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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--Another Week Of Lousy Data

    The Morning Call

    5/22/15

    The Market

    Technical

    The indices (DJIA 18285, S&P 2130) did little yesterday---the Dow ending flat and the S&P up 5 points. Both closed above their 100 day moving average; but again the Dow finished below its all-time high while the S&P remained above its comparable level.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17220-20020, 2021-3000), intermediate term (17365-22493, 1823-2591 and long term (5369-19175, 797-2138).

    Volume rose slightly; breadth was a little better. The VIX fell 6%, closing below its 100 day moving average and the upper boundary of a very short term downtrend---both positives for stocks. The further it drops, the more attractive it is as portfolio insurance.

    The long Treasury was strong but still remained below its 100 day moving average, the upper boundary of a very short term downtrend and near the lower boundary of a short term downtrend. I will also note that the charts of almost all the bond indices and ETF's that I watch are just as sick as TLT.

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

    Oil rose slightly but still closed below the upper boundary of its recent short term trading range; while the dollar was also up a tad, leaving it above the lower boundary of its recently broken short term uptrend.

    Bottom line: yesterday's pin action was a non-event; so my thoughts are the same: 'Their (the indices) pin action of the last couple of days could be interpreted in two ways: a consolidation before a challenge of the upper boundaries of their long term uptrend or the buyers blowing their wad trying unsuccessfully to break materially higher. As I said yesterday, having come this far, I can't believe that the indices won't attempt an assault on the upper boundaries of their long term uptrends. On the other hand, I continue to believe they will be unable to successfully challenge to any meaningful extent. So the risk/reward is not favorable on a technical basis. I think that argues for caution.'

    The long Treasury continues to act poorly, which is not a surprise given the confusion over Fed policy as expressed in the FOMC minutes and the uncertainty over economic progress created by recent Fed bank statements.

    http://www.advisorperspectives.com/commentaries/20150521-gavekal-capital-smart-money-most-committed-to-falling-rates-since-the-last-peak-in-long-bond-yields

    Fundamental

    Headlines

    It was a huge day for US economic data. Unfortunately, almost all of the numbers were disappointing: weekly jobless claims, the April Chicago Fed national activity index, the May Markit flash manufacturing index, the May Philadelphia and Kansas City Fed manufacturing indices and April existing home sales. The one positive was the April leading economic indicators. One, note that all except weekly jobless claims were second quarter stats; so any revisions in first quarter seasonal adjustments are not in play. Two, the lousy existing home sales are something of an offset to the prior reported new home sales (in fact, in order of magnitude they are about ten times larger).

    Lance Roberts on housing (medium and a must read):

    http://www.zerohedge.com/news/2015-05-21/housing-recovery-real-or-memorex

    The international economic data weren't much better. The May Markit composite PMI's for the EU and China were disappointing. Indeed, China's number was the third decline in as many months. The good news was that Japan's comparable stat was upbeat. That is the second good datapoint in a row for Japan, so its economy may have finally hit bottom.

    ***overnight, Bank of Japan keeps QEInfinity in place; April German business confidence fell; Draghi warns that QE can't do it all and that fiscal reforms are essential to returning the EU to historical growth rates.

    While there were no news items on the Greek/Troika negotiations, that in itself was bad news since the timeline for a resolution is very short; and every day that goes by with no progress brings a default or Grexit closer to a reality.

    The latest on the Greek/Troika negotiations (medium):

    http://www.nakedcapitalism.com/2015/05/are-the-imf-and-the-eu-at-loggerheads-over-greece.html

    ***overnight, the Greek, French and German leaders met and adjourned with no agreement but said that 'significant progress' had been made.

    Bottom line: after Tuesday's positive new home sales and Wednesday's San Francisco and New York Fed's attempts to put some lipstick our economic pig, yesterday's download of crappy data re-introduced us to reality. Whatever the outcome of any first quarter economic data revisions, those numbers were an indication that the second quarter is going to be lousy---unless, of course, the bureaucrats just keep adjusting the seasonal adjustments to meet their dreamweaver forecasts.

    Speaking of dreamweavers, the Japanese reported a positive May PMI---which follows Wednesday's improved GDP figure. Like Europe, we can only hope that this is a sign of a better Japanese economy. Restraining my enthusiasm is their government's propensity to fudge the numbers to fit the forecast. However, my cynicism at this point should be taken with a grain of salt. In truth, there is nothing at present to cast doubt on the validity of these numbers

    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.

    Ready for a Market re-set? (medium):

    http://www.marketwatch.com/story/investors-need-to-face-the-possibility-of-a-great-reset-2015-05-20?siteid=rss&rss=1

    Earnings and the S&P (short):

    http://skrisiloff.tumblr.com/post/119462928940/you-should-probably-take-a-look-at-whats-happened

    More on valuation (short):

    http://www.ritholtz.com/blog/2015/05/stovall-inflation-expensive/

    Investing for Survival

    12 things I learned from David Tepper: #1

    1. "We have this saying: The worst things get, the better they get. When things are bad, they go up."

