HOME OWNERSHIP and RESIDENTIAL VACANCIES IN THE FOURTH QUARTER 2011

National vacancy rates in the fourth quarter 2011 were 9.4 percent for rental housing and 2.3 percent for homeowner housing, the Department of Commerce’s Census Bureau announced today.

The rental vacancy rate  of 9.4 percent was approximately the same as the fourth quarter 2010 rate (+/-0.5 percentage points)* and 0.4 percentage points lower than last quarter (+/-0.4).

The homeowner vacancy rate of 2.3 percent was 0.4 percentage points lower than the fourth quarter 2010 rate (+/-0.2) and 0.1 percentage point lower (+/-0.1)* than the rate last quarter (2.4 percent).

The home ownership rate  of 66.0 percent was 0.5 percentage points (+/-0.4) lower than the fourth quarter 2010 rate (66.5 percent) and 0.3 percentage points (+/-0.4)* lower than the rate last quarter (66.3 percent).

All American Investor

Morning Journal - Greece is nothing compared to Japan

Economics
This Week’s Data

The International Council of Shopping Centers reported weekly sales of major retailers fell 1.0% versus the prior week but rose 2.7% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales up 1.6% versus the similar timeframe a month ago and up 3.4% on a year over year basis.

The January Case Shiller home price index decline 0.5% versus expectations of a decrease of 0.4%.
http://scottgrannis.blogspot.com/2012/02/housing-prices-were-still-weak-late.html

The Conference Board’s February index of consumer confidence came in at 70.8 versus estimates of 64.9.
http://advisorperspectives.com/dshort/updates/Conference-Board-Consumer-Confidence-Index.php

The Richmond Fed’s February manufacturing index was reported a 20.0 versus expectations of 13.0.
http://mjperry.blogspot.com/2012/02/richmond-and-dallas-fed-report.html

Weekly mortgage applications fell 0.3% but purchase applications soared 8.2%.
http://www.calculatedriskblog.com/2012/02/misc-purchase-mortgage-applications.html

Fourth quarter GDP came in up 3.0%, slightly better than the 2.8% that was anticipated; the GDP deflator was up 0.9% versus expectations of up 0.4%.

The Morning Call -- The 1372 challenge begins

The Market
Technical

The indices (DJIA 13005, S&P 1372) had a good day. The Dow was up, staying within its intermediate term up trend (12729-14328) and closing above the psychologically important 13000 number.

Obviously, the S&P finished right on the upper boundary of its intermediate term trading range (1101-1372), commencing the long await challenge of 1372. Under our time and distance discipline, it must penetrate the 1372 to qualify as a break and initiate the time element of this discipline. So as jiggy as many may be feeling, nothing has actually changed in terms of our discipline. In addition, that means that the Averages are still diverging. Now this may all start to change today, if the S&P closes above 1372. But our discipline is not anticipatory; so until the S&P moves up, the assumption is that this Market is directionless/in a trading range.

Volume was down (again); breadth was flat. The VIX fell fractionally, a bit unusual on a day in which psychological barriers are being breached. It remains within its short term down trend but also above the lower boundary of its intermediate term trading range.

GLD also had a good day and continues within its short term up trend.

Graco (GGG) 2012 Review

Graco (GGG) designs, manufactures and markets specialty pumps, air and airless spray guns, regulators, meters and valves for moving and applying fluids and semi-solids for the vehicular, construction, food, chemical and plastic industries.

GGG has earned a 25-40% return on equity over the past 10 years. In addition, it has grown earnings and dividends 7-19% annually in that same time period. As with many industrial firms, the company suffered during the 2008/2009 economic downturn. However, it is returning to an above average growth rate as a result of:

(1). new product development--GGG spends 4-5% of revenue on research and development resulting in a rapidly growing pipeline of new products. Over one third of the company’s sales are generated from new products,

All Three Home Price Composites End 2011 at New Lows

Home Price Indices, the leading measure of U.S. home prices, showed that all three headline composites ended 2011 at new index lows.

 The national composite fell by 3.8% during the fourth quarter of 2011 and was down 4.0% versus the fourth quarter of 2010.

Both the 10- and 20-City Composites fell by 1.1`% in December over November, and posted annual returns of -3.9% and -4.0% versus December 2010, respectively.

These are worse than the -3.8% respective annual rates both reported for November. With these latest data, all three composites are at their lowest levels since the housing crisis began in mid-2006

All American Investor

Morning Journal -- Why are we apologizing to the Afghans?

Economics
This Week’s Data

January pending home sales rose 2.0% versus expectations of a 1.5% increase.

The Dallas Fed’s February manufacturing index came in at 17.8 versus estimates of 15.0.

January durable goods orders fell 4.0% versus forecasts of down 1.5%; ex transportation, the number was up 2.2% versus an anticipated advance of 2.1%.
http://www.calculatedriskblog.com/2012/02/durable-goods-orders-decline-4-in.html

The Morning Call -- Greece and oil are still a problem

The Market
Technical

The indices (DJIA 12981, S&P 1367) had a mixed day (Dow down, S&P up).
The DJIA closed within its intermediate term up trend (12833-14302), while the S&P remains within its intermediate term trading range (1101-1372). This keeps the Averages out of sync and, therefore, under our discipline, directionless. Historically, that is not a time to be overly active in the Market. Although I don’t let it interfere with our Sell Discipline.

