Close but no cigar
Steve Cook on Disciplined Investing

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Have You Seen This?


Note; I go in for an in patient procedure at 6AM tomorrow morning.  So this goes out without the benefit of overnight and pre-opening news.

The Market
    
    Technical

    The Averages (DJIA 11977, S&P 1291) were basically flat yesterday (Dow down a little, S&P up a little), thus remaining within both their intermediate term up trend (11161-14695, 1167-1601) and short term up trend (11600-12510, 1255-1360).  The S&P still hasn’t mounted a challenge to 1311, despite the fact that DJIA has blown through its comparable level (11811).

    Volume was flat; breadth was down; the VIX was also down a bit but still provides little indication of direction.

    Gold was down again.  As you know, our Portfolios reduced their positions to 3% in early morning trading.

    Bottom line: there remains nothing in the price action to suggest a consolidation/correction.  Numerous breadth and sentiment indicators would argue otherwise as would the fundamentals at least as calculated by on Model--but price is the proof in the pudding.  I maintain my resolve not to chase prices higher--but I am getting a headache.

    More on the presidential cycle (chart):
    http://www.ritholtz.com/blog/2011/01/tracking-the-presidential-stock-cycle-and-decennial-chart-analogs/
   
   Fundamental

    Headlines

    Stocks got off to a rocky start yesterday as several companies reported disappointed quarterly earnings (VZ, MMM, JNJ), the UK released poor GDP numbers and the Case Shiller home price index weakened.  These factors all raised concerns about the pace of economic growth which, as you know, is currently the main focus of investor debate and a key determinant of equity valuation.  While this may worry some investors, I have noted previously that some volatility in the improvement of the data is to be expected. 

Late in the afternoon, prices moved up sharply, apparently in anticipation of tonight’s speech.  Here is my initial take on Obama’s speech:

(1)    a Sputnik moment--what followed Sputnik was a massive expansion of government spending on a new government program [NASA],

(2)    five year freeze on nondefense discretionary spending [one seventh of the budget].  We need cuts not a freeze.  The freeze reduces the budget by $400 billion over ten years--that would leave spending 20% higher than it was when Obama took office.  It is also one half of the cuts recommended by the Simpson Bowles deficit reduction commission [which He appointed],

(3)    ‘investments’.  Just like we thought; He is pulling the Obamacare ‘you have to spend money to save money’ routine.  This time He wants more spending on education [probably one of the best examples of the futility of throwing money at a cause with no discernable effect], infrastructure [I hope these are shovel ready] and energy [as if the government hasn’t reeked enough havoc on this industry, He now wants to raise taxes on the oil companies]

Bottom line:  I said in Tuesday’s Morning Call: ‘as it relates to the key assumption in our economic thesis (i.e. that for the economy to return to its long term secular growth rate, responsible fiscal and monetary policies are a necessity) this week could be a biggy’.  This speech was not a ‘biggy’ moment.  That doesn’t mean that we won’t get better; but it is no reason to believe that responsible fiscal management is just around the corner or that I need to alter any assumptions in our Economic Model.

    Obama’s rhetoric
    http://www.nationalreview.com/articles/257831/investment-euphemism-rich-lowry

   
    Early update on earnings season (short)
    http://pragcap.com/an-early-earnings-update

Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers fell 1.2% versus the prior week but rose 2.8% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales down 0.7% versus the similar time frame last month but up 2.3% on a year over year basis.  Lousy weather again played a role in these disappointing results.

    The November Case Shiller home price index fell 0.4%.
    http://www.businessinsider.com/chart-of-the-day-november-case-shiller-2011-1?utm_source=Triggermail&utm_medium=email&utm_term=Clusterstock+Chart+Of+The+Day&utm_campaign=Clusterstock_COTD_012511

    The January Conference Board index of consumer confidence jumped to 60.6 versus expectations of 54.3 and December’s reading of 52.5.

   Other

    GDP growth and unemployment (short):
    http://www.investmentpostcards.com/2011/01/25/how-fast-has-the-jobless-rate-declined-after-prior-downturns/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    More on the potential muni bond crisis (9 minute video):
    http://www.investmentpostcards.com/2011/01/25/merediths-muni-bond-meltdown-scenario-paranoia/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    Why our banking regulations (didn’t) don’t work (medium):
    http://www.nakedcapitalism.com/2011/01/bill-black-why-our-fundamental-approach-to-banking-regulation-is-inherently-unsound.html

Weakness in EU purchasing managers index:
    http://www.investmentpostcards.com/2011/01/25/flash-eurozone-pmis-rescued-by-germany-and-france/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail


Politics

  Domestic

I thought this an interesting ‘compare and contrast’ on last night’s speech (both medium):
http://www.bloomberg.com/news/2011-01-25/obama-s-pro-business-optics-are-an-illusion-commentary-by-caroline-baum.html
http://www.huffingtonpost.com/2011/01/25/obama-pivot-to-business-i_n_813722.html


Under the category of ‘believe it or not’ (1 minute video):
http://michellemalkin.com/2011/01/25/obama-cabinet/

  International

    Here is a very positive take on the EU sovereign debt problem and why it won’t end in disaster (medium):
    http://www.investmentpostcards.com/2011/01/25/euros-reversal-of-fortune-outlook/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail


    More on Chinese currency policy (medium):
    http://advisorperspectives.com/commentaries/codexa_12411.php








Posted 01-25-2011 9:53 PM by Steve Cook