    This is David Tepper's version of Warren Buffett's view that the time to be greedy is when others are fearful. The principal cause of significantly mispriced assets is when Mr. Market is fearful. If you can be brave and aggressive at such times perhaps you have one of the attributes of a successful distressed asset investor. The problem is that vastly more people think they can be brave and aggressive at times like this than actually can do so. While Warren Buffett and David Tepper view the same phenomenon (fear) as an investing opportunity, the way they capitalize on the opportunity is very different. Both Tepper and Buffett know that Mr. Market is bi-polar, but they operate in different ways (e.g., operate in different time scales, with different circles of competence; different systems; different temperaments).

    Most everyone should buy a diversified portfolio of low-fee/no load indexed investments. The fact that a very small number of people like David Tepper exist does not change that fact. Some fund managers find it easier to give advice by pretending that people like David Tepper don't exist since it makes their narrative simpler and their job easier. Academics are often hired to deliver a simple message which basically says: "It is impossible to beat the market. It can't be done." This approach is attractive since it means that no client must be told that they are lacking the skills or temperament to succeed as an active investor. A message delivered to a client that essentially says "it is impossible to beat the market" goes down a lot smoother than: "it is impossible for you and most everyone to beat the market." Many clients benefit from hearing this message since otherwise they would try to beat the market and inevitably underperform. The motivation of the fund saying "you can't beat the market, period" is arguably not improper. It benefits most all people to say this.

    The reality is that investors like David Tepper do exist. But the bad news is: 1) the small number of people like him most likely won't take you on as a limited partner and 2) you are very unlikely to be able to do what investors like David Tepper, Seth Klarman or Howard Marks can do on your own.

    News on Stocks in Our Portfolios

    Economics

    This Week's Data

    The May Markit flash manufacturing index came in at 53.8 versus expectations of 54.6.

    The May Philadelphia Fed manufacturing index was reported at 6.7 versus estimates of 8.0.

    http://www.advisorperspectives.com/dshort/updates/Philly-Fed-ADS-Index.php

    The May Kansas City Fed manufacturing index came in at -13 versus an anticipated drop on 2.

    April existing home sales fell 3.3% versus a flat consensus.

    http://www.calculatedriskblog.com/2015/05/existing-home-sales-in-april-504.html

    April leading economic indicators rose 0.7% versus forecasts of up 0.3%.

    April CPI was reported at +0.1%, in line; ex food and energy, it was +0.3% versus expectations of +0.1%.

    Other

    Risk aversion is the problem (medium):

    http://scottgrannis.blogspot.com/2015/05/claims-keep-falling-but-risk-aversion.html

    Update on the state of student loans (medium):

    http://www.zerohedge.com/news/2015-05-21/governments-message-heavily-indebted-students-dont-pay-us-back

    Politics

    Domestic

    International

    Soros on China and Europe (medium):

    http://www.zerohedge.com/news/2015-05-21/george-soros-warns-no-exaggeration-china-us-threshold-world-war-3

    May 22 9:03 AM | Link | Comment!
  • The Morning Call--Is The Fed Masking A Rate Hike?

    The Market

    Technical

    The indices (DJIA 18285, S&P 2125) had another dull barely down day. Both closed above their 100 day moving average; but the Dow finished back below its all-time high while the S&P remained above its comparable level.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17214-20014, 2021-3000), intermediate term (17365-22493, 1823-2593 and long term (5369-19175, 797-2135).

    Volume fell; breadth was better. The VIX edged lower, ending below its 100 day moving average and the upper boundary of a very short term downtrend---both positives for stocks. I continue to think that at current price levels, it is attractive as portfolio insurance.

    Investors failing to hedge (medium):

    http://www.marketwatch.com/story/a-stock-market-top-is-likely-near-as-investors-fail-to-hedge-2015-05-19?link=MW_popular

    Traderfeed looks at breadth (short):

    http://traderfeed.blogspot.com/2015/05/assessing-demand-and-supply-in-stock.html

    Update on sentiment (short):

    https://www.bespokepremium.com/think-big-blog/bullish-sentiment-drops-for-fifth-straight-week/

    The long Treasury was up fractionally, closing below its 100 day moving average, the upper boundary of a very short term downtrend and near the lower boundary of a short term downtrend.

    GLD was up slightly but remained below its 100 day moving average and the neck line of the head and shoulders pattern.

    Oil rose slightly but still closed below the upper boundary of its recent short term trading range; while the dollar was also up a tad, leaving it above the lower boundary of its recently broken short term uptrend.

    Bottom line: the Averages traded in a narrow range for most of the day, though the Dow closed back below its all-time high---a slight negative. Their pin action of the last couple of days could be interpreted in two ways: a consolidation before a challenge of the upper boundaries of their long term uptrend or the buyers blowing their wad trying unsuccessfully to break materially higher. As I said yesterday