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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
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  • The Closing Bell

    The Closing Bell

    4/25/15

    Statistical Summary

    Current Economic Forecast

    2013

    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 17047-19844

    Intermediate Term Uptrend 17168-22294

    Long Term Uptrend 5369-18973

    2014 Year End Fair Value 11800-12000

    2015 Year End Fair Value 12200-12400

    Standard & Poor's 500

    Current Trend (revised):

    Short Term Uptrend 1993-2974

    Intermediate Term Uptrend 1802-2575

    Long Term Uptrend 797-2129

    2014 Year End Fair Value 1470-1490

    2015 Year End Fair Value 1515-1535

    Percentage Cash in Our Portfolios

    Dividend Growth Portfolio 49%

    High Yield Portfolio 54%

    Aggressive Growth Portfolio 53%

    Economics/Politics

    The economy is a neutral for Your Money. This week was another slow one for economic releases. Unfortunately, most of what we got was downbeat: positives---March existing home sales, weekly mortgage and purchase applications; negatives---March new home sales, month to date chain store sales, weekly jobless claims, March durable goods orders, ex transportation; the March Chicago Fed National Activity Index and the April Markit flash PMI; neutral---none.

    New and existing home sales, ex transportation durable goods orders and the Chicago Fed NAI were the big numbers this week. Meaning that once again both on both a quantity and quality basis, the trend in economic growth is solidly negative.

    The international economic data was more plentiful but regrettably just as bad if not worse than our own. Worth singling out is the EU composite PMI as well as its manufacturing and service components. This ends the three week trend of positive data out of Europe. The question is, which is the outlier: this week or the previous three?

    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.'

    Economists have discovered just how bad the economy is (medium):

    http://www.washingtonpost.com/blogs/wonkblog/wp/2015/04/21/economists-have-discovered-how-bad-the-economy-really-is/

    The pluses:

    (1) our improving energy picture. 'Oil supplies remain abundant and that is a significant geopolitical plus. Furthermore, lower prices should be constructive when viewed as either a cost of production or cost of living. However, none of pricing positives have yet shown up in the macroeconomic stats. Indeed, as I have been pointing out, that data only gets worse the further oil prices fall.'

    http://www.zerohedge.com/news/2015-04-23/hey-dick-fisher-explain

    In the last week, oil prices have been yo yoing above and below the upper boundary of their recent trading range. It remains a work in progress; so without some follow through we can't make be sure of a reversal. However, it does seem that prices have found a level of support.

    That doesn't mean that all is well. Unfortunately at current price levels much of the fracking production is unprofitable; and it is fracking that has accounted for the aforementioned abundance. Which brings me to a problem---which is the impact lower oil prices [employment, rig count, cash flow] have had on the subprime debt from the oil industry that is on bank balance sheets and the likelihood of a default.

    http://www.zerohedge.com/news/2015-04-23/half-us-frackers-will-be-dead-year-end-weatherford-warns

    Defaults coming in high yield energy bonds (medium):

    http://www.zerohedge.com/news/2015-04-22/defaults-are-coming-hy-energy-ubs-warns

    Update on rig count (short):

    http://www.zerohedge.com/news/2015-04-24/crude-drops-after-us-rig-count-decline-extends-record-20-weeks

    The negatives:

    (1) a vulnerable global banking system. This week, the DOJ pushed JP Morgan and Citicorp to agree to a joint settlement on foreign exchange trading fraud that would cost each of them $1 billion. And Deutschebank agreed to pay a $2.1 billion penalty for fraud in the Libor price fixing case.

    That failed Austrian bank claims another (bigger) victim (medium):

    http://www.zerohedge.com/news/2015-04-24/austrian-province-just-requested-state-bailout

    Another potential problem is the consequences to the EU financial system of a Greek exit---which keeps getting more likely. Many still believe that it will not occur. I am not going to argue with that; but the odds are going up.

    '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. This week, congress is trying to get a free trade agreement passed. As you know, I believe that free trade is an important component in increasing future economic growth. So while opposition exists, I am hopeful that it will be approved.

