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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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Investing for Survival
  • The Morning Call--The Economic Data Improves Ever So Slightly

    The Market

    Technical

    The indices (DJIA 17776, S&P 2067) turned on a dime yesterday---which means either quarter end window dressers are very confused or they have been a nonfactor. In the process, both fell back below their 50 day moving averages and both made a second lower high---setting up a potential downtrend. On the other hand, the Dow closed right on its 100 day moving average and above the lower boundary of its very short term uptrend while the S&P remained above its 100 day moving average but below the lower boundary of its very short term uptrend. On a very short term basis, that leaves a somewhat confusing technical picture but with the 100 day moving average acting as strong support. Longer term, they remained well within their uptrends across all timeframes: short term (16872-19654, 1971-2952), intermediate term (16977-22138, 1785-2543 and long term (5369-18860, 797-2122).

    Volume rose; breadth was negative. The VIX was up, finishing within its short term trading range, its intermediate term downtrend, its long term trading range, back below its 50 day moving average and within a developing pennant formation. I continue to think that it remains a reasonably priced hedge.

    http://www.zerohedge.com/news/2015-03-31/april-anxiety-75-year-itch

    The long Treasury recovered, but remained within its short term trading range, intermediate and long term uptrends and above its 50 day moving average. This chart keeps improving.

    GLD's price dropped, closing within its short and intermediate term trading ranges, its long term downtrend and below its 50 day moving average. GLD has a number of tough resistance levels yet to overcome before we can assume that the worst is over.

    Bottom line: the Averages failed to provide any follow through from Monday's gangbuster's day. Since late February they have been creating a pattern of higher lows and lower highs and doing so on a good deal of volatility. These 'pennant' formations eventually have to get resolved by breaking one of the two trends; and generally follow through in the direction of the break. From this point, it would seem that the risk/reward is weighted to the risk side; that is, the distance that the indices can decline (the lower boundaries of the short term uptrends) without doing any technical damage is greater than the distance they can advance (the upper boundaries of their long term uptrends) without a break out.

    Stock Traders' Almanac looks at trading in April and what we should be watching (short):

    http://jeffhirsch.tumblr.com/post/115149208588/first-two-days-of-april-up-big-last-21-years-as

    Stock market performance following a disappointing Chicago PMI (like we got yesterday):

    https://www.bespokepremium.com/think-big-blog/another-big-miss-for-the-chicago-pmi/

    Fundamental

    Headlines

    Yesterday was another mixed day for US economic stats: month to date retail sales improved, the January Case Shiller home price index moved higher than expected, and the March Chicago PMI was as bad as March consumer confidence was good.

    Overseas, the numbers were all good and were all from Europe: the March EU price deflator improved from -0.3% in February to -0.1% and unemployment went from 11.4% in February to 11.3% in March. We are starting to see better data out of Europe though (1) it is only out of Europe; no plus signs from Japan or China, (2) if this trend holds this week, it will only be the third week of better stats; so more time is needed before we can assume Europe has turned and (3) there are two geopolitical problems that could potentially trash any recovery: Greece and Ukraine.

    Update on Greek bail out talks (medium):

    http://www.nakedcapitalism.com/2015/03/greece-submits-inadequately-detailed-reform-list-tsipras-tells-parliament-peace-honor-um-honorable-compromise.html

    And Greek talks with Russia (medium):

    http://www.nytimes.com/2015/03/31/business/international/greece-looks-to-russia-as-deal-with-europe-stumbles.html?ref=business&_r=0

    ***overnight, the March EU manufacturing PMI came in better than expected (52.2 versus 51.9); the March Chinese manufacturing PMI fell below 50 (sign of contraction) to 49.7 versus the February reading of 50.7; and Japanese manufacturing data were abysmal.

    Meanwhile, in the greatest QE in history, liquidity drains from the Japanese government bond market:

    http://www.zerohedge.com/news/2015-04-01/bank-japans-liquidity-crisis-one-chart

    And global inflation falls to a new 5 year low (short):

    http://www.zerohedge.com/news/2015-03-31/world-inflation-falls-new-5-year-low

    Bottom line: the economic data showed another day of improvement in the sense that the US numbers were mixed not completely downbeat and Europe's (not the rest of the world's) stats have perked up in the last couple of weeks. While I don't think either a cause for altering our economic outlook at the moment, clearly we need to pay attention. In the meantime, (1) the Greek bail out and Iranian nuke talks are coming to a head---either could add some spice to our lives and (2) the global central banks have painted themselves in a corner and are clueless how to get out.

