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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 46 years of investment... More
My company:
Strategic Stock Investments
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Investing for Survival
  • The Morning Call---Stocks Losing Momentum?

    The Market


    The indices (DJIA 18041, S&P 2104) took a lickin' yesterday. Both closed above their 100 day moving average but below their former all-time highs. The S&P traded above that level long enough that it technically should have become support. The issue now is follow through---in either direction. A quick rebound would leave it as support; more downside would suggest its May 20 high would become resistance.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17247-20052, 2024-3003), intermediate term (17398-22526, 1826-2593 and long term (5369-19175, 797-2138).

    Volume rose noticeably; breadth was terrible. The VIX spiked 16% but still finished below its 100 day moving average and the upper boundary of its very short term downtrend. It remains a plus for stocks.

    The long Treasury was quite strong, closing above the upper boundary of a very short term downtrend. This is the first indication since mi April of a break in downward momentum. However, it remained below its 100 day moving average and within a short term downtrend. The key now is follow through: a quick drop would leave the very short term downtrend in tact; another one point move to the upside would imply a challenge of its 100 day moving average and the upper boundary of its short term downtrend.

    GLD was down big and finished below its 100 day moving average and the neck line of the head and shoulders pattern.

    Oil was down 3%, leaving it within a short term trading range. The dollar rallied 1%. While the lower boundary of its short term uptrend has been technically negated, it didn't remain below that trend very long and its rally back up through the trend line has been substantial enough that another 1.5% to the upside will re-establish that short term uptrend and set it up for a challenge of its intermediate term trading range.

    Bottom line: that there wasn't sufficient momentum to push the Averages to a challenge of the upper boundaries of their long term uptrends---something that I thought was inevitable---suggests some exhaustion among the bulls. That doesn't mean that the end is near; we have to see a big pick up in selling and the buyers manning the foxholes before that happens. It does support my belief that that the upper boundaries of the indices long term uptrends will likely prove unassailable.

    I thought that the up dollar, up TLT, down GLD, down oil all made sense if you assume a low inflation scenario; however, that would also suggest a rate hike later rather than sooner which has heretofore meant higher stock prices. So can still color me confused on what exactly is being discounted.

    Charles Biderman on falling commodity prices (medium):

    Stock performance in June (short):



    Yesterday was huge for US economic data. In fact, it represented half of all the datapoints being released this week. Most of stats were either slightly above (May consumer confidence, the Case Shiller home price index, April durable goods), slightly below (the May Markit flash services index) or right on (May Richmond Fed manufacturing index) estimates. Two numbers were well off expectations: April new home sales were over forecast while the May Dallas Fed manufacturing index was much lower than anticipated.

    On balance, the results were a plus, especially with the upbeat April durable goods and new home sales reports---which are primary indicators. That said, in aggregate, the data wasn't so positive that it would give me pause to reconsider our forecast or, in my opinion, the data driven Fed to contemplate a sooner versus later rate hike.

    ***overnight in Greece (medium):

    And (medium):

    David Stockman on a Grexit (medium and a must read):

    Bottom line: every time we get a positive data dump, I caution that we need some upbeat stats just so I don't have to lower our economic growth forecast again. Further, a number of in line and/or slight beats would just confirm our new outlook. The key to considering any improvement in the growth rate would be a whole series of reports that are well above consensus. We are not even close to that. So our forecast for sub, subpar growth is intact. That suggests more downward sales and earnings revisions are in the offing.

    Of course, equity investors may continue to ignore any decline in the E of P/E as long as the Fed keeps rates low. Even so, the discount rate on corporate earnings can't decline much further simply because there is not much further to go. In short, with limited upside on P/E's and downward pressure E, what is left to drive prices higher other than more QE? I suggest that at some point, the Fed is going to provide too much of a good thing. When that occurs, I haven't a clue. But I am just suggesting that from here the upside is limited while the downside, while unknown, potentially includes some very large numbers. For me, that makes cash attractive, dismal yield aside.