    Here is a counterpoint; but note that most of the author's objections are not that there are more losers than winners from the agreement, but how the US should be dealing with the losers (medium):

    http://www.washingtonpost.com/opinions/the-trans-pacific-partnership-trade-deal-is-an-abomination/2015/04/24/903e5a12-ea85-11e4-aae1-d642717d8afa_story.html

    (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,

    [a] the Bank of Japan said that it may not reach its 2% inflation goal until 2016. And, a former BOJ official said that it would be impossible today for the central bank to exit QE because it would likely lead to higher interest rates which would crush the bank's balance sheet

    [b] China lowered banking reserve requirements,

    In other words, global QE continues with abandon even as its chickens are coming home to roost

    Norway's sovereign wealth fund slams central bank monetary policy (medium and a must read):

    http://www.zerohedge.com/news/2015-04-23/norways-giant-sovereign-wealth-fund-goes-full-tinfoil-fringe-blog

    (4) geopolitical risks: tensions in the Middle East remain. Yemen was back in the spotlight as

    [a] the Saudis continue to have a tough time battling the Houthis and

    [b] Iran is sending a naval convoy to Yemen supposedly bearing Iranian special troops as well as supplies. In response, the US sent another carrier group to the Red Sea {there are already two}. Does that mean that two US carrier groups couldn't handle eight Iranian ships? Even if it takes three carrier groups, is there a snowball's chance in hell that Obama has the balls to engage those ships? This is just another red line that will be crossed and another useless squandering of US prestige.

    In addition, …I am…concerned about the lack of appreciation by our leadership of radical Islam's intent to bring the war to our home. My fear is that it will take a major catastrophe [like burning people alive and mass beheadings aren't enough] to make Our Glorious Leader realize how irresponsible, unsound, dangerous and intellectually vacuous our current 'local law enforcement',' jobs for jihadists' strategy [?] is.

    Meanwhile, in response to Russia selling an air defense missile system to Iran, the US agreed to sell a missile defense system to Poland.

    (5) economic difficulties, overly indebted sovereigns and overleveraged banks in Europe and around the globe. While we were light on US economic news, the week was jam packed with overseas developments:

    [a] China allowed its first state owned business to default. It also reported its April Markit PMI which showed contraction,

    [b] Japan recorded a positive trade balance due largely to declining imports which it trumpeted as a sign of QE {currency devaluation} success. My guess is that the Japanese workingman was not that enthralled since is meant higher prices on imported goods and no rise in production {wages},

    [c] Europe broke its string of improving economic data reporting April composite PMI came in below expectations as did both the manufacturing and service components,

    [d] a wee bit closer to home, Puerto Rico appears on the verge of insolvency,

    http://www.zerohedge.com/news/2015-04-24/puerto-rico-warns-imminent-government-shutdown-due-liquidity-crisis

    [e] and last but certainly not least, the Greek bailout talks have degenerated into a grade school pissing contest. First, the Greek government confiscated municipality cash reserves. Second in another attempt to avoid complying with troika mandates, it began serious negotiations with Russia on a pipeline deal; to which the EU responded by filing anti-trust charges against Gazprom. Finally, the Greek government stated that it would not present bail out fiscal reforms at the ECB finance ministers' meeting on Friday. The ECB then lowered the collateral value of Greek bank assets posted to secure loans; and judging by the headlines out of Europe on Friday, the Greeks made good on their promise to present no reform measures and were roundly chastised by all.

    A great article from a Grexit nonbeliever (medium):

    http://www.nakedcapitalism.com/2015/04/wolf-richter-greek-people-just-destroyed-syrizas-strategy.html

    But the Greeks still face a formidable repayment schedule (medium):

    http://www.zerohedge.com/news/2015-04-24/relentless-greek-debt-payment-schedule

    In sum, 'muddling through' remains the assumption in our Economic Model; although that scenario took a blow this week as the EU economic stats turned poor again, the odds of a Grexit appeared to rise and the Chinese and Japanese economies continue to falter. This remains the biggest risk to forecast.

    Bottom line: the US economic news maintained its downward path.

    Overseas, the economic news was plentiful and all bad.