Volume rose; breadth declined. The VIX was up but closed within its short term down trend.

GLD fell fractionally but remained above the lower boundary of its short term up trend.
http://www.zerohedge.com/news/chatham-house-gold-standard-impractical-gold-hedge-against-declining-values-key-fiat-currencies

Monday Morning Chartology + Subscriber Alert

The Market
Technical

Monday Morning Chartology

The S&P continues to advance but has yet to challenge 1372.




GLD has broken above its recently re-set trading range. It is now back in a short term up trend.

Warren Buffett I'd Buy Up Single-Family Homes If I Could

Warren Buffett says along with equities, single-family homes are a very attractive investment right now.

Buffett says houses are even better than stocks. He advises buyers to take out a 30-year mortgage and refinance if rates go down.

Buffett revealed that he put 175 million euros into each of eight European stocks on behalf of Berkshire Hathaway at the end of 2011, but did not reveal the names of those stocks.

Buffett defends Berkshire's decision not to disclose the name of the person the board has chosen to be his successor as CEO, saying he has invested in many companies where he didn't know who would be the next person running the company.

All American Investor

Exxon Mobil Corproation (XOM) 2012 Review

Exxon Mobil (XON) is the largest publicly traded oil company. 

The company produces approximately 2.4 million barrels of oil and 12.1 BCF of natural gas daily, has reserves of over 24.8 billion barrels of oil equivalents and manages a best in class upstream operation including refining and chemical operations.

XOM has grown profits at a pace in excess of 15% over the last 10 years and earned a return on equity of between 17-25%. While the pace of Exxon’s dividend growth has not kept pace with profits (7% over the past 10 years), it is expected rise. The financial performance of XOM should be solid over the coming years as a result of:

(1) its reserves are diversified geographically as well as by product [conventional oil and gas, heavy oil, tight gas, liquefied natural gas]; its recent acquisition of XTO Energy raises its share of the world energy market,

M2 Money Stock (M2 Graph)

All American Investor

Thoughts on Investing from Forbes

#4 Taxes are a Key Investing Strategy

With Market experts predicting equity returns will average just 6% per year, taxes will make a huge difference in what counts most-your after-tax return.
Place assets strategically.

Keep taxable bonds and high turnover funds producing highly taxed short-term capital gains in the tax-deferred retirement accounts.

Hold individual stocks in taxable accounts to take advantage of the low long term gains rate and tax-loss harvesting.

The Closing Bell-Greece and oil don't equal higher prices

Statistical Summary
Current Economic Forecast

2011

Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%

2012

Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%

Current Market Forecast

Banks Colluding with Insurers to Rip Off Homeowners, Lawsuit Alleges

As American Banker reported, a federal judge in Miami on Tuesday opened the door to a class action against Wells Fargo. More than 20,000 Florida homeowners can now sue Wells Fargo and an insurance company, QBE, for allegedly overcharging for insurance. More than $50 million in insurance premiums are at issue, according to American Banker.

The suit itself, filed last year, is sealed, but the judge, Robert Scola, laid out the allegations against Wells Fargo. The judge didn’t rule on the case but allowed it to go forward as a class action. In his decision, the judge cited the plaintiffs' claims that Wells Fargo and QBE “colluded in a scheme to artificially inflate the premiums charged to homeowners.”

All American Investor

Read more Banks Colluding with Insurers to Rip Off Homeowners, Lawsuit Alleges.

Why Y Combinator Replaces The Traditional Corporation

All American Investor

"You know what’s great about the YC network? It gives the benefit of being part of a large company without being part of a big company," Graham says. "The problem with doing a startup--even though it’s better in almost every other respect--is that you don’t have the resources of a big company to draw on. It’s very lonely; you have no one to give you advice or help you out. In a big company, you might be horribly constrained, but there are like 1,000 other people you can go to to deal with any number of problems. Now [with YC] you have 1,000 people you can go to to deal with problems, and you don’t have all the restrictions of a big company."

Read more and check out the links at Fast Company

Gold Chart

All American Investor

Gold Chart, Daily

Entering overbought. Short term trend up.

Morning Journal - The unintended consequences of massive money printing

Economics
This Week’s Data

Update on housing affordability (short):
http://scottgrannis.blogspot.com/2012/02/update-on-bursting-of-housing-price.html

More evidence of global monetary easing (medium):
http://scottgrannis.blogspot.com/2012/02/japan-gets-serious-about-fighting.html

The unintended consequences of massive central bank money printing (medium):
http://www.zerohedge.com/news/eric-sprott-unintended-consequences

Total debt to total GDP (chart):
http://www.zerohedge.com/news/simple-matter-slopes

The Morning Call - I am less worried about oil than Greece

The Market
Technical

The indices (DJIA 12985, S&P 1363) rebounded yesterday with the Dow closing for the fourth day above the 12919 resistance level but the S&P remaining within its intermediate term trading range. If the DJIA finishes today above 12919, then it will re-set to an intermediate term up trend.

However, if it occurs that won’t mean that our directional call on the Market will change. As I have noted repeatedly, under our discipline the Averages have to be in sync in order to confirm a trend change. At the moment, the S&P hasn’t really even tried to bust through 1372. So all we have is increased uncertainty. I am not saying that the Market won’t ultimately re-set to an up trend (though as you know I believe that it won’t), I am saying that it is far too early to be making a bet on such an occurrence.