    I can't emphasize strongly enough that I believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.

    Bear in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and their cash position is a function of individual stocks either hitting their Sell Half Prices or their underlying company failing to meet the requisite minimum financial criteria needed for inclusion in our Universe.

    The greater fool (medium):

    The latest from John Hussman (medium):

    A valuation metric for the bulls; but is that inflation number correct? (short):

    Investing for Survival

    12 things I learned from David Tepper: #2

    2. "Markets adapt. People adapt."

    People have a tendency to extrapolate from the present in trying to predict the future. Many pundits make their living extrapolating X or Y to the sky or to the ground depending on the most recent trend. David Tepper makes the point with an example: "In 1898, the first international urban-planning conference convened in New York. It was abandoned after three days because none of the delegates could see any solution to the growing crisis caused by urban horses and their output. In the Times of London, one reporter estimated that in 50 years, every street in London would be buried under nine feet of manure." The nature of capitalism is that often the remedy for high prices is high prices and low prices is low prices. Incentives are created and people respond in a capitalist economy by adapting based on price signals. David Tepper likes to make bets against people who don't believe markets will adapt. He stuffs perma-bears and perma-bulls in his game bag.

    News on Stocks in Our Portfolios

    Tiffany beats by $0.11, beats on revenue

    · Tiffany (NYSE:TIF): Q1 EPS of $0.81 beats by $0.11.

    · Revenue of $962M (-4.8% Y/Y) beats by $43.32M.


    This Week's Data

    The March Case Shiller home price index rose 1.0% versus expectations of +0.9%.

    The May Markit flash services index was reported at 56.4 versus estimates of 56.5.

    April new home sales jumped 6.8% versus forecasts of up 5.8%.

    May consumer confidence came in at 95.4 versus consensus of 95.1.

    The May Richmond Fed manufacturing index was reported at 1, in line.

    The May Dallas Fed manufacturing index came in at -20.8 versus expectations of -10.0.

    Weekly mortgage applications fell 1.6% but purchase applications rose 1.0%.

    Month to date retail chain store sales slowed further.


    Fears of a global recession (medium):

    Why consumers didn't spend the savings on lower oil prices (medium):

    Chinese stocks on a moonshot (short):

    And yet, another Chinese company defaults (medium):



    International War Against Radical Islam

    May 27 9:06 AM | Link | Comment!
  • Tuesday Morning Chartology

    The Market


    Tuesday Morning Chartology

    The S&P is in uptrends across all timeframes even the very short term and remains well above its 100 day moving average. The only negative from a technical standpoint is that it has not shown much follow through after trading above its former all-time high. It is only 12 points from the upper boundary of its long term uptrend which, it seems to me, it will inevitably challenge. However, I continue to believe that challenge will not be successful in any meaningful way.

    (click to enlarge)

    A minor rally last week notwithstanding, the momentum remains to the downside in TLT, apparently the result of the bond guys seeing a rate hike sooner than the stock guys.

    (click to enlarge)

    GLD retreated last week back below its 100 day moving average and the neckline of the head and shoulders pattern. The best thing we can say is that it isn't going down, at least, on a short term and intermediate term basis.

    (click to enlarge)

    The VIX closed the week below its 100 day moving average and below the upper boundary of its very short term downtrend. It is drawing neared to the lower boundaries of its short and long term trading ranges, suggesting its value as portfolio insurance continues to rise.

    (click to enlarge)


    The latest from Greece (short):

    Anti-austerity parties win in Spanish elections (medium):

    Investing for Survival

    12 things I learned from Morgan Housel: Part 11

    11. "Daniel Kahneman's book Thinking Fast and Slow begins, 'The premise of this book is that it is easier to recognize other people's mistakes than your own.' This should be every market commentator's motto."

    It is an unfortunately aspect of human nature that we do not have perspective on ourselves. Humans have developed a series of heuristics that make it hard for us, especially in a modern world, to see our own mistakes. If you have an interest in exploring this topic, Daniel Kahneman explains why this is true in this excerpt from his book:

    "I'm better at detecting other people's mistakes than my own…. When you are making important decisions and you want to get it right, you should get the help of your friends. And you should get the help of a friend who doesn't take you too seriously, since they're not too impressed by your biases."