    Meanwhile, QE remains the principal theme among the central bankers with evidence that it is not only not working but is a hindrance to economic progress.

    My immediate concern is that these actions add fuel to the currency devaluation race---the history of trade wars generally suggest that they don't end well. Further, I believe that the ultimate price for the largest expansion in global monetary supply in history will be paid by those assets whose prices have been grossly distorted, not the least of which are US equity prices.

    The geopolitical hotspots remain unresolved (1) the Greeks and the Troika appeared to make no progress this week, as the Greeks continued to look for ways to weasel out of repaying their debts, (2) US/Russia standoff heated up and (3) the Middle East violence continues and with it the odds of a Sunni/Shi'a civil war---which almost certainly won't leave oil supplies unscathed.

    This week's data:

    (1) housing: March existing home sales were double expectations, while new home sales dropped well below estimates; weekly mortgage and purchase applications were up,

    (2) consumer: month to date retail chain store sales slowed again; weekly jobless claims rose versus an anticipated decline,

    (3) industry: March durable goods orders soared but were significantly impacted by transportation orders, ex transportation, the number was abysmal; the March Chicago Fed National Activity index was negative; the April Markit flash PMI was below consensus,

    (4) macroeconomic: none.

    The Market-Disciplined Investing

    Technical

    The indices (DJIA 18080, S&P 2117) finished the week on a high note. The S&P closed above its 100 day moving average and its prior high---breaking the string of lower highs. If it ends there on Monday, that trend will be negated. However, the Dow could not get above its prior high though it too was above its 100 day moving average.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17047-19844, 1993-2974), intermediate term (17168-22294, 1802-2575 and long term (5369-18873, 797-2129).

    Volume rose; breadth was mixed---the second day in a row in which the Averages were up but breadth was mixed---reflecting the fact that almost half of all S&P stocks are trading below their 50 day moving averages. The VIX has negated the lower boundary of that pennant formation, suggesting more movement to the downside (up for stocks). However, it is not that far from the lower boundary of its long term trading range---which should offer stiff if not impassable resistance. I continue to think that the VIX remains a reasonably priced hedge.

    A Death Cross on the VIX (short):

    http://jeffhirsch.tumblr.com/post/117266405998/a-death-cross-that-is-actually-bullish-for-s-p-500

    NYSE margin debt hits all time high (medium):

    http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php

    The long Treasury moved up again on Friday, bouncing back above its 100 day moving average and the lower boundary of the very short term trading range that was negated on Thursday. The issue now is, will it continue higher, making the two day break an outlier or head lower again and challenge the lower boundaries of its short term trading range and its intermediate term uptrend? The latter will create heartburn issues for the ETF Portfolio's muni bond holdings.

    GLD continues its rotten performance. A head and shoulders pattern is still developing, a break of which would set it up for a challenge of its long term trading range.

    Bottom line: the bulls were in charge this week, accepting a snoot full of bad economic and geopolitical news and trudging higher. Nevertheless, the Averages are out of sync on their challenge of their very short term downtrends. If those challenges prove successful, then they will likely make another run at the upper boundaries of their long term uptrends. Although they must take out their all-time highs before doing so. I continue to believe that the upper boundaries of their long term uptrends will strangle any meaningful attempt to move higher.

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

    The long Treasury chart still has some work to do to establish a stable low off the recent uptrend; and the GLD is fighting to just stay on the chart.

    Fundamental-A Dividend Growth Investment Strategy

    The DJIA (18080) finished this week about 50.2% above Fair Value (12036) while the S&P (2117) closed 41.6% overvalued (1495). 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. In fact, the US numbers are going from disappointing to worrisome; and the poor EU PMI data brings into question whether the recent trend in more positive readings was an outlier. I have not revised our forecast but we need some good news just to hold the current flat to slightly up outlook.