Volume was down, though breadth improved. The VIX got whacked; and while it is still in its short term down trend, it is also near to an intermediate term support level. How it handles that support level may be a clue as to future Market direction, i.e. if it holds, stocks remain in a trading range; if it breaks through that support, the Market could be headed higher.

Morning Journal-If the economy is growing, why so many so dependent

Economics
This Week’s Data

Weekly mortgage applications fell 4.5% while purchase applications dropped 2.9%.

The International Council of Shopping Centers reported weekly sales of major retailers rose 3.0% versus the prior week and 3.2% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales up 1.4% versus the similar timeframe last month and 2.9% on a year over year basis.

January existing home sales declined less than 0.1% versus expectations of an increase of less than 0.1% (net after a big downward revision of December’s number).
http://www.calculatedriskblog.com/2012/02/existing-home-sales-in-january-457.html

However, the inventory of unsold homes is shrinking:
http://mjperry.blogspot.com/2012/02/months-supply-of-homes-close-to-six.html

The Morning Call-All the tax reform talk is just that, talk

The Market

Technical

The indices (DJIA 12938, S&P 1357) faded a bit yesterday. However, the DJIA remained above the upper boundary of its intermediate term trading range (now for the third day), while the S&P is still below its comparable level.

That leaves (1) the DJIA one to two days from confirming its break above 12919 and (2) the Averages potentially out of sync. At the moment, the assumption continues to be that the indices are in a trading range.

Volume declined; breadth deteriorated. The VIX was unchanged for the day and closed well within its current down trend.

GLD’s move up accelerated and busted through the upper boundary of its very short term trading range. Though it only recently re-set from a short term up trend to the current trading range, it now appears that this original break wasn’t really confirmed. Nevertheless, our time and distance discipline will kick in again for a re-set back to an up trend; the time element will just last for only two to three days.

Mohamed El Erian on Greece

Morning Journal - When no one wants USA debt

Economics
This Week’s Data

Overnight European PMI was reported at a contractionary 49.7 versus expectations of 50.5 while Chinese PMI improved a bit from 48.8 to 49.7--which unfortunately still indicates negative growth.

Other

Update on the MIT inflation index (short):
http://mjperry.blogspot.com/2012/02/bppmit-data-show-inflation-trending.html

Federal debt burden by president (short):
http://scottgrannis.blogspot.com/2012/02/putting-obamas-deficits-in-perspective.html

Good news from the Chicago Fed (short):
http://www.capitalspectator.com/archives/2012/02/chicago_fed_nat.html#more

US debt to GDP passes 101% (short):
http://www.zerohedge.com/news/us-debt-gdp-passes-101-global-debt-ponzi-enters-its-final-stages

The Morning Call + Subscriber Alert + Deal or no deal

The Market
Technical

Given the announcement of the Greek bailout, the indices (DJIA 12965, S&P 1362) were a bit more sedate yesterday than I expected. Nonetheless, the DJIA remained above the upper boundary of its intermediate term trading range (10725-12919) for the second day; our time and distance discipline will confirm the current challenge later in the week, assuming it stays above 12919. The S&P remains within its intermediate term trading range (1101-1372).

This leaves the Averages directionally out of sync. Our discipline calls for them to be in harmony before any change of direction is confirmed.

Volume fell; breadth was off though the flow of funds indicator continues to be quite positive. The VIX was up but remains in a downtrend.

GLD surged; however, while it closed above its current support level it still could not regain its former short term up trend.

Benjamin Graham’s curse on gold (medium):
http://www.ritholtz.com/blog/2012/02/ben-graham%E2%80%99s-curse-on-gold/

The Morning Call -- The Greeks get their deal, maybe

The Market
Technical

Tuesday Morning Chartology

The momentum is there; given the DJIA performance on Friday, a challenge of 1372 is surely coming.

Linear Technology (LLTC) 2012 Review

Linear Technology (LLTC) designs and manufacturers high end linear chips which monitor, amplify or transform continuous analog signals associated with real world phenomena (temperature, pressure, weight, position, light, sound and speed) and markets them in over 4,700 products. 

The company has grown profits and dividends between 7-20% annually over the past 10 years earning in excess of a 20% return on equity. LLTC suffered in the recent economic downturn; however, it should be able to resume earnings growth because:

(1) it is broadening its product base to take advantage of infrastructure build out and the trend toward energy efficiency in industrial applications,

(2) long term, it will benefit from the strong global demand for advanced electronics,

The Closing Bell -- Default is the good news senario

Statistical Summary

Current Economic Forecast
2011

Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%

2012

Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%

Thoughts on Investing P/E

Thoughts on Investing--New Rules of Money, courtesy of Forbes

#3 Low P/E doesn’t Equal Value

Many adherents to fundamental analysis and value stock investing seek stocks with below average price/earnings multiples and price-to-book values.

These ‘accounting-dependent’ fundamentals proved to be traps during the financial crisis when liquidity wreaked havoc on asset values and earnings.

Cheap stocks, including many financials-ranging from Fannie Mae to Washington Mutual-became a recipe for disaster and many still languish today.

The Buckle (BKE) 2012 Review

The Buckle (BKE) is a retailer of medium to high priced casual apparel (denims, casual tops, sweaters, slacks, outerwear, accessories and shoes) for fashion conscious young men and women through nearly 428 stores in 42 states.