    Having a posse of people around you who are afraid to tell you that the emperor has no clothes is not helpful in overcoming this bias. Morgan Housel cites Charlie Munger's wisdom on this problem: "Only in fairy tales are emperors told they're naked." Pavlovian association and other heuristics Morgan has written about acting together in the form of a lollapalooza make things worse.

    News on Stocks in Our Portfolios


    This Week's Data

    April durable goods fell 0.5% versus expectations of down 0.6%; ex transportation, they rose 0.5% versus estimates of +0.4%.


    How the Fed depressed the recovery (short):




    In case you weren't aware (medium):

    Propaganda but something to think about (medium):

    May 26 9:18 AM | Link | Comment!
  • The Closing Bell

    Statistical Summary

    Current Economic Forecast


    Real Growth in Gross Domestic Product: +1.0-+2.0

    Inflation (revised): 1.5-2.5

    Growth in Corporate Profits: 0-7%

    2014 estimates

    Real Growth in Gross Domestic Product +1.5-+2.5

    Inflation (revised) 1.5-2.5

    Corporate Profits 5-10%

    2015 estimates

    Real Growth in Gross Domestic Product (revised) 0-+2%

    Inflation (revised) 1.0-2.0

    Corporate Profits (revised) -5-+5%

    Current Market Forecast

    Dow Jones Industrial Average

    Current Trend (revised):

    Short Term Uptrend 17220-20025

    Intermediate Term Uptrend 17378-22506

    Long Term Uptrend 5369-19175

    2014 Year End Fair Value 11800-12000

    2015 Year End Fair Value 12200-12400

    Standard & Poor's 500

    Current Trend (revised):

    Short Term Uptrend 2021-3000

    Intermediate Term Uptrend 1826-2593

    Long Term Uptrend 797-2138

    2014 Year End Fair Value 1470-1490

    2015 Year End Fair Value 1515-1535

    Percentage Cash in Our Portfolios

    Dividend Growth Portfolio 51%

    High Yield Portfolio 52%

    Aggressive Growth Portfolio 53%


    The economy is a neutral for Your Money. The preponderance of data this week was negative though two primary indicators were pluses: positives---April new home sales and building permits, April leading economic indicators and April CPI ex food and energy; negatives---weekly mortgage and purchase applications, May homebuilder confidence, April existing home sales, month to date retail sales, weekly jobless claims, the April Chicago national activity index, the May Markit flash manufacturing index and the May Philly Fed and Kansas City manufacturing indices; neutral---none.

    Clearly volume wise this was a rough week. To be sure, the new home sales and leading economic indicators were very important positives. But new home sales were more than offset by the headline existing home sales (which are ten times the magnitude of new home sales). Realtors are countering that the disappointing number was a function of low supply versus low demand. Bear in mind that they are just talking their book. In fact, in the same existing home sales press release, inventories (i.e. supply) were listed as climbing in April. So I am counting the new versus existing home sales as a wash. In short, we are at sixteen out of seventeen weeks of lousy data and counting.

    There was a bevy of Fed related news all of which I covered in Morning Calls and discuss briefly below. In sum though it was confusing in part because Fed seems to be trying to weasel the economic data to look better than it is. I continue to wonder if the Fed's motive is to keep the door open for a rate hike sooner later than later. If that occurs as you know, I don't think the economic impact will be that great. That said, since the economy appears to be weakening, a rate hike won't exactly be constructive.

    Our forecast:

    'a much below average secular rate of recovery, exacerbated by a declining cyclical pattern of growth, resulting from too much government spending, too much government debt to service, too much government regulation, a financial system with an impaired balance sheet, and a business community hesitant to hire and invest because the aforementioned, the weakening in the global economic outlook, along with...... the historic inability of the Fed to properly time the reversal of a vastly over expansive monetary policy.'