    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.

    More from Stockman on Fed policy (medium):

    http://www.zerohedge.com/news/2015-03-31/why-mania-getting-scary-central-bankers-are-running-doomsday-machine

    The latest from John Hussman (medium):

    http://www.hussmanfunds.com/wmc/wmc150330.htm

    Thoughts on Investing from Shelby Davis

    Who the hell is Shelby Davis? That was my first thought after I heard the name from a reader's comment on recommended investing books. So I added it to my growing wish list to check out later. Later finally happened and here's the answer. He's probably the best investor you never heard of.

    The story of Shelby Davis is reminiscent of today. Interest rates were at all-time lows. Bonds were loved and stocks were loathed. Davis did the one thing most investors wouldn't do. He bought the most hated, boring stocks he could find and stuck with it his entire life.

    Davis was an unknown. He didn't build a company or manage a fund. He avoided the media. He only managed his money wisely. He was THE millionaire next door until the Forbes 400 list of richest Americans outed him in '88.

    Davis lived by the principles we so often forget or ignore. The Davis Dynasty shows us what's possible even if we get started late.

    10. Save to invest more, not invest to save less.

    Shelby Davis was extremely frugal. He saved old shoes with tape and glue. Their old stove was so rusty flakes sometimes fell in the food. The kids hounded him for a swimming pool. He agreed, only if they dug it themselves.

    But he wasn't being frugal for the sake of saving money. He hated being wasteful. Why waste money that could be invested? He understood the future value of his dollar, invested wisely, was worth far more than today.

    9. The power of compounding compels you.

    Davis' grandson tells the story of the day he asked for a dollar to buy a hot dog. Davis responded:

    Do you realize if you invest that dollar wisely it will double every five years? By the time you reach my age, in 50 years, your dollar will be worth $1,024. Are you so hungry you need to eat a $1,000 hot dog?

    Every dollar you earn has value today but don't ignore its future potential. The critical ingredient is time. Luck and stock tips might help win the short-term trading game for a while. Nothing beats time and the power of compounding returns. Wise, winning investing requires years of appreciation.

    News on Stocks in Our Portfolios

    Economics

    This Week's Data

    Month to date retail chain store sales rose 3.0% versus the comparable period a year ago---an improvement from last week.

    The January Case Shiller home price index was reported up 0.9% versus expectations of up 0.7%.

    The March Chicago PMI came in at 46.3 versus consensus of 50.2.

    March consumer confidence index was 101.3 versus estimates of 95.5.

    Weekly mortgage applications rose4.6% while purchase applications were up 6.0%.

    The March ADP private payrolls report showed a decline of 25,000 from February versus forecasts of an 18,000 increase.

    Other

    Bernanke's first blog post (medium):

    http://globaleconomicanalysis.blogspot.com/2015/03/ben-bernanke-confused-as-ever-starts.html

    More on the fallout from that insolvent Austrian bank (medium):

    http://www.zerohedge.com/news/2015-03-31/aig-lite-margin-call-claimed-first-foreign-casualty-austrian-black-swan

    Politics

    Domestic

    International War Against Radical Islam

    Iran moves the goal posts again (short):

    http://www.powerlineblog.com/archives/2015/03/iran-moves-the-goal-posts-again.php

    The latest from Yemen (medium):

    http://www.zerohedge.com/news/2015-03-31/after-saudis-deny-need-send-ground-troops-yemen-invasion-imminent

    Apr 01 8:49 AM | Link | Comment!
  • The Morning Call---China Prepared To Ease Further

    The Market

    Technical

    The indices (DJIA 17976, S&P 2086) had a strong follow through from Friday's up day. In the process, they soared above their 100 day moving averages, the lower boundaries of their very short term uptrends and their 50 day moving averages. Clearly, their 100 day moving averages once again offered enough support to halt a downtrend. However, this move was assisted by quarter end portfolio window dressing. The Averages remained well within their uptrends across all timeframes: short term (16870-19647, 1971-2952), intermediate term (16965-22116, 1785-2543 and long term (5369-18860, 797-2122). Resistance exists at the last highs (18193/2114); and if that gets taken out then the next stop is the upper boundaries of their long term uptrends.

