Seeking Alpha

All American In...'s  Instablog

All American Investor
Send Message
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
My blog:
Investing for Survival
  • The Morning Call---It Is All About The Fed--Still

    The Market

    Technical

    The recovery continued, though the technical damage has not been completely undone. The DJIA (16838) closed above the lower boundaries of its former short term and intermediate term uptrends; but I leave them in trading ranges (16331-17158, 15132-17158). It remained below its 50 day moving average.

    The S&P (1971) finished within a short term trading range (1814-1991), an intermediate term uptrend (1881-1681) and above its 50 day moving average. The Averages remain out of sync in their intermediate term trends and their 50 day moving averages.

    Volume fell; breadth improved. The VIX declined ending below the lower boundary of a very short term uptrend, below its 50 day moving average and within short and intermediate term downtrends---all bullish signs for stocks.

    http://shortsideoflong.com/2014/08/august-market-breadth/

    The long Treasury dropped but remained well within its short term uptrend, above its 50 day moving average and within an intermediate term trading range. The debate continues as to whether TLT is being driven by fears of a recession or fears of a major geopolitical flare up. Whichever it is, bonds are reflecting a different scenario than stocks---which suggests more caution than is being exercised by equity investors.

    http://www.minyanville.com/trading-and-investing/fixed-income/articles/vince-foster-mortgages-mbs-supply-fed/8/18/2014/id/55662

    And, what are bonds telling us? (medium):

    http://www.capitalspectator.com/the-question-of-the-week-what-do-falling-yields-mean-for-the-us-economy/

    GLD fell, closing within a short term trading range, below its 50 day moving average, within its intermediate term downtrend and continues building a pennant formation.

    Bottom line: the indices have had a nice bounce off the recent low; however, technically, they are not out of the woods as they remain out of sync on a couple of measures. No doubt the 'buy the dippers' have come back in force and that likely portends the resumption of upward momentum. But our Discipline is to force the Market to prove that it can re-establish its uptrends.

    Our strategy remains to Sell stocks that are near or at their Sell Half Range or whose underlying company's fundamentals have deteriorated.

    Andrew Thrasher's latest analysis (medium):

    http://www.athrasher.com/weekly-technical-market-outlook-8182014/

    Fundamental

    Headlines

    It was a slow news day. In the US, the only economic data was an upbeat report on the NAHB housing index---a secondary indicator which taken by itself means little (***but appears to be reflecting better housing starts; see below).

    Overseas, (1) the ECB said that it expects EU banks to borrow E250 billion from it under its targeted long term financing operation. That is a positive in the sense that it provides some additional liquidity for the banks; but it doesn't solve their long term problems of being overleveraged with too many investments of questionable quality.

    (2) Russia threatened to ban vehicle imports---the operative word being 'threatened'. But as the day progressed, rumors sprung up that Kiev and Moscow were talking [negotiating]. While investors got jiggy with it, I remain of the opinion that Putin will settle this standoff, when he gets what he wants---and not before. So I think the news would be more accurately reflected in saying Russia is telling Ukraine the conditions on which it will cease stirring the pot. How this all works out, I haven't a clue; but the sources of my concern [assuming WWIII is avoided] remain [a] Obama pushes His luck and is forced to blink, undermining investor confidence, and [b] Russia cuts off the gas to Europe, pushing it into a deeper recession than already may be occurring.

    The others item on investor radar is the release this week of the most recent FOMC minutes and the Fed meeting in Jackson Hole starting Wednesday---raising hopes for more Fed mewing about the economy, an accommodative monetary policy and the lack of reasons to raise interest rates.

    Bottom line: clearly, the buyers are back. No one knows how much fire power they still have left.

    'But I do know that based on many measures of valuation including our own, stocks are overvalued. When that realization comes is not in my control. What is in my control is insuring that our Portfolios are well positioned whenever it occurs. And that is what I have done. Remember that I am not predicting economic malaise; I am predicting that a Fed induced mispricing of assets will end.'

    My bottom line is that for current prices to hold, it requires a perfect outcome to the numerous problems facing the US and global economies AND investor willingness to accept the compression of future potential returns into current prices.

    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.

    It is a cautionary note not to chase this rally.