    Central bank easy money remains the policy du jour though there continues to be little evidence that it is working; and what little evidence we got, is not what is wanted:

    (1) the Bank of Japan said that it may not reach its 2% inflation goal until 2016. And, a former BOJ official said that it would be impossible today for the central bank to exit QE because it would likely lead to higher interest rates which would crush the bank's balance sheet,

    (2) it did, however, record a positive trade balance due largely to declining imports which it trumpeted as a sign of QE [currency devaluation] success; although it also means higher prices on imported goods and no rise in production [wages],

    (3) China lowered banking reserve requirements; but allowed its first state owned business to default. It also reported its April Markit PMI showed contraction,

    Nevertheless, as long as investors ignore the data and focus on QEInfinity, stocks are likely to continue their winning ways---until they don't. I don't see how stocks can make new valuation highs while the global economy deteriorates. Sooner or later reality impinges. Just ask Nero.

    Geopolitical risks have not declined. The only progress in the Greek bailout talks this week was negative as the government pissed off the EU finance ministers by again delaying the presentation of any reforms while at the same time enacting debt forgiveness measures---the opposite of what the troika wants to hear.

    The NATO/US/Russia global standoff wasn't helped by Russia discussing plans for a gas pipeline through Greece and the US agreeing to sell a missile defense system to Poland. While in the Middle East, Iran is sending a naval resupply convoy to Yemen and the US moved another carrier group into the Red Sea---yeah, that's going to end well.

    '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 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 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.

    Our Portfolios maintain their above average cash position. Any move to higher levels would encourage more trimming of their equity positions.

    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.

    http://alephblog.com/2015/04/17/on-being-a-forced-seller-in-a-panic/

    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 4/30/15 12036 1495

    Close this week 18080 2117

    Over Valuation vs. 4/30 Close

    5% overvalued 12637 1569

    10% overvalued 13239 1644

    15% overvalued 13841 1719

    20% overvalued 14443 1794

    25% overvalued 15045 1868

    30% overvalued 15647 1943

    35% overvalued 16248 2018

    40% overvalued 16850 2093

    45%overvalued 17452 2167

    50%overvalued 18054 2242

    55% overvalued 18655 2317

    Under Valuation vs. 4/30 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 40 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.

    Apr 25 10:33 AM | Link | Comment!
  • The Morning Call--The Greeks Do It Again

    The Market

    Technical

    The indices (DJIA 18058, S&P 2112) continued their move up. Both remained above their 100 day moving averages. The Dow closed below its prior high---keeping the series of lower highs intact; however, the S&P finished right at the level of its prior high.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17022-19819, 1993-2974), intermediate term (17149-22275, 1802-2575 and long term (5369-18873, 797-2129).

    NASDAQ scores a new high (short):

    http://jeffhirsch.tumblr.com/post/117198046453/up-up-and-away-nasdaq-new-all-time-closing-high

    Volume was flat; breadth mixed. The VIX declined, falling for a second day below the lower boundary of a developing pennant formation for the second time, negating that formation (again). Two points: (1) this has positive implications for stocks and (2) however, the VIX is near the lower boundary of its long term trading range time which should act a major support. Because of that proximity, I continue to think that the VIX remains a reasonably priced hedge.

    More on breadth (short):

    http://jlfmi.tumblr.com/post/117100120270/smart-money-options-indicator-now-off-the

    More on the VIX (short):

    http://www.zerohedge.com/news/2015-04-23/spot-odd-vix-out

    Update on sentiment (short):

    https://www.bespokepremium.com/think-big-blog/little-changes-in-sentiment-among-individuals/

    The long Treasury rallied, but remained below its 100 day moving average and the lower boundary of its very short term trading range, negating it. My focus is now on the level of the converging lower boundary of its short term trading range (I mistakenly said 'downtrend' in yesterday's Morning Call) and the lower boundary of its intermediate term uptrend. If those trends are violated, it may well spark sales of at least a portion of the muni bond positions in our ETF Portfolio.

    GLD rose, remaining below its 100 day moving average and continuing to form a head and shoulders pattern.

    Oil jumped again, finishing back above that boundary line that started as an upper boundary of a short term trading range (resistance), then became support, reverted to resistance and is now back to support. Clearly, there is a battle between the bulls and bears on oil around that boundary line. The only thing to do in that situation is wait and see which side takes control.