    The pluses:

    (1) our improving energy picture. Oil production in this country continues to grow which is a significant geopolitical plus. However, we have yet to see the 'unmitigated' positive attributed to lower oil prices by the pundits. Not surprisingly, with oil prices up, this same crowd is trumpeting the pluses that rising prices will have on capital spending. If they keep trying, the law of averages says that they will eventually be right. But who will listen?

    The negatives:

    (1) a vulnerable global banking system. This week:

    [a] UBS got its wrist slapped for currency manipulation.

    [b] five banks including Citi, JP Morgan and Bank of America plead guilty to currency manipulation---but no one goes to jail.

    Unfortunately, this reverses the hopeful signs we saw last week that the regulators may be attempting to impose justice on the too big to fail banks. For those banks to plead guilty [which is a first] and no one be held accountable is unconscionable.

    SEC commissioner chides agency for not enforcing the law (medium and must read):

    'My concern here.....that: [a] investors ultimately lose confidence in our financial institutions and refuse to invest in America and [b] the recent scandals are simply signs that our banks are not as sound and well managed as we have been led to believe and, hence, are highly vulnerable to future shocks, particularly a collapse of the EU financial system.'

    (2) fiscal policy.

    The US love affair with debt (medium):

    Which is mathematically impossible to pay off (medium):

    (3) the potential negative impact of central bank money printing: The key point here is that [a] the Fed has inflated bank reserves far beyond any comparable level in history and [b] while this hasn't been an economic problem to date, {i} it still has to withdraw all those reserves from the system without creating any disruptions---a task that I regularly point out it has proven inept at in the past and {ii} it has created or is creating asset bubbles in the stock market as well as in the auto, student and mortgage loan markets.

    This week witnessed more confusion out of the Fed. First, there were two articles published: one by the San Francisco Fed arguing that the seasonal adjustment factors in recent economic data releases should have been doubled in which case the economy would look normal. Later in the week, the Bureau of Economic Analysis agreed and suggested that there will be indeed be some seasonal adjustments to the seasonal adjustments. However, the caveat in this exercise is that whatever increase is applied to the first quarter seasonal adjustment may be taken from the subsequent quarters. In short, the overall trend wouldn't change, it would just be less volatile. [So far, no one is suggesting that the already poor second quarter numbers need another seasonal adjustment. But then the second quarter is over yet.]

    In the second article, the NY Fed which has been tweaking its econometric model said that the economic outlook is great [although the spread of possible outcomes is so wide as to be meaningless].

    Add that to the convoluted narrative in Wednesday's release of the most recent FOMC minutes: the Fed [a] thinks that the first quarter economic weakness was transitory, but it is worried about the potential impact of the strong dollar, economic weakness in growth in China and the outcome of the Greek bailout negotiations, [b] has little support for a rate hike in June; but contends that any decision will be data dependent and, therefore, it is not ruling out an increase in June and finally the coup de grace, [c] is concerned about the effect of a rate hike on the markets, in view of the increased role of high-frequency traders, decreased inventories of bonds held by broker-dealers, and elevated assets of bond funds---all a result of Fed/regulatory policy.

    Finally, Yellen spoke on Friday but didn't add much to the narrative. She did say that she expects a rate hike in 2015, though provided no guidance on timing. Judging by the Market's reaction, investors continue to believe that it will be later rather than sooner---perhaps at their own peril.

    I am very unclear what this all means; and I am not sure the Fed even knows. It is full of on the one hand/on the other hand, wishy washy, afraid to make a firm statement comments, which I can only assume were deliberate and, I think, the best evidence there is that in fact the Fed is either clueless or realizes what it has done and is scared s**tless.

    I do have one scenario that links this all together: the Fed knows that QE has not only not worked but has created problems that will only get worse the longer QE lasts. Therefore, the time has arrived to bite the bullet which it does under the guise of projecting a stronger economy than there is evidence to support. Then when the consequences occur (which will be largely Market related), it can point to all those studies showing that the economy is OK and blame the Market reaction on high frequency traders, broker dealers and bond funds. Bear in mind this is just the cynical thoughts of an elderly market participant.