    The latest from Lance Roberts (medium):

    http://www.zerohedge.com/news/2014-08-18/correction-over

    The latest from Robert Shiller (medium):

    http://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html?_r=1&abt=0002&abg=1

    The latest from John Hussman (medium):

    http://advisorperspectives.com/commentaries/hussman_081814.php

    Geopolitical turmoil and stocks (medium):

    http://www.bloombergview.com/articles/2014-08-18/war-does-nothing-for-your-investments

    More on valuation (medium):

    http://www.zerohedge.com/news/2014-08-18/whats-so-special-about-17x-pe-multiple

    Company Highlights

    Mastercard is a global leader in electronic payments serving as a processor, franchisor and advisor to approximately 25,000 financial institutions for their credit, debit and other payment programs. In addition, it manages a family of payment card brands (Mastercard, Mastercard Electronic, Maestro, Cirrus). Importantly, MA does not extend credit; it simply acts as a toll collector and is paid on both transaction volume and dollar volume. The company earns in excess of a 25% return on equity and has grown profits from $.18 in 2004 to $2.56 in 2013 and its dividend from $.01 in 2006 to $.29 in 2013. The company should continue to grow as a result of:

    (1) the global shift in the payments industry from paper to electronics,

    (2) acquisitions,

    (3) innovation in its product portfolio [e-commerce, mobile commerce, pre-paid cards],

    (4) a continuing stock buyback program.

    Negatives:

    (1)the global credit crisis has impacted growth negatively,

    (2) difficulty controlling costs in a rapidly expanding business,

    (3) lawsuits involving currency conversions and antitrust,

    (4) tough regulatory environment.

    Mastercard is rated A++ by Value Line, it has a 75 debt to equity ratio and its stock provides a .6% yield.

    Statistical Summary

    Stock Dividend Payout # Increases

    Yield Growth Rate Ratio Since 2006

    MA .6% 11% 7% 4*

    Ind Ave 2.1 9 29 NA

    Debt/ EPS Down Net Value Line

    Equity ROE Since 2004 Margin Rating

    MA 0% 42% 0 38% A++

    Ind Ave 33 19 NA 18 NA

    *MA has only paid a dividend for 8 years

    Chart

    Note: MA stock made great progress off its January 2009 low, quickly surpassing the downtrend off its June 2008 high (straight red line) and the November 2008 trading high (green line). Early this year, it broke below the lower boundaries of both its intermediate term and long term uptrends, re-setting to trading ranges (long term---blue; intermediate term---purple). This appears to be more of a consolidation process versus rolling over. The wiggly red line is the 50 day moving average. The Aggressive Growth Portfolio owns an 85% position in MA. The upper boundary of its Buy Value Range is $70; the lower boundary of its Sell Half Range is $119.

    (click to enlarge)

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

    8/14

    News on Stocks in Our Portfolios

    Medtronic beats by $0.01, beats on revenue

    • Medtronic (NYSE:MDT): FQ1 EPS of $0.93 beats by $0.01.
    • Revenue of $4.27B (+4.7% Y/Y) beats by $20M.

    Home Depot beats by $0.07, beats on revenue

    • Home Depot (NYSE:HD): Q2 EPS of $1.52 beats by $0.07.
      • Revenue of $23.8B (+5.7% Y/Y) beats by $180M.

    Economics

    This Week's Data

    The NAHB housing market (confidence) index rose to 55 versus expectations of 53.

    http://www.calculatedriskblog.com/2014/08/nahb-builder-confidence-increased-to-55.html

    And no wonder, July housing starts rose 14% versus estimates of up 8%.

    July CPI was up 0.1%, in line: ex food and energy, it was up 0.1% versus forecasts of up 0.2%.

    Other

    Regulators punting 'too big to fail' (medium):

    http://www.nakedcapitalism.com/2014/08/regulators-punting-on-too-big-to-fail-problem-of-repo.html

    Three reasons why Europe is struggling (short):

    http://pragcap.com/three-reasons-europe-is-struggling

    Politics

    Domestic

    Quote of the day (short):

    http://cafehayek.com/2014/08/quotation-of-the-day-1084.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

    International

    Latest from Ukraine (medium):

    http://www.zerohedge.com/news/2014-08-18/disinformation-war-escalates-ukraine-rebels-accuse-each-other-attacking-refugee-conv

    And Bulgaria halts pipeline that bypasses Ukraine (short):

    http://www.zerohedge.com/news/2014-08-18/bulgaria-halts-south-stream-pipeline-again-nato-f-15s-troops-arrive

    Disclosure: The author is long MA, MDT, HD.

    Aug 19 8:54 AM | Link | Comment!
  • Monday Morning Chartology

    The Market

    Technical

    Monday Morning Chartology

    The S&P bounced nicely last week---thank you, 'buy the dippers'. It recovered above the lower boundary of its former short term uptrend, but I am not re-establishing that trend---at least not yet. It remains below its 50 day moving average and within its intermediate term uptrend.

    Its partner, the DJIA, also closed above the lower boundary of its former short term uptrend, though just barely; and it remained below its 50 day moving average and the lower boundary of its former intermediate term uptrend. The bottom line is that last week's pin action repaired some of the damage from the prior week, though not enough to be getting jiggy about. However, more movement to the upside this week could potentially put stocks back on the path of the endless bull market.