    Bottom line: the indices are challenging the current trend of consecutively lower highs which, if successful, would leave them with one last barrier (their former all-time highs) to cross before an assault on the upper boundaries of their long term uptrends. Whatever their success in topping their former highs, I continue to believe that those upper boundaries of their long term uptrends will be too powerful to allow a successful break.

    Fundamental

    Headlines

    Three US economic releases yesterday; three disappointments: rising jobless claims, poor PMI, really lousy new home sales. So much for Wednesday's one day reprieve in the midst of a thirteen week trend of discouraging data.

    http://www.zerohedge.com/news/2015-04-23/most-disturbing-chart-new-housing-paranormal

    Overseas, it was much of the same:

    (1) the Bank of Japan said that it may not reach its 2% inflation goal until 2016; and even if it does, a former BOJ official said that it would be impossible to curb QE because of the catastrophic impact higher interest rates would have on the BOJ balance sheet,

    (2) Chinese and EU April PMIs were below expectations. In the case of the Chinese, its PMI indicated contraction.

    None of the above is great news; however, the European PMI brought to a halt the three week trend in improving EU economic data. Now the question is, which is the outlier: the latest number or that three week string of upbeat stats? We will know in the fullness of time.

    ***overnight, Greeks blasted at ECB finance ministers meeting as 'wasting time' (medium):

    http://www.bloomberg.com/news/articles/2015-04-24/varoufakis-said-to-take-hammering-from-frustrated-euro-ministers

    And small wonder as the Greek government keeps adopting policies that only make matters worse---in this case, writing off debt of those who qualify as being in poverty (medium):

    http://www.zerohedge.com/news/2015-04-23/greek-bank-will-write-%E2%82%AC20000-debt-poverty-stricken-borrowers-greece-uses-russian-piv

    Bottom line: there was nothing in yesterday's data to suggest that the growth rates of either the US or the global economies aren't slipping or, even worse, headed for recession. The good news, at least for the QE forever investing crowd, is that these disappointing stats will lead to even more QE forever. At least that is what they think.

    What has been an unexpected positive is the results of this season's earning results; that is, reports are coming in ahead of expectations. Of course, those current 'estimates' had already been lowered on average by over 11%. Nevertheless, I have to admit it is a surprise to me; and I am the guy who has credited what limited economic growth the US has experienced to the smart, hardworking, enterprising corporate sector. Still with thirteen weeks of deteriorating macro data, sooner or later, something has to give---either a pickup in economic growth or a fall in earnings.

    Plus, I would argue that however smart, hardworking and enterprising US industry is: (1) it is getting no help from foreign markets, (2) at least a portion of its success is attributable to financial engineering [selling debt to buy back stock and creative accounting] to which there is a limit. Which is not to say that this story is at an end; it is to say that it has an end and we get closer every quarter.

    http://www.zerohedge.com/news/2015-04-23/obsessive-buybacks-could-be-big-mistake-serious-people-tell-unserious-people

    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.

    David Stockman on stock market bubbles worldwide (medium and a must read):

    http://www.zerohedge.com/news/2015-04-23/its-mania-behold-red-chips-and-big-macs

    An interesting thought: Is the US economy's secular growth rate slowing but becoming more stable? If so, what does that do to valuations? In our Model, it would shrink the valuation range; that is, the Buy Value Ranges would move up and the Sell Half Ranges would decline. I am not sure I believe this thesis but it is something to ponder and do more study on. (medium):

    http://www.pragcap.com/secular-stagnation-or-golden-era-of-low-and-stable-growth

    Investing for Survival

    Lessons from four all-star investors (medium):

    http://www.wsj.com/articles/four-star-investors-reveal-their-biggest-investing-hits-and-misses-1428377306?curator=thereformedbroker&utm_source=thereformedbroker

    News on Stocks in Our Portfolios

    C.R. Bard Q1 urology revenues up 10%; non-GAAP EPS up 10%

    o

    o Operating Expenses: 323.9 (+5.8%); Operating Income: 184.6 (+0.5%); Net Income: 139.8 (-5.8%); EPS: 1.82 (-2.2%); Non-GAAP EPS: 2.10 (+9.9%).