Over the last five years, BKE has grown profits at a 24% pace and dividends from $.09 a share to $.80 while earning a 20-30% return on equity. The company weathered the recent down turn better than most and should continue to grow at an above average pace as a result of:

(1) geographic expansion,

(2) a wide selection of on trend styles. More than one half of BKE’s are exclusive Buckle brands.

(3) price points. Their combination of unique styles, fits and silhouettes appeal to a wide variety of customer and allow the company to charge premium prices,

World Gold Demand

Record investment demand boosts global gold demand to an all time high in 2011

Global demand for gold in 2011 rose to 4,067.1 tonnes (t) worth an estimated US$205.5 billion - the first time that global demand has exceeded US$200 billion and the highest tonnage level since 1997, according to the World Gold Council’s Gold Demand Trends.

The main driver for this increase was the investment sector where annual demand was 1,640.7t up 5% on the previous record set in 2010 and with a value of US$82.9 billion. The pre-eminent markets for investment demand in 2011 were India, China and Europe.

All American Investor

Morning Journal -- More crony capitalism

Economics
This Week’s Data

The February Philadelphia Fed index of business conditions came in at 10.2 versus expectations of 9.5 and January’s reading of 7.3.
http://advisorperspectives.com/dshort/updates/Philly-Fed-Business-Outlook.php

The January consumer price index rose 0.2% versus estimates of a 0.3% increase; core CPI was up 0.2% as anticipated.
http://www.calculatedriskblog.com/2012/02/bls-cpi-increases-02-in-january.html

Consumer Price Index - January 2012

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in January on a seasonally adjusted basis, the U.S.Bureau of Labor Statistics reported today.

Over the last 12 months,the all items index increased 2.9 percent before seasonal adjustment.

The indexes for food, energy, and all items less food and energy all rose in January, each increasing 0.2 percent. Within the food group, the index for food away from home increased while the index for food at home was unchanged; within the energy group the gasoline index increased while the index for household energy declined.

The Morning Call - The ECB deal is no deal fro the Greeks

The Market
Technical

So much for the potential loss of upside momentum. The indices (DJIA 12904, S&P 1358) were off the races again yesterday, closing very near (and in the case of DJIA very, very near) to the upper boundaries of their intermediate term trading ranges (10725-12919, 1101-1372) and well above the lower boundaries of their short term up trends (12555, 1298).

Volume was up but remains anemic; breadth improved. The VIX fell 9% and finished within its short term down trend.

GLD sold off early in the day and for a time traded below that initial support level; however, it rebounded and finished flat on the day. That leaves it above support but below the lower boundary of its recent short term up trend. With that close, our time and distance discipline confirms the break of the short term up trend and re-sets GLD to a trading range. Clearly, this is not a positive development; though initial support has held several times. So I am encouraged that GLD isn’t rolling over. That said, this is our Portfolios’ biggest position and any additional weakness will prompt some scaling back in the size of this holding.

PRODUCER PRICE INDEXES - JANUARY 2012

The Producer Price Index for finished goods advanced 0.1 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today.

Prices for finished goods declined 0.1 percent in December and moved up 0.2 percent in November. At the earlier stages of processing, the index for intermediate goods fell 0.4 percent in January, and crude goods prices increased 1.5 percent.

On an unadjusted basis, the finished goods index advanced 4.1 percent for the 12 months ended January 2012, the smallest year-over-year rise since a 3.6-percent increase in
January 2011.

All American Investor

Morning Journal - Why small businesses aren't hiring

Economics
This Week’s Data

January industrial production came in flat with December versus expectations of a 0.7% increase--the shortfall occurred mainly in utilities (warm winter); capacity utilization was 78.5 versus forecasts of 78.7.
http://www.capitalspectator.com/archives/2012/02/industrial_prod_1.html#more

Weekly jobless claims fell 10,000 versus estimates of a 6,000 rise.
http://www.calculatedriskblog.com/2012/02/weekly-initial-unemployment-claims_16.html

January housing starts jumped 6.3% versus forecasts of a 2.7% advance; however, building permits dropped over 0.1% versus an anticipated increase of 1.3%. These numbers were likely influenced by the warm winter weather.

The Morning Call-Orderly or disorderly default, that is the question

The Market
Technical

The indices (DJIA 12780, S&P 1343) had their worst day in some time yesterday, although they closed well within their intermediate term trading ranges (10725-12919, 1101-1372) and remain above the lower boundary of their short term up trends (12524, 1296).

Volume was up; breadth fell. The VIX spiked 8% but remains within its current down trend.
http://www.bespokeinvest.com/thinkbig/2012/2/15/breadth-weakens.html

In addition, stock trading was heavily influenced by an intraday reversal in Apple stock. I have noted previously that AAPL was getting technically overextended and that as its price kept rising, it was having an impact of the Averages. I have no idea if a rollover in this stock could be a leading indicator for the Market in general; but it bears watching.

Kinder Morgan Energy Ptrs (KMP) 2012 Review

Kinder Morgan Energy Partners (KPM) is the largest owner and operator of petroleum product pipelines in the US.