    Volume fell; breadth improved. The VIX declined, finishing within its short term trading range, its intermediate term downtrend, its long term trading range, back below its 50 day moving average and within a developing pennant formation. I continue to think that it remains a reasonably priced hedge.

    http://www.athrasher.com/technical-market-outlook-3302015/?curator=thereformedbroker&utm_source=thereformedbroker

    Update on NYSE margin debt (short):

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

    The long Treasury was off, but closed within its short term trading range, intermediate and long term uptrends and above its 50 day moving average.

    GLD's price dropped, closing within its short and intermediate term trading ranges, its long term downtrend and below its 50 day moving average. GLD has a number of tough resistance levels yet to overcome before we can assume that the worst is over.

    Bottom line: the Averages had a great day, assisted by quarter end portfolio window dressing. Related buying momentum will likely influence today's pin action. This move was marked by a bounce off their 100 day moving averages---which I have noted before has offered significant support over the last year. So our attention shifts back to the overhead resistance levels: the prior high and the upper boundaries of the indices long term uptrend. I continue to believe that the latter will prove too formidable for a break away to the upside.

    Fundamental

    Headlines

    It was a pretty active Monday, US economic data wise. The results were basically mixed: February personal income was better than expected, personal spending was worse and the PCE deflator was in line; in addition, February pending home sales were much better than estimates while the March Dallas Fed manufacturing index was much worse.

    http://blog.yardeni.com/2015/03/inflation-remains-below-target-excerpt.html

    Overseas, Chinese banking officials made a statement suggesting that they could lower interest rates again. While it was later denied, investors seemed to grasp at it like a drowning sailor to a life buoy.

    ***overnight, the March EU price deflator improved from -0.3% in February to -0.1% and unemployment went from 11.4% in February to 11.3% in March.

    Bottom line: this holiday shortened week started with mixed US economic data and a shot in the arm for the speculator/yield chaser/carry trader hoping and praying for more QEInfinity. And what better place to get it than from a really big player (i.e. a central bank that has the ability to really get the presses humming) like China.

    The geopolitical events that held the headlines last week stayed below the radar yesterday, though none (Greek bail out; NATO/Russia face off; escalating war in the Middle East) have been resolved. Out of sight, out of mind.

    The key issues remain a deteriorating US economy, a weak global economy, slowing corporate profit growth, a death wish among central bankers as they relentlessly pursue competitive currency devaluation and a stock market that is a short hair away from all-time high valuations.

    Update on the Buffett valuation indicator (short):

    http://www.advisorperspectives.com/dshort/updates/Market-Cap-to-GDP.php

    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 importance of liquidity tomorrow (medium):

    https://www.linkedin.com/pulse/foregoing-gains-today-liquidity-tomorrow-joshua-brown?curator=thereformedbroker&utm_source=thereformedbroker

    Investing for Survival

    The greatest danger to your portfolio (medium):

    http://thereformedbroker.com/2015/02/19/the-biggest-threat-to-your-portfolio/

    Company Highlight

    AT&T is one of the world's largest telecommunications companies. The company has grown its dividend at a 5% pace over the past ten years (profits have been flat) earning approximately 10-15% return on equity. T went through a rough period (2008-2011) as the growth of its traditional wireline business slowed and margins came under pressure. Looking forward profits should regain momentum as a result of:

    (1) providing fastest internet speeds,

    (2) investing heavily in enhancing spectrum and networking capabilities as well as building out is fiber network,

    (3) acquisitions,

    (4) share repurchases.

    Negatives:

    (1) intense competition,

    (2) losses in wireline business,

    (3) highly regulated industry.

    T is rated A++ by Value Line, carries a 41% debt to equity ratio and its stock yields 5.7%.