    The Fed was not the only central banking making the news this week: [a] the Banks of England and Japan both reiterated their undying devotion of QE, and [b] the ECB said that it would 'front load' its QE. So whether or not, the Fed starts to taper, the QE crowd is still going to have plenty of sources for cheap money.

    Finally, in a speech Draghi re-emphasized that the ECB could not pull the EU economy out of a ditch all by itself. Fiscal [budget and regulatory] reforms were essential to returning to historical growth rates. Good for him. Every government in the world should take note, not the least of which is our own. I think it doubtful that any economy can return to its former self until consumer and business confidence returns and that won't happen until the shackles have been removed.

    (4) geopolitical risks: this week:

    [a] ISIS took Ramadi but perhaps worse is the delusional spin the administration is putting on its ISIS strategy.

    [b] the Iranian nuke negotiations seem right on track as the Ayatollah said in a speech that there would be no surprise inspections and no inspections of certain 'facilities'. The spin will undoubtedly be that he is just saying that for {Iranian} public consumption; and that is not really what will be in the agreement. Rather than make a sarcastic, cynical statement, I will wait till we see the agreement; if we see it.

    [c] and last but certainly not least, in a speech Obama proclaimed that one of the great security risks to the US is climate change. Cue the sarcastic statement.

    (5) economic difficulties, overly indebted sovereigns and overleveraged banks in Europe and around the globe. The key datapoints this week were

    [a] upbeat prints of Japanese first quarter GDP and May composite PMI. Hopefully, this is a signal that perhaps another major economy is starting to come out of the doldrums. As you know, I have been a bit cautious about accepting these numbers at face value; however, there no reason at present to question their validity.

    [b] the EU PMI and German business confidence were disappointing. Not enough to deep six the prospect of a latent economic improvement but sufficient to the leave the question open.

    [c] the really bad international economic news this week was the Chinese composite PMI; not only because it was the third negative PMI report in a row but also because it was just another in a steady stream of poor data from all sectors of the economy.

    Nevertheless with both Japan and the EU showing some signs of life, our 'muddle through' scenario, which has been gasping for air of late, may end up being right on.

    In addition,

    The Greek/Troika bailout discussions continued---and seemed to be going nowhere until yesterday when the leaders of Greece, France and Germany met. While there was no agreement, 'significant progress' was said to have been made. And not a moment too soon; because Greece has notified the IMF that it would not be able to make the June 6 E1.5 billion payment and the ECB met to discuss raising the discounts applied to Greek bank assets used as collateral for loans. Maybe this latest meeting falls in historical euro pattern of pulling victory from the jaws of defeat at the last possible second; if so, it runs counter to every other official statement made this week.

    My bottom line here hasn't changed: I don't know how this ends, I don't know what that means for the markets but I do believe that there will be unintended consequences; and since those are by definition unknowable, this situation demands some caution.

    'Muddling through' remains the assumption for the global economy in our Economic Model with the proviso that if a Greek default/exit occurs, all bets are off. This remains the biggest risk to forecast.

    Bottom line: the US economic news maintained its downward path, the promise for first quarter upward revisions notwithstanding. Until we start getting concrete evidence that the economy is not slipping further, the risk remains that I may have to revise our forecast down again.

    The international data didn't improve the odds. While Japan may be showing some signs of life, EU data was all negative and China was terrible. Finally, the Greek/Troika negotiations are nearing zero hour with no apparent resolution in sight. An agreement may still happen; but the odds are falling and the unintended consequences by definition, unknown.

    The Fed is keeping things interesting (1) seeming to suggest from several sources that the economy is not as bad as many think---we are just getting bad numbers and (2) admitting that the risks associated with any rate hike are a product largely of its own policies. I am as confused as ever as to what these guys will do next; though I am more sure that whatever they do it will have more impact on the Markets than it has on the economy.