It owns 37,000 miles of pipelines and 180 terminals used in transporting gasoline, jet fuel, diesel fuel, natural gas liquids, coal and carbon dioxide. This Master Limited Partnership has grown profits, cash flow (the basis for dividend payments) and dividends at a 3-12% rate over the past 10 years earning approximately 20% return on partnership capital. KMP suffered an earnings decline in 2009 but has rebounded. Future growth will come from:

Acting OMB director Jeff Zients obtuse testimony on the new budget

Morning Journal-Austerity is not bad for growth

Economics
This Week’s Data

The International Council of Shopping Centers reported weekly sales of major retailers down 2.0% versus the prior week but up 2.8% versus the comparable period last year. Redbook Research reported month to date retail chain store sales up 1.5% versus the similar timeframe last month and up 2.7% on a year over year basis.

January retail sales up 0.4% versus expectations of up 0.8%; ex autos sales were up 0.7% versus estimates of up 0.6%.
http://www.capitalspectator.com/archives/2012/02/a_january_thaw.html#more

Consumer confidence and retail sales (medium):
http://advisorperspectives.com/dshort/guest/Lance-Roberts-120214-Consumer-Confidence-and-Retail-Sales.php

December business inventories rose 0.4% versus forecasts of a 0.5% increase; sales were up a strong 0.7%.

Weekly mortgage applications fell 1.0% while purchase applications dropped 8.4%.
http://www.calculatedriskblog.com/2012/02/mba-purchase-applications-decrease-in.html

The Morning Call-Greece is better off defaulting

The Market
Technical

The indices (DJIA 12878, S&P 1350) had a roller coaster day but ended basically flat (DJIA up a bit, S&P down fractionally). They closed near the upper boundary of their intermediate term trading ranges (10725-12919, 1101-1372) and above the lower boundary of their short term up trends (12443, 1274).

Volume inched up but remains anemic; breadth fell though the flow of funds indicator was up. The VIX rose but is still well within its short term down trend.

GLD was off but finished above a short term support level. However, this is the third day below the lower boundary of its short term up trend; under our time and distance discipline, it will re-set to a trading range Thursday unless tomorrow is a big down day.

Morning Journal-A history of monetary growth

Economics
This Week’s Data

German December industrial output declined 2.7%--that can’t be good for our ‘muddle through’ scenario.

Other

The demise of the savings class; thank Mr. Bernanke (medium):
http://mjperry.blogspot.com/2012/02/higgs-on-immiseration-of-personal.html

The student debt bomb (medium):
http://advisorperspectives.com/commentaries/dshort_021112.php

The Morning Call--A default is a better deal than what they got

The Market
Technical

The indices (DJIA 12874, S&P 1351) retraced much of their loses from last Friday, pushing back to close proximity to the upper boundaries of their intermediate term trading ranges (10725-12919, 1101-1372) and closing well above the lower boundaries of their short term up trends (12485, 1291).

Volume was down, though breadth improved. The VIX tumbled 8%, leaving in its short term down trend. If there is follow through then the question will be how it handles last May’s lows (15.5).

GLD bounced fractionally off that initial minor support level--which is better than a sharp stick in the eye. It remains below the lower boundary of its short term up trend for the second day. Our time and distance discipline is now operative; so if GLD doesn’t recover the short term up trends lower boundary in the next two to three days, the trend will re-set to a trading range.

CF Industries (CF) 2012 Review

CF Industries (CF) manufactures and distribute nitrogen and phosphate fertilizers in North America.

Since going public in 2005, the company has grown profits from $.60 to $21.25 in 2011 and dividends from $.02 to $1.00 in the same time frame. It has earned between 12% and 20% return on equity. CF experienced a modest decline in earnings during the recent recession but is on track to return to it above average growth rate because:

(1) strong industry long term fundamentals driven by an improvement in diet as incomes rise in developing markets and the need by farmers to increase crop production per acre,

(2) rising market share,

The Morning Call-Those pesky Greeks; they are already plannig to renegotiate the deal

The Market
Technical

Monday Morning Chartology

Friday’s decline is barely noticeable on this chart.

The Closing Bell-The longer these clowns take, the greater the risk of a disorderly default

Statistical Summary
Current Economic Forecast

2011

Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%

2012

Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%

Current Market Forecast

Monsanto (MON) 2012 Review

Monsanto (MON) is a supplier of technology based solutions and agricultural products to growers.

It has grown profits and dividends 25-35% over the past ten years earning between 13-14% return on equity. The economic slowdown accompanied by softening demand and lower grain prices has led to a 50% reduction in MON’s earnings and stock price in 2010. While these factors will impact earning growth near term, the longer term outlook is still promising because:

(1) new product innovations provide a competitive advantage,

(2) it maintains a huge R& D effort focused on improved crop yields,

(3) its comprehensive effort to reduce costs and mitigate weather and pricing risks to its cost structure,

Morning Journal-Pimco bets the farm on QE3

Economics

This Week’s Data

December wholesale inventories rose 1.0% versus expectations of a 0.4% increase; importantly, wholesale sales advanced 1.3%.

The US December trade deficit came in at $48.8 billion versus estimates of $48.5 billion.

Other

A chart of weekly unemployment claims:
http://mjperry.blogspot.com/2012/02/jobless-claims-fall-to-lowest-level.html

Cancer Drug Erases Alzheimer's Symptoms in Days

Neuroscientists at Case Western Reserve University School of Medicine have made a dramatic breakthrough in their efforts to find a cure for Alzheimer’s disease. The drug in question, Bexarotene has been approved for the treatment of cancer by the U.S. Food and Drug Administration for more than a decade.