    Microsoft beats by $0.10, beats on revenue

    · Microsoft (NASDAQ:MSFT): FQ3 EPS of $0.61 beats by $0.10.

    · Revenue of $21.73B (+6.5% Y/Y) beats by $670M.

    Economics

    This Week's Data

    The April US Markit flash PMI was reported at 54.2 versus estimates of 56.0.

    March new home sales fell 11% versus expectations of a 3% decline.

    http://www.advisorperspectives.com/dshort/updates/New-Home-Sales.php

    March durable goods orders soared to +4.0% versus forecasts of +0.5%; however, ex the very volatile transportation sector, they fell 0.2% versus estimates of +0.3% and the February report was revised down significantly.

    Other

    Median household income declined in March (medium):

    http://www.advisorperspectives.com/dshort/updates/Median-Household-Income-Update.php

    The commercial real estate boom (short):

    http://scottgrannis.blogspot.com/2015/04/commercial-real-estate-booms.html

    The banksters do it again: JP Morgan bans the use of cash to make certain payments (medium):

    http://www.zerohedge.com/news/2015-04-23/largest-bank-america-joins-war-cash

    Politics

    Domestic

    Accounting at the Clinton Foundation (short):

    http://www.coyoteblog.com/coyote_blog/2015/04/the-clinton-foundation-appears-to-be-a-terrible-charity.html

    International War Against Radical Islam

    Another foreign policy expert on Obama's Iran policy (medium):

    http://www.powerlineblog.com/archives/2015/04/another-establishment-voice-slams-obama.php

    Quote of the day (short):

    http://cafehayek.com/2015/04/quotation-of-the-day-1331.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

    Apr 24 9:28 AM | Link | Comment!
  • The Morning Call--More Bad News So Stocks Must Be Up

    The Market

    Technical

    The indices (DJIA 18038, S&P 2107) rallied nicely yesterday. Both remained above their 100 day moving averages; both below their prior highs---keeping the series of lower highs intact.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17015-19812, 1993-2974), intermediate term (17136-22262, 1802-2575 and long term (5369-18873, 797-2129).

    Volume was flat; breadth improved. The VIX declined, falling below the lower boundary of a (now in question) developing pennant formation; a close below that boundary will negate the formation (again). I continue to think that the VIX remains a reasonably priced hedge.

    Here is a positive breadth indicator (short):

    https://www.bespokepremium.com/think-big-blog/market-breadth-near-all-time-highs/

    The long Treasury declined big time, finishing below the lower boundary of the tight very short term trading range and its 100 day moving average. The lower boundary of its short term downtrend is now at roughly the same level as the lower boundary of its intermediate term uptrend. If those trends are violated, it may well spark sales of at least a portion of the muni bond positions in our ETF Portfolio.

    GLD's dropped again, continuing to form a head and shoulders pattern and otherwise lousy pin action.

    Oil managed to lift a little but remained below the former upper boundary of a trading range (i.e. resistance turned support) which now shifts again from support to resistance.

    Bottom line: both the indices closed in the narrowing boundaries formed by their very short term downtrends (upper) and their 100 day moving averages (lower). The spread between these boundaries is down to 20 points on the S&P, though both of the Averages are a short hair from challenging the upper boundaries.

    On the other hand, while the 100 day moving averages have offered strong support in the recent past, the risk/reward between the upper boundaries of the indices long term uptrends and the upper boundaries of their short term uptrends continues to favor the risk side.

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

    Fundamental

    Headlines

    Yesterday's US economic stats were both housing related and both upbeat: mortgage and purchase applications were up and March existing home sales were double estimates. Both are great news although with the rest of the universe blaming weather on numbers shortfall, it is a bit surprising that one of the most weather sensitive economic datapoints knocked the cover off the ball.

    Overseas, Japan reported its first trade surplus in three years, though it was heavily weighted to lower imports versus higher exports. In other words, Abe's currency devaluation/beggar thy neighbor policy is working but at the expense of the Japanese consumer (imported goods are now more expensive but exports aren't growing, so neither are wages).