    This week's data:

    (1) housing: weekly mortgage and purchase applications declined; the May NAHB confidence index was below expectations; April housing starts and building permits were very strong; May existing homes sales were a disappointment,

    (2) consumer: month to date retail chain store sales slowed; weekly jobless claims rose more than anticipated

    (3) industry: the April Chicago national activity index fell versus forecasts of an advance; the May Markit flash manufacturing index was below consensus; the May Philadelphia and Kansas City Fed manufacturing indices were below expectations,

    (4) macroeconomic: April leading economic indicators were up more than estimates; April CPI was, in line; ex food and energy, it was above forecast.

    The Market-Disciplined Investing


    The indices (DJIA 18232, S&P 2126) turned in a flattish week. Both closed above their 100 day moving average but they were out of sync on their all-time highs, which is to say that the S&P finished above that level while the Dow ended below.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17220-20025, 2021-2593), intermediate term (17378-23506, 1826-2593 and long term (5369-19175, 797-2138).

    Volume fell on Friday; breadth also declined. The VIX dropped all week, finishing below its 100 day moving average and the upper boundary of a very short term downtrend---both positives for stocks. In addition, it is again nearing the lower boundaries of its short and long term trading ranges. The closer it gets, the more attractive it becomes as portfolio insurance.

    The long Treasury had a bit more volatile week than stocks; though the results were the same---basically flat. It remained below its 100 day moving average, the upper boundary of a short term downtrend and near the lower boundary of its short term downtrend. So overall the momentum continues to the downside.

    The divergence in performance between the stock and bond markets (the stock market rising on weak economic numbers/easy Fed while the bond market falling presumably on better growth and higher inflation) was clearly muted this week. My guess is that most investors have made their bets based on available data and thus are biding their time awaiting the next defining event.

    In the meantime, this week gold, oil and the dollar reversed their recent trends which adds to the tension posed by the conflicting scenarios embodied in the pin action of the equity and fixed income markets.

    I have no idea how all these factors resolve themselves. But till they do, I think patience is needed.

    As I noted above, GLD traded back below its 100 day moving average and the neckline of its head and shoulders pattern. Given its erratic price movement over the last year, I am not sure that there is a message in GLD; and if there is one, it is probably labeled 'confused'.

    Bottom line: the Dow hasn't made a new high in three months which itself was only fractionally higher than the prior high; on the other hand, the S&P did make a new high but just barely and on anemic volume.

    Clearly, there is some uncertainty among investors. The question which I posed early in the week is, is this 'a consolidation before a challenge of the upper boundaries of their (the Averages) long term uptrend or are the buyers blowing their wad trying unsuccessfully to break materially higher.'?

    I feel almost certain that, having come this far, the indices will at least make an old school try at challenging those upper boundaries. That said, I also believe that challenges will be unsuccessful---which, from a strictly technical viewpoint, makes the short term risk/reward in the Market right now unattractive.

    Longer term, the trends are solidly up and will be so until the short term uptrends, at the very least, are negated.

    Fundamental-A Dividend Growth Investment Strategy

    The DJIA (18232) finished this week about 51.0% above Fair Value (12073) while the S&P (2126) closed 41.8% overvalued (1499). Incorporated in that 'Fair Value' judgment is some sort of half assed attempt at getting fiscal policy under control, a botched Fed transition from easy to tight money, a historically low long term secular growth rate of the economy and a 'muddle through' scenario in Europe, Japan and China.

    This week's poor US and international economic stats confirm the economic assumptions in our Valuation Model. It does seem that recovery is taking hold in Europe, the latest PMI number notwithstanding. In addition, the Japanese economy is showing signs of life. Unfortunately, China is still struggling and the US ain't so hot itself. All that said, as I have explained numerous times that won't impact the numbers in our Valuation Model, but it will almost certainly force changes in Street Models which will likely cause heartburn for equity prices.