Alzheimer's Reading Room 

Gary Landreth

In the study described below, the cancer drug Bexarotene quickly and dramatically improved brain function and social ability and restored the sense of smell in mice bred with a form of Alzheimer's disease. 

Imagine this.

Within hours of taking the drug, amyloid plaques began to clear out of the mice’s brains. After three days, more than 50 percent of the Alzheimer’s plaques had disappeared, and the mice regained some of the cognitive and memory functions typically lost in Alzheimer's disease.

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/

Morning Journal-A dysfunctional political class

Economics
This Week’s Data

Weekly jobless claims fell 9,000 versus expectations of a 3,000 increase.
http://www.calculatedriskblog.com/2012/02/weekly-initial-unemployment-claims_09.html

Other

More on expanding credit (short):
http://scottgrannis.blogspot.com/2012/02/deleveraging-is-history.html

Before getting too jiggy with rising consumer credit, take a look at this number in conjunction with the personal consumption expenditures (medium):
http://www.zerohedge.com/news/guest-post-consumer-credit-and-american-conundrum

The Morning Call--I can't figure out what is being discounted

The Market

Technical

While there was some intraday volatility (see VIX below), the indices (DJIA 12883, S&P 1349) finished slightly higher on the day, closing a bit closer to the upper boundaries of their intermediate term trading ranges (10725-12919, 1101-1372) and above the lower boundaries of their short term up trends (12413, 1283).

Volume rose modestly, though its remains low; breadth was mixed. The VIX rose despite prices being up.

GLD declined but remains above the lower boundary of its short term up trend.

General Dynamics (GD) 2012 Review

General Dynamics (GD) is a leading defense contractor supplying products and technology to marine systems, combat systems, information systems and aerospace (basically submarines, tanks, aircraft and command and control systems). The company has grown earnings and dividends 14% and 12% respectively over the last 10 years and has earned a consistently high 17-18% return on equity. GD should be able to continue to match that record because of:

(1) its broad product line should help sustain growth momentum,

(2) its products have strong congressional support,

(3) acquisitions,

Morning Journal-Consumer credit soars

Economics
This Week’s Data

The International Council of Shopping Centers reported weekly sales of major retailers up 1.8% versus the prior week and up 3.5% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales up 1.2% versus the similar time frame last month and up 2.5% on a year over year basis.

Weekly mortgage applications rose 7.5% though purchase applications were up only 0.1%.

The Morning Call-How can we break out on such anemic volume?

The Market

Technical

The indices (DJIA 12878, S&P 1347) had another mildly positive day, closing near the upper boundary of their intermediate term trading ranges (10725-12919, 1101-1372) and well above the lower boundaries of their short term up trends (12368, 1279).

Volume was up fractionally but is still anemic; breadth improved slightly. The VIX fell and remains within a pronounced down trend.

In text book fashion, GLD bounced off the lower boundary of its short term up trend. Our Portfolios will Add to the positions at the Market open.

Mohamed El Erian on jobs and the Market

Mine Safety Appliances (MSA)

Mine Safety Appliances (MSA) is a global leader in the development, manufacture and supply of health and safety products for work and the military. 

The company has grown profits and dividends between 10-20% over the last 10 years while earning a 10-20% return on equity.

While MSA stumbled during the recent recession, it should return to its prior levels of growth as a result of:

(1) the recent pick up in economic activity has led to growth in order backlog,

Morning Journal-The potential impact of the upcoming French elections

Economics

This Week’s Data

Other

Bill Fleckenstein on gold and money (medium):
http://money.msn.com/investing/all-roads-lead-to-inflation-fleckenstein.aspx

More positive employment data (short):
http://mjperry.blogspot.com/2012/02/employment-trends-index-gains-in.html

And some not so positive employment data (charts):
http://www.ritholtz.com/blog/2012/02/employment-chart-palooza/

And this:
http://www.zerohedge.com/news/guest-post-bringing-not-labor-force-mystery-light

The Fed has totally f**ked the savings class (medium):
http://www.zerohedge.com/news/bernanke-plan-exterminate-savers-unsustainable

Politics

Domestic

Here is another thoughtful piece on our economic problems from John Mauldin (long):
http://advisorperspectives.com/commentaries/millenium_020412.php

If you want to sick to your stomach thinking about our political class and the damage they have wrought, this is for you (medium, and my today’s must read):
http://www.zerohedge.com/news/guest-post-what-if-were-beyond-mere-policy-tweaks

International

A look at the issues and possible outcomes of the approaching French elections (medium and a must read if you want to get into the weeds on the EU debt crisis):
http://www.zerohedge.com/news/falls-sarkozy-so-falls-europe-full-story-behind-upcoming-french-election

News on Stocks in Our Portfolios

More earnings per share reports:

Reported Expected

Sysco $.46 $.45
Leggett & Platt .22 .21
Becton Dickinson 1.21 1.17
Coca Cola .79 .78

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.

The Morning Call-Use this strength to cut your losers

The Market

Technical

The Market was all yawns yesterday with the indices (DJIA 12845, S&P 1344) finishing within their intermediate term trading ranges (10725-12919, 1101-1372) and above the lower boundary of their short term up trends (12348, 1278).

