Friday, February 10, 2012

The Morning Call + Subscriber Alert + More smoke up our skirts


The Market
Technical


The indices (DJIA 12890, S&P 1351) had another quietly up day, drawing ever closer to the upper boundaries of their intermediate term trading ranges (10725-12919, 1101-1372) and remaining well over the lower boundaries of their short term up trends (12427, 1285).

Volume inched up; breadth was flat though the flow of funds indicator was up nicely. The VIX once again rose in tandem with stock prices, which may be indicating that the level of fear is rising along with the Averages--potentially a sign that stocks are getting toppy.
http://blog.stocktradersalmanac.com/post/Poised-For-a-Repeat

GLD was off fractionally but finished the day above the lower boundary of its current short term up trend.

Warren Buffett on gold and other investments (medium):
http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/

CME lowers margins on gold contracts:
http://www.zerohedge.com/news/cme-cuts-gold-silver-platinum-and-copper-margins

Bottom line: nothing in the pin action to suggest a top though as I pointed out above trading in the VIX over the last two days could be an early warning. Of course, that may be just wishful thinking on my part.

On the other hand, stocks are trading above Fair Value, 12919, 1372 offer stiff resistance and will remain especially so in the face of the current level of anemic volume. So while I am not negative on the Market, I also see no reason for much further upside.

The latest data on insider buying/selling (short):
http://www.marketwatch.com/story/the-insiders-are-selling-heavily-2012-02-09?link=home_carousel

Fundamental

Headlines


Yesterday’s economic numbers were positive: weekly jobless claims were strong as were wholesale sales and inventories. Simply more evidence that a recession is not in our immediate future. That means that the risk to our economic forecast continues to shift from being too optimistic to too pessimistic. However, it will take a good deal more up beat data before that risk becomes material; so for the moment, the positive take away is that the odds of a ‘double dip’ continue to decline.

This latest weekly jobless claims number keeps our forecast on track (medium):
http://www.capitalspectator.com/archives/2012/02/still_no_sign_o_1.html#more

Other developments include:

(1) a new round of quantitative easing in the UK. This supports our fear on coming inflation and our owning GLD as a hedge.

(2) more yakking out of the eurocrats about a potential Greek deal. At the moment, I consider this just more of the same smoke they have been blowing up our collective skirts for the last year. When, as and if they do manage to reach an agreement, that won’t even this fairy tale by any stretch of the imagination. At that point, the issues will become [a] will the Greeks fail to meet the requirements of the agreement like they have every other and [b] how many of the other PIIGS will get in line for a similar deal? While am fairly sanguine about the final endgame, it is going to be months and multiple starts and stops before we know.

Or is a default/withdrawal from the EU imminent (short):
http://www.zerohedge.com/news/let-my-people-go

More on what happens after Greece (medium):
http://www.nakedcapitalism.com/2012/02/philip-pilkington-the-upcoming-greek-%E2%80%98deal%E2%80%99-%E2%80%93-recognition-of-reality-or-complete-evasion-of-the-truth.html

And this (short):
http://www.zerohedge.com/news/schaeuble-blesses-gaspar-german-finmin-promises-rescue-portugal

(3) the government’s settlement with the banks on mortgage foreclosure abuse [‘robosigning’ and other mortgage service abuse]. The five major banks agreed with the feds and 49 state attorneys general to pay $26 billion that will be used to [a] reduce mortgage principal for some mortgage holders , [b] lower mortgage interest rates for others and [c] pay a small settlement to those former homeowners that lost their house.

On the surface, this settlement makes Obama look good and does provide some modicum of help to some mortgage holders. That said, I provide comments from experts much deeper in the weeds than I. They are not so enthusiastic.
http://www.zerohedge.com/news/robosigning-now-history-us-announces-26-billion-foreclosure-settlement

And:
http://www.zerohedge.com/news/dick-bove-foreclosure-settlement-there-no-sanctity-contracts-only-fools-meet-their-financial-co

And:
http://www.zerohedge.com/news/biggest-obstacle-record-shadow-housing-inventory-and-how-obama-may-have-just-popped-consumer-sp

Bottom line: the farce that is the Greek debt negotiations continues. Sooner or later, it will end. Our forecast calls for an orderly default, which may nonetheless scare investors at the outset; but in the end, I believe it will be a positive. The risk is that either the default in not orderly or that the EU can’t ring fence it, investors panic and a chain reaction is set off resulting in multiple bank/country defaults--but that is not our forecast.

Meanwhile, the US economy is performing according to script (the good news) as is our political class (the bad news).

As a result, our Models seem to be in tune with the fundamentals, which in turn puts equity prices either slightly overvalued (S&P) or considerably overvalued (DJIA). My strategy to either keep chipping away at over extended stocks or gradually eliminating our losers remains in tact.

Jeremy Grantham’s strategies for 2012 (short):
http://www.cbsnews.com/8301-505123_162-57373079/jeremy-granthams-investing-strategies-for-2012

David Rosenberg’s latest thoughts (medium):
http://www.zerohedge.com/news/it-weather-stupid-david-rosenberg-what-april-january-means-seasonal-adjustments

Subscriber Alert

At the Market open this morning, a small portion of the following holdings will be Sold:

In the Dividend Growth Portfolio: Paychex (PAYX-$32, Nucor (NUE-$45).

In the High Yield Portfolio: Eli Lilly (LLY-$40), Cato (CTR-$29)

In the Aggressive Growth Portfolio: Medivation (MDVN-$69; this is one of our 10 baggers in which we originally invested $8,000, we have taken $40,000 in profits and we are still left with a $20,000 position) and Amphenol (APH-$55)


Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.