    Statistical Summary

    Stock Dividend Payout # Increases

    Yield Growth Rate Ratio Since 2005

    T 5.7% 4% 68 10

    Ind Ave 3.5 6* 59 NA

    Debt/ EPS Down Net Value Line

    Equity ROE Since 2005 Margin Rating

    T 41% 15% 3 10% A++

    Ind Ave 46 12 NA 8 NA

    *many companies in T industry do not pay a dividend

    Chart

    Note: T stock made good progress off the October 2008 surpassing the downtrend off the May 2008 high (straight red line) and the November 2008 trading high (green line). Long term, it is in an uptrend (blue lines). Intermediate term, it is in an uptrend (purple lines). Short term, it is in a trading range (brown lines). The wiggly red line is the 50 day moving average. The High Yield Portfolio owns a 75% position in T. The upper boundary of its Buy Value Range is $31; the lower boundary its Sell Half Range is $48.

    (click to enlarge)

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

    3/15

    News on Stocks in Our Portfolios

    Economics

    This Week's Data

    The March Dallas Fed manufacturing index was reported at -17.4 versus expectations of -9.0.

    http://www.calculatedriskblog.com/2015/03/dallas-fed-texas-manufacturing-activity.html

    February pending home sales rose 3.1% versus estimates of up 0.3%.

    http://www.calculatedriskblog.com/2015/03/nar-pending-home-sales-index-increased.html

    Other

    Politics

    Domestic

    International War Against Radical Islam

    Iraq just keeps getting from chaotic (medium):

    http://www.zerohedge.com/news/2015-03-30/latest-conspiracy-theory-iraq-accusations-emerge-us-aiding-isis

    Mar 31 8:58 AM | Link | Comment!
  • Monday Morning Chartology

    The Market

    Technical

    Monday Morning Chartology

    The S&P rose Friday, enough to close above its 100 day moving average but not enough to end above the lower boundary of its very short term uptrend; thereby negating that trend. It remains within uptrends across all timeframes. To keep the near term technical picture muddled, the Dow closed right on the lower boundary of its very short term uptrend, erasing the break and leaving within that trend. However, it could not regain its 100 day moving average.

    http://www.crossingwallstreet.com/archives/2015/03/no-back-to-back-gains.html

    (click to enlarge)

    The long Treasury rallied on Friday, but not enough to regain the lower boundary of a very short term uptrend; thus, negating that trend. The good news is that Wednesday's high was higher than the previous bounce which seems to indicate that the decline off the January high is over. It remained within a short term trading range, intermediate and long term uptrends and above its 100 day moving average.

    (click to enlarge)

    GLD was down on Friday, remaining within short and intermediate term trading ranges. Notice it touched and then retreated from its 100 day moving average. GLD still has a lot of work to do before its chart gets healthy.

    (click to enlarge)

    The VIX fell Friday, but ended within a short term trading range, an intermediate term downtrend, below its 50 day moving average and within a developing pennant formation. I still think it cheap insurance for traders.

    (click to enlarge)

    Fundamental

    Update from Greece (medium):

    http://www.zerohedge.com/news/2015-03-29/eurasian-pivot-moscow-expects-progress-tsipras-visit

    ***overnight ,a rumor suggested that the Bank of China was prepared to lower interest rates again---you know, because the first two times were so successful. Later the rumor was denied.

    Investing for Survival

    Memories shape your reaction to the Market (medium):

    http://awealthofcommonsense.com/do-the-markets-have-memories/

    News on Stocks in Our Portfolios

    Economics

    This Week's Data

    February personal income rose 0.4% versus expectations of up 0.3%; personal spending increased by 0.1% versus estimates of +0.2%; the PCE deflator was +0.1%, in line.

    Other

    Signs of improvement in Europe (short):

    http://blog.yardeni.com/2015/03/six-cylinders-firing-in-eurozone-excerpt.html

    Politics

    Domestic

    International

    What price an Iran deal? Another example of our failing foreign policy (medium):

    http://www.zerohedge.com/news/2015-03-27/obama-administration-bullies-allies-over-iran-nuke-deal-dissent

    Mar 30 8:56 AM | Link | Comment!
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