    In Europe, the Greece/troika bail out discussions are going from strained to hostile. The Greek government announced that it would not present any fiscal reform proposals mandated by the troika at tomorrow's EU financial ministers meeting. The ECB fired back, lowering the collateral value of Greek bank assets posted to secure loans. And the EU retaliated over the Greek/Russia pipeline talks by filing antitrust charges against Gazprom---apparently dreaming that somehow Putin would put up with that crap.

    The IMF's big Greek mistake (medium):

    http://www.nakedcapitalism.com/2015/04/imfs-big-greek-mistake.html

    ***overnight:

    (1) the Bank of Japan said that it may not reach its 2% inflation goal until 2016 (medium and a must read)

    http://www.zerohedge.com/news/2015-04-22/boj-qe-exit-out-question-former-official-says-morgan-stanley-talks-jgb-liquidity

    (2) Chinese April Markit PMI fell below 50 [49.2] indicating contraction,

    (3) The EU April composite PMI came in below expectations as did both the manufacturing and service components,

    (4) Deutschebank agreed to pay a $2.1 billion penalty for fraud in the Libor rice fixing case.

    Bottom line: we finally got a day where the economic news was positive. That is great---I have been concerned that I would have to lower our outlook from even slower growth to outright recession. Not that two datapoints change everything; but with any follow through, we can hopefully lower the odds of an economic decline.

    That said, I don't view the positive Japanese trade numbers as a plus overall. As I noted above, it likely means nothing to the Japanese workingman. Further, in a world where currency devaluation is the accepted policy, that trade data may prompt additional counter moves from competitors. That is what happens in a war of competitive devaluations.

    In addition, the Greek/troika faceoff is morphing into a sophomoric game of spite. The troika is determined to discipline the Greeks, who they have already beaten to a pulp on the grounds of fiscal irresponsibility, by demanding fiscally suicidal policies which is just as irresponsible. Meanwhile, rather than face up to past unsound policies and attempt to negotiate a more workable deal from the troika, the Greeks are doing everything they can to damage the EU and weasel out of accepting any responsibility for past sins. I have no clue how this works but I don't believe those that profess to do either.

    I can't see how either of the above is priced into stocks that are now a milli short hair from record high valuations.

    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.

    Doug Kass discusses 12 factors that are weighing on the Market (medium):

    http://www.thestreet.com/story/13118658/1/kass-identifies-12-big-picture-factors-that-may-weigh-on-markets-economy.html

    Buyback authorizations reached a high in first quarter 2015 (short):

    http://tickersense.typepad.com/ticker_sense/2015/04/buyback-authorizations-reach-a-record-in-1q-2015.html

    Asset inflation and growth (short):

    http://blog.yardeni.com/2015/04/industrial-commodities-still-sinking.html

    Investing for Survival

    The great wealth non-equalizer (medium):

    http://streettalklive.com/index.php/blog.html?id=2684

    Company Highlights

    Sherwin Williams Co. is one of the largest producers of paints, varnishes and application equipment, much of its sold through 3500+ retail paint and wall covering stores; in addition, it produces auto coatings which are sold through auto coatings outlets. The company has grown profits and dividends at a 12% pace over the last 10 years earning a 20%+ return on equity. The company's revenues and profits are negatively impacted by weakness in the construction and housing markets. However, longer term it should still grow at an above average pace as a result of:

    (1) improving US and international sales in autos, OEM product finishes and protective and marine coatings,

    (2) improving nonresidential housing sales,

    (3) declining raw material costs [oil],

    (4) refurbishing [recently acquired] Comex stores are attracting higher grade of painting contractors.

    Negatives

    (1) a poor pricing environment in the consumer segment,

    (2) currency fluctuations.

    SHW is rated A+ by Value Line, has a 53% debt to equity ratio and its stock yields 1.0%.

    Statistical Summary

    Stock Dividend Payout # Increases

    Yield Growth Rate Ratio Since 2005

    SHW 1.0% 14% 25% 10

    Ind Ave 1.6 14 39 NA

    Debt/ EPS Down Net Value Line

    Equity ROE Since 2005 Margin Rating

    SHW 53% 63% 3 9% A+

    Ind Ave 31 37 NA 7 NA.