Volume was off, as was breadth. The VIX rose 4% but remains firmly within its down trend,
http://www.zerohedge.com/news/lowest-non-holiday-market-volume-past-decade

GLD sold down to the lower boundary of its short term up trend. If it bounces, our Portfolios will Add to their positions.

Bottom line: with prices holding on to Friday’s gains on an otherwise boring and quiet day, I would assume the assault of 12919, 1372 will persist. I still believe that this level will Hold and, therefore, our Portfolios will continue chipping away at fundamentally and technically over extended stocks as well as those stocks of companies that no longer fundamentally qualify for inclusion in our Universe (APH, LLY and MSA--see below).

More on the January effect (short):
http://blog.stocktradersalmanac.com/post/Setting-the-January-Barometer-Record-Straight

Fundamental

Headlines

There was no economic news yesterday. Most of the New York based talking heads spent plenty of time reviewing the Super Bowl. I can’t blame them; and of course, there was something positive and Market related to yak about--the old adage that if an NFC or former NFC team wins the Super Bowl, the Market will be up for the year. Since investors are finding a silver lining in almost any bit of data however irrelevant, I am sure this will be added to some investors’ list of Market positives.

The other news item, which has ceased to be news, was that the eurocrats still haven’t agreed on the terms of a Greek bailout/default. I have opined that there is no real pressure for an agreement since Greece doesn’t run out of money till March; so expect more procrastination and dim witted headlines.
http://www.ritholtz.com/blog/2012/02/tinkerbell-economics-%E2%80%93-the-confidence-fairy-pixie-dust-and-a-sleeping-dragon/

What is the ECB thinking (medium):
http://www.project-syndicate.org/commentary/stiglitz148/English

Bottom line: the US economy is unfolding much as I expected (sluggish growth) with the positive caveat that the data over the last two months is strongly suggesting that the risk of recession is off the table. Our domestic political environment is also reflecting the assumptions in our Models (frozen in a myriad of irresponsible taxing, spending and regulatory policies). Eurocrats are doing as expected--nothing; for the moment, they are muddling through as our outlook calls for; but that is the most tenuous of our assumptions and therefore what I am most worried about.

All that said, the S&P is trading right on Fair Value; so I have no strong argument for either a decline or an advance. On the other hand, within this Fair Value environment there are stocks that have become richly valued and our Sell Discipline forces us to cut those positions. In addition, there are several companies that in our recent fundamental review have failed to qualify for inclusion in our Universe. Those stocks need to be eliminated from our Portfolios. As a general statement, when the Market is at or near highs, it is an excellent time to get rid of losers and other forms of dead wood. Enough said?

For the bulls (short):
http://scottgrannis.blogspot.com/2012/02/tracking-recovery-pessimism-still.html

Greece: shoot it and get this circus over with (medium):
http://yanisvaroufakis.eu/2012/02/05/is-greece-still-viable-is-europe-my-piece-in-deutsche-welle-de/

Subscriber Alert

At the Market open this morning, the High Yield Portfolio will Sell share of Eli Lilly and Mine Safety Appliances and the Aggressive Growth Portfolio will Sell shares of Amphenol as per our above discussion.

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.

The Morning Call- Monday Morning Chartology + How jobs get created

The Market
Technical

Monday Morning Chartology

Given Friday’s giddy Market, I marked the resistance at levels above 1372.

The Closing Bell-By our work, the Market is at Fair Value

Statistical Summary
Current Economic Forecast

2011

Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%

2012

Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%

Current Market Forecast

Dow Jones Industrial Average

Current Trend (revised):
Intermediate Term Trading Range 10725-12919
Long Term Trading Range 7148-14180
Very LT Up Trend 4187-14789

2011 Year End Fair Value 10750-10770

2012 Year End Fair Value 11290-11310

Thoughts on Investing--from Forbes

Thoughts on Investing--New Rules of Money, courtesy of Forbes

#1 Buy and Hold at your own Risk

These days buying a stock or fund and expecting to hold it forever is lazy and hazardous to your wealth.

A buy-and-hold strategy works well when markets generally go up for long periods of time. But it stopped working a decade ago. Says economist Gary Shilling: “From 1982 to 2000, buy and hold worked but now we’re in a down phase, a secular bear market where downturns are deeper and more frequent and bull moves are less robust. You need to be jungle fighter rather than an easy cruiser.”

Does this mean you have to become a day trader?

No, but you should monitor your holdings and be prepared to sell losers and buy into big new trends.

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.

Subscriber Alert-Use today's weakness to Add to GLD

SUBSCRIBER ALERT
2/3/12

The price of GLD is off today. Our Portfolios are using this weakness to Add to their holdings. This will bring the total positions to circa 7-8% of the total Portfolios.

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.

Morning Journal-NFP a blow out number

Economics
This Week’s Data

January nonfarm payrolls grew 243,000 versus expectations of +125,000; the unemployment rate dropped to 8.3%. This was a gangbusters number: prior months were revised up, the total workforce grew and hours worked increased.

