It's OK to be hopeful; but patience is really important
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?


Economics

   This Week’s Data

    February retail sales fell .1% versus expectations of a .3% decline; ex autos sales rose .7% versus estimates of a .2% rise.
http://www.capitalspectator.com/archives/2009/03/a_slim_reed_of.html#more

    January business inventories were down 1.1% versus forecasts of a decrease of .9%; business sales were down 1.0%.  This is the first time inventories have declined more than sales in several months.  The inventory to sales ratio remained unchanged.
   
   Other

Politics

  Domestic

  International War Against Radical Islam

The Market
    
    Technical

    With a strong performance yesterday, the indices (DJIA 7170, S&P 750) took out their initial resistance levels (DJIA 7146, S&P 741).  Breadth was good and the volatility index broke down, falling below the lower boundary of its current up trend.  The only disappointment was volume.

As a result of this pin action, there is a growing chorus of pundits pronouncing the recently set lows (circa DJIA 6425, S&P 660) as the bottom.  My take is that is way too soon for such a call.  It is a positive that stocks traded up through S&P 741 with such power in price momentum.  However, stocks remain in a very easily identifiable downtrend with a current upper boundary of roughly DJIA 7906, S&P 814.  So from a technical standpoint, stocks are presently merely in a rally in a bear market.

    The next important level to watch is that of the upper boundary to that downtrend.  If stocks can break through that resistance, then we can at least assume that we are back in a trading range.
   
    TraderFeed’s take:
    http://traderfeed.blogspot.com/2009/03/shift-to-bull-or-bear-trap-for-unwary.html

   Fundamental

    There were some positive fundamental developments which helped account for yesterday pin action:

(1)    the head of Bank of America joined the CEO’s of Morgan and Citigroup stating that his bank was profitable in the first two months of the year--lending more weight to the notion that banks are healing rapidly from the inside.  I remain a bit skeptical that this will be the case once write offs are included.  But on an operating cash flow basis, it seems likely to be happening.  After all with a very positively sloped yield curve (low short term borrowing cost, high long term lending yield), it is counterintuitive to think that banks aren’t profitable.

Another development which is a major plus for the banks is the progress being made on the mark to market rule.  Following the head of the SEC’s appearance Wednesday before congress and her remarks about revising mark to market,  yesterday the head of the Financial Standards Accounting Board and other SEC officials were before the same congressional committee and got an earful regarding the necessity to change mark to market.  So it appears like this issue has legs--and it would be a plus for banks in that it would lower their need of additional capital (i.e. dilution of current shareholders) and increase the lending capability.  Though as an aside, for this to matter, you still need borrowers.

(2)    General Motors announced that it didn’t need the $2 billion that it was scheduled to receive from the government in March.  This is potentially the same kind of story as the banks; that is, the auto companies are doing a better job of healing from within than most observers thought.  By mere happenstance, I had dinner last night with one the largest GM dealers in the country.  This guy talks to GM’s CEO a couple of times a week.  And he says that GM has all of its stakeholders, including the unions, on board for a business plan that would avoid bankruptcy (i.e. everyone is making the necessary sacrifices to make GM a viable company).  Granted this man could be talking his book but it was an upbeat conversation.

(3)    finally, the February retail sales numbers (cited above) were an unexpected plus, suggesting that the consumer may be loosening his purse strings just a bit.  Remember consumer spending accounts for roughly two thirds of GDP; so an improvement in consumer attitudes and spending has a significant impact on the economy.

However, any recovery is likely to be slow.  Here’s one reason:
http://www.ritholtz.com/blog/2009/03/us-household-net-worth-falls-18/





Posted 03-13-2009 8:30 AM by Steve Cook