&medium=home&from=minyanville

    Bottom line: there is a reasonable probability that developments in the next 5-6 trading days will have an impact on Valuations.  I am just not smart enough to figure out what they could be. Hence, we wait for events to unfold before making any adjustments if indeed there are sufficient changes to warrant those adjustments.

    The Wall Street/Main Street disconnect (chart):
    http://www.ritholtz.com/blog/2010/10/disconnect-main-street-wall-street/

Economics

   This Week’s Data

    September new home sales were up 6.5% versus expectations of a rise of 4.1%.
    http://www.calculatedriskblog.com/2010/10/new-home-sales-increased-slightly-in.html

    Weekly jobless claims fell 21,000 versus estimates of a rise of 3,000.
    http://www.calculatedriskblog.com/2010/10/weekly-initial-unemployment-claims_28.html

   Other

    Reading the US/China currency/trade tea leaves (medium):
    http://www.nakedcapitalism.com/2010/10/have-the-us-and-china-kissed-and-made-up.html

    More on foreclosure-gate (medium):
    http://www.zerohedge.com/article/chris-whalen-welcomes-our-new-tyrranical-overlords-prepares-taxpayer-funded-mortgage-insurer










Posted 10-28-2010 8:08 AM by Steve Cook