Politics
Domestic

Ann Coulter considers Romneycare (medium):
http://www.anncoulter.com/columns/2012-02-01.html

An inside look at Obama from my favorite progressive (short):
http://dailycaller.com/2012/02/02/what-does-obama-do-all-day/

More from Andrew McCarthy on the republican establishment (medium):
http://www.nationalreview.com/articles/289905/big-government-republicans-andrew-c-mccarthy

And if think the above two articles are derisive of our political class, read this (medium):
http://www.zerohedge.com/news/mike-krieger-explains-why-its-leadership-stupid

The Morning Call + Subscriber Alert + The fact pattern

The Market
Technical

The indices (DJIA 12705, S&P 1325) had a mixed day (S&P up, DJIA down) but both closed within their intermediate term trading ranges (10725-12919, 1101-1372) and above the lower boundary of their short term up trends (12315, 1272).

Volume remains anemic; breadth fell. The VIX declined and continues in its short term down trend.

GLD sparkled again. I keep saying that our Portfolios will Add to their holdings on weakness; but we don’t get any.
http://www.marketwatch.com/story/getting-back-to-the-gold-standard-2012-02-02?link=home_carousel

A great interview with Paul Ryan on Bernanke and Fed policy

Is Prana's PBT2 The Alzheimer's Answer?

Prana Biotechnology (PRAN) Comments on Nature Medicine, PNAS and Journal of Alzheimer's Disease Articles That Highlight the Role of Metals in Neurological Diseases

Prana Biotechnology PRAN +4.22% (asx:PBT) today commented on three recent high profile scientific journal articles that the company believes provide support for Prana's therapeutic strategy for treating neurodegenerative disease.

All American Investor

Morning Journal-Alook inside the CBO

Economics

This Week’s Data

The January Institute for Supply Management manufacturing index was reported at 54.1 versus expectations of 54.5 and December’s reading of 53.9.
http://scottgrannis.blogspot.com/2012/02/another-decent-manufacturing-report.html

December construction spending rose 1.5% versus estimates of a 0.5% increase.
http://scottgrannis.blogspot.com/2012/02/construction-begins-to-recover.html

January auto sales were strong.

Weekly jobless claims declined 10,000 versus forecasts of a 2,000 decrease.
http://www.calculatedriskblog.com/2012/02/weekly-initial-unemployment-claims.html

Fourth quarter nonfarm productivity rose 0.7% versus expectations of up0.6%; unit labor costs increased 1.2% versus estimates of up 0.4%.

The Morning Call + Subscriber Alert + A look at Valuation

The Market
Technical

Yesterday, the indices (DJIA 12716, S&P 1324) inched closer to the upper boundaries of their intermediate term trading ranges (10725-12919, 1101-1372) and finished well above the lower boundary of their short term up trends (12281, 1270).

Volume was down; breadth rebounded dramatically. The VIX fell 5% and remains firmly within its down trend--that is good for stocks. Remember there is support at 15.5.

GLD advanced again and continues in its short term up trend. Our Portfolios are buyers on weakness.

The latest from Bill Gross (Pimco) QE3 is on the way

If you don't see the video go here.

Canadian National RR (CNI) 2012 Review

Canadian National Railway (CNI) operates Canada’s largest railroad system spanning the East/West width of the country plus a North/South axis that runs through the US mid West to the Gulf of Mexico.

The railroad has grown its profits and dividends at a 16-20% pace over the past 10 years earning a 14-18%+ return on equity. The company weathered the 2008/2009 global recession very well. Going forward, earnings should increase at an above average pace as result of:

(1) volume growth and improved pricing that accompanies [a] an improving economy, [b] the opening of the Prince Rupert Intermodal Terminal, a new container terminal that provides the fastest and most cost effective route between Asia and the interior of North America, [c] increased resource demand particularly in coal and grains and [d] rising demand for pipe, machinery and equipment associated with oil and gas development in Western Canada,

(2) aggressive productivity improvement such as the SmartYard technology, precision engineering, shop consolidation, train length, car velocity, fuel productivity, extended sidings and yard integration,

(3) cost control measures.

(4) an ongoing share repurchase program.

Morning Journal-The troubling trend in personal income

Economics

This Week’s Data

The International Council of Shopping Centers reported weekly sales of major retailers up 0.1% versus the prior week and up 3.9% versus the comparable period last year; Redbook Research reported month to date retail chain store sales down 1.8% versus the similar time frame last month but up 2.0% on a year over year basis.

The November Case Shiller home price index declined 0.7% versus October’s reading and 3.7% on a year over year basis.
http://www.ritholtz.com/blog/2012/01/has-housing-bottomed/

The January Chicago purchasing managers index came in at 60.2 versus expectations of 63.0 and 62.5 posted in December.

The Conference Board’s January index of consumer confidence was reported at 61.1 versus estimates of 68.5 and December’s reading of 64.5.
http://advisorperspectives.com/dshort/updates/Conference-Board-Consumer-Confidence-Index.php

The Morning Call--Bad news = Good Market; Go figure

The Market

Technical

The indices (DJIA 12632, S&P 1312) had another day with lots of intraday volatility but little change between the open and close. That leaves the Averages within their intermediate term trading ranges (10725-12919, 1101-1372) and above the lower boundary of their short term up trend (12256, 1267).

Volume rose though it remains anemic; breadth was mixed. The VIX was up fractionally but it still well within its down trend. The 200 day and 50 day moving averages for the S&P executed the ‘golden cross’ at closing prices; historically, this has been a positive for stocks.

GLD rose and continues to build a short term up trend.
http://www.zerohedge.com/news/112-eurusd-coming