    HDGE, our short trading position, finished Friday inches above our Stop. Any further decline and we will eliminate that holding.

    (click to enlarge)

    The long Treasury continues to perform very well. It is within its short term uptrend and above its 50 day moving average. I am assuming that this is reflective of the awful economic news out of Europe and Japan last week.

    http://blog.yardeni.com/

    (click to enlarge)

    GLD remains solidly within a short term trading range and intermediate term downtrend. However, on a very short term basis, there is a lot going on: (1) it closed right on its 50 day moving average, (2) it has negated a short term downtrend and (3) it continues to build a pennant formation.

    (click to enlarge)

    As would be expected the VIX fell last week as stocks advanced. However, it did not break below the lower boundary of its very short term uptrend---a modest win for the bears. Nonetheless, it is well within both short and intermediate term downtrends.

    (click to enlarge)

    Fundamental

    News on Stocks in Our Portfolios

    Economics

    This Week's Data

    Other

    ***overnight, the ECB said that it expects EU banks to borrow E250 billion under its 'targeted long term financing operation'; Russia threatened to ban foreign vehicle sales.

    The S&P and the dollar (medium):

    http://advisorperspectives.com/dshort/guest/Chris-Turner-Dollar-Where-Art-Thou-Update.php

    Politics

    Domestic

    International

    Ron Paul on Iraq (medium):

    http://www.zerohedge.com/news/2014-08-17/ron-paul-what-have-we-accomplished-iraq

    Goldman on the economic consequences of conflict in Iraq and Russian sanctions (medium):

    http://www.zerohedge.com/news/2014-08-17/goldman-consequences-recent-geopolitical-events

    Aug 18 8:48 AM | Link | Comment!
  • The Morning Call---Where Are The 'Buy The Dippers'?

    We leave bright and early tomorrow morning for the beach. Gone until 8/17. As usual, I will have my computer with me and if the need arises will be in touch via Subscriber Alerts.

    The Market

    Technical

    The indices (DJIA 16413, S&P 1920) marked time yesterday. Both are below their 50 day moving average (the Dow is near its 200 day moving average), both are in short term trading ranges (16331/16009-17158, 1814-1991) (I am calling the break of the S&P short term uptrend) and both are within their long term uptrends (5101-18464, 772-1999). However, they are out of sync in their intermediate term trends---the DJIA being in trading range (15132-17158) and the S&P remaining within its uptrend (1865-2665). As a reminder under our Price Discipline, when the Averages are out of sync, the Market is considered to be directionless.

    http://www.zerohedge.com/news/2014-08-06/sp-etf-outflows-soar-biggest-2008

    Volume rose slightly; breadth recovered. The VIX declined, finishing above its 50 day moving average, within a very short term uptrend and short and intermediate term downtrends. Until the VIX starts breaking trend lines, I don't think that the upward momentum of stock prices is subject to reversal.

    http://www.bloombergview.com/articles/2014-08-05/the-trend-is-your-friend-till-it-isn-t

    The long Treasury moved higher, closing above its 50 day moving average and within a short term uptrend and intermediate term trading range.

    GLD surged. It is back above its 50 day moving average and the upper boundary of what had been a developing short term downtrend. It remains within a short term trading range and an intermediate term downtrend.

    Bottom line: the short term trends of the indices have re-set to a trading range. By itself, this is not an unusual occurrence in a bull market. However, (1) they both have broken below their 50 day moving averages and the Dow is near its 200 day moving average and (2) they are out of sync on their intermediate term trends---the Dow re-setting to a trading range, the S&P remaining within its uptrend. Even this doesn't necessarily portend much lower prices.

    On the other hand, given that Market peaks are generally processes versus a sudden change of direction, this pin action fits within the definition of a 'process'. In addition, the 'buy the dippers' seem to have lost some of their enthusiasm---even in a very oversold market. To be sure, they have twice managed to stem losses following big down days; and given yesterday's bad news out of Europe, they held the Market to a flat performance. But that's it and, as yet they have been unable to manage any follow through. Net, net, the jury is out as to whether we are witnessing a topping process or simply a much needed hiccup in an otherwise strong market.

    So it is too early to be making a Buy List but not too late to Sell stocks that are near or at their Sell Half Range or whose underlying company's fundamentals have deteriorated.

    Update on the retail investor (short):

    http://shortsideoflong.com/2014/08/retail-investors-totally-wrong/

    Fundamental

    Headlines

    Yesterday's US economic data consisted of two secondary indicators which were mixed: weekly mortgage applications were up but purchase applications were down and the June US trade deficit was less than expected.

    Overseas, the numbers weren't so good and became the center of investor focus on the day: Italian second quarter GDP fell which technically puts Italy back in recession and German factory orders plunged 4.3%. Clearly, both leave open the question of a downturn in the entire EU economy---which would not be good for either the US corporate earnings or the continent's overly indebted sovereigns or overly leveraged banks.