    QE continues to be the policy du jour (England, Japan, ECB) globally; although the two recent Fed studies along with opaque FOMC minutes and Friday's Yellen speech may be giving a subtle message that interest rate hikes are not that far away. Certainly, that notion is being supported by the bond market.

    We should also be concerned about the growing number of voices pointing to the lack of liquidity in the bond markets (lack of supply, the downsizing of bank trading) which gained credence this week from none other than the FOMC minutes. In sum, rate increases may be closer than once thought; irrespective of the timing, even the Fed is worried about the lack of liquidity in the markets should that tightening process be interpreted negatively by investors. And if it is worried, maybe 50% in cash is not enough.

    Another great article by David Stockman on the Fed and the market (medium and a must read):

    The Middle East just keeps getting more complex. ISIS captured Ramadi (Iraq) this week and now controls sizeable territory in Syria and Iraq. Meanwhile, Iran's Supreme Leader says 'no way, Melvin' to any inspections of its nuclear facilities. But don't worry about it because our president says His Middle East strategy is working. In fact, it is working so well His next target in assuring US security is, drumroll, climate change. If that works as well as the rest of His foreign policy, better go buy a gas mask. That, of course, has nothing to do with the Market---unless, that is, the bad guys capture, disable or disrupt the flow of oil.

    Friday's joint statement from the Greeks, French and Germans ('significant progress') aside, the cold hard facts are that Greece has an E1.5 trillion IMF payment due June 5. Granted that there is a grace period following the nonpayment; but the euros are still cutting it pretty close if they are going to step back from the cliff. My bottom line is that I have no idea how this resolves itself but if a default/Grexit occurs that are apt to be unintended consequences (e.g. this week's statements out of the Portuguese government) that are disruptive to the Market.

    Or maybe this: UK analyzing a Brexit (medium)

    'As I noted last week, I have no clue how to quantify the aforementioned geopolitical risks' impact on our Models even if I could place decent odds of their outcome because: (1) the outcomes are mostly binary, i.e. Greece either exists the EU or doesn't and (2) they all most likely incorporate potential unintended consequences, which by definition are unknowable. Better to just say these are potential risks with conceivably significant costs and then wait to see if we 'muddle through' or have to deal with those costs. The important investment takeaway, I believe, is to be sure that your portfolio had at least some protection in the downside.'

    Bottom line: the assumptions in our Economic Model are unchanged but still in danger of being revised down again. If they are anywhere near correct, they will almost assuredly result in changes in Street models that will have to take their consensus Fair Value down.

    The assumptions in our Valuation Model have not changed either; though there are scenarios listed above that could lower Fair Value. That said, our Model's current calculated Fair Values are so far below current valuation that any downward revisions by the Street will only bring their estimates more in line with our own.

    I can't emphasize strongly enough that I believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.

    Bear in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and their cash position is a function of individual stocks either hitting their Sell Half Prices or their underlying company failing to meet the requisite minimum financial criteria needed for inclusion in our Universe.

    DJIA S&P

    Current 2015 Year End Fair Value* 12300 1525

    Fair Value as of 5/31/15 12073 1499

    Close this week 18232 2126

    Over Valuation vs. 5/31 Close

    5% overvalued 12676 1573

    10% overvalued 13280 1648

    15% overvalued 13883 1723

    20% overvalued 14487 1798

    25% overvalued 15091 1873

    30% overvalued 15694 1948

    35% overvalued 16298 2023

    40% overvalued 16902 2098

    45%overvalued 17505 2173

    50%overvalued 18109 2248

    55% overvalued 18713 2323

    Under Valuation vs. 5/31 Close

    5% undervalued 11434 1420

    10%undervalued 10832 1345 15%undervalued 10230 1270

    * Just a reminder that the Year End Fair Value number is based on the long term secular growth of the earning power of productive capacity of the US economy not the near term cyclical influences. The model is now accounting for somewhat below average secular growth for the next 3 to 5 years.

    The Portfolios and Buy Lists are up to date.

    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 47 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.

    May 23 10:22 AM | Link | Comment!
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Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.