    Chart

    Note: SHW stock made great progress off its March 2009 low, quickly surpassing the downtrend off its July 2007 high (straight red line) and the November 2008 trading high (green line). Long term, the stock is in an uptrend (blue lines). Intermediate term, it is in an uptrend (purple lines). Short term, it is in an uptrend (brown line). The wiggly red line is the100 day moving average. The Dividend Growth Portfolio owns a 50% in SHW, having Sold Half in mid-2013. The upper boundary of its Buy Value Range is $101; the lower boundary of its Sell Half Range is $213.

    (click to enlarge)

    http://finance.yahoo.com/q?s=SHW

    4/15

    News on Stocks in Our Portfolios

    AbbVie beats by $0.09, beats on revenue

    · AbbVie (NYSE:ABBV): Q1 EPS of $0.94 beats by $0.09.

    · Revenue of $5.04B (+10.5% Y/Y) beats by $60M.

    Caterpillar beats by $0.51, beats on revenue

      • Caterpillar (NYSE:CAT): Q1 EPS of $1.86 beats by $0.51.
      • Revenue of $12.7B (-4.1% Y/Y) beats by $320M.

    |7:32 AM

    3M misses by $0.08, misses on revenue

      • 3M (NYSE:MMM): Q1 EPS of $1.85 misses by $0.08.
      • Revenue of $7.57B (-3.3% Y/Y) misses by $270M.

    PepsiCo beats by $0.04, beats on revenue

    · PepsiCo (NYSE:PEP): Q1 EPS of $0.83 beats by $0.04.

    · Revenue of $12.22B (-3.2% Y/Y) beats by $40M.

    Procter & Gamble EPS in-line, misses on revenue

    · Procter & Gamble (NYSE:PG): FQ3 EPS of $0.92 in-line.

    · Revenue of $18.14B (-7.6% Y/Y) misses by $350M.

    Qualcomm beats estimates, but guides light

    · Qualcomm (NASDAQ:QCOM): FQ2 EPS of $1.40 beats by $0.07.

    · Revenue of $6.89B (+8.2% Y/Y) beats by $60M.

    · Expects FQ3 revenue of $5.4B-$6.2B and EPS of $0.85-$1.00, below a consensus of $6.5B and $1.14.

    · Expects FY15 (ends Sep. '15) revenue of $25B-$27B and EPS of $4.60-$5.00 vs. a consensus of $27.22B and $5.00.

    · 233M FQ2 MSM chip shipments, in-line with guidance of 220M-240M. 210M-230M shipments expected in FQ3.

    AT&T beats by $0.01, misses on revenue

      • AT&T (NYSE:T): Q1 EPS of $0.63 beats by $0.01.
      • Revenue of $32.57B (+0.3% Y/Y) misses by $270M.

    Economics

    This Week's Data

    March existing home sales rose 6% versus expectations of up 3%---but wait, what about the weather?

    http://www.advisorperspectives.com/dshort/updates/Existing-Home-Sales.php

    Weekly jobless claims rose 1,000 versus forecasts of down 8,000.

    Other

    Someone is going to be wrong about the consumer (short):

    http://humblestudentofthemarkets.blogspot.com/2015/04/somone-is-going-to-be-very-wrong-on.html

    Draghi's QE problem (medium):

    http://www.zerohedge.com/news/2015-04-21/assessing-bund-shortage-and-weighing-mario-draghis-q%E2%82%AC-expansion-options

    Politics

    Domestic

    Hillary's speaking fees (short):

    http://www.aei.org/wp-content/uploads/2015/04/hillary1.jpg

    International

    Saudi Arabia resumes bombing Houthis rebels in Yemen after one day pause (medium):

    http://www.zerohedge.com/news/2015-04-22/mission-dis-accomplished-saudis-resume-bombing-yemen

    This is the government that we (US/EU) are supporting in Ukraine (medium):

    http://www.zerohedge.com/news/2015-04-22/nationalist-group-takes-responsibility-murders-ukraine

    Apr 23 9:04 AM | Link | Comment!
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