    ***overnight the ECB left interest rates unchanged---somewhat surprising in light of the recent lousy economic data out of the EU: German industrial production was well under expectations.

    Bottom line: buyers, having been on something of a strike of late, acquitted themselves well yesterday---holding stocks flat in the face of bad economic news. Nevertheless, they have clearly backed off of their two year long propensity to 'buy the dips' on reflex.

    I have no way of knowing what investor psychology will be today or tomorrow. But I do know that based on many measures of valuation including our own, stocks are overvalued. When that realization comes is not in my control. What is in my control is insuring that our Portfolios are well positioned whenever it occurs. And that is what I have done. Remember that I am not predicting economic malaise; I am predicting that a Fed induced mispricing of assets will end.

    My bottom line is that for current prices to hold, it requires a perfect outcome to the numerous problems facing the US and global economies AND investor willingness to accept the compression of future potential returns into current prices.

    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.

    It is a cautionary note not to chase this rally.

    The latest from Doug Kass (medium and today's must read):

    http://www.thestreet.com/story/12831740/1/kass-pressures-pile-up-on-markets.html?kval=dontmiss

    Company Highlights

    Marathon Oil is an oil and natural gas production company, having recently spun off its refining operations. As a recently separated entity, it has limited historical data. However, future profit and dividend increases are expected in the 8-13% range and ROE is estimated in the 10-12% area. Looking ahead both earnings and dividends will be driven by:

    (1) expanding activity in Texas' Eagle Ford shale,

    (2) divesting of underperforming assets,

    (3) strong inventory of development projects [Indonesia, Iraq, Poland],

    (4) share buybacks.

    Negatives:

    (1) potential fluctuations in oil and gas prices,

    (2) political risks associated with doing business in foreign countries,

    (3) operational problems in Libya,

    (4) its deep water Gulf of Mexico project has been a disappointment to date.

    MRO is rated A by Value Line, has a 25% debt to equity ratio and its stock yields 2.2%.

    Statistical Summary

    Stock Dividend Payout # Increases

    Yield Growth Rate Ratio Since 2011

    MRO 2.2% 14% 30% 3

    Ind Ave 1.6 11 23 NA

    Debt/ EPS Down Net Value Line

    Equity ROE Since 2011 Margin Rating

    MRO 25% 10% 1 12% A

    Ind Ave 43 13 NA 21 NA

    Chart

    Note: MRO stock made good progress off its November 2008 low, surpassing the downtrend off its June 2007 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). The wiggly red line is the 50 day moving average. The Dividend Growth Portfolio owns a 50% position in MRO, having Sold Half in mid-2011. The upper boundary of its Buy Value Range is $29; the lower boundary of its Sell Half Range is $48.

    (click to enlarge)

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

    8/14

    News on Stocks in Our Portfolios

    South Jersey beats by $0.11

    • South Jersey (NYSE:SJI): Q2 EPS of $0.30 beats by $0.11.

    CF Industries Holdings misses by $0.61, beats on revenue

    • CF Industries Holdings (NYSE:CF): Q2 EPS of $6.10 misses by $0.61.
    • Revenue of $1.47B (-14.0% Y/Y) beats by $130M.

    Economics

    This Week's Data

    Weekly jobless claims fell 14,000 versus expectations of a 3,000 increase.

    Other

    Lies and damn lies---from who else? The banksters and the cohort in the central banks (medium):

    http://www.nakedcapitalism.com/2014/08/ilargi-lie-beholder.html

    How to scare yourself stupid (medium):

    http://www.fool.com/investing/general/2014/08/05/how-to-scare-yourself-stupid.aspx

    Macroeconomic risk index falls (short):

    http://www.capitalspectator.com/macro-markets-risk-index-falls-from-recent-highs-but-still-predicts-growth/#more-3886

    Abenomics breaks another record (short):

    http://www.zerohedge.com/news/2014-08-06/abenomics-working-japanese-households-welfare-rise-record

    Chinese private debt continues to grow (medium):

    http://www.zerohedge.com/news/2014-08-06/chinas-prelude-storm-record-private-bonds-mature

    Politics

    Domestic

    International

    ISIS marches on (medium):

    http://www.zerohedge.com/news/2014-08-06/isis-marches-and-saudis-are-getting-nervous

    Putin's latest response to sanctions (medium):

    http://www.zerohedge.com/news/2014-08-06/russian-retaliation-putin-orders-ban-all-food-imports-sanctioning-countries-year

    And:

    http://www.zerohedge.com/news/2014-08-06/russian-defense-minister-tells-troops-be-state-constant-battle-readiness

    Disclosure: The author is long SJI, CF, MRO.

    Aug 07 9:13 AM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »
Posts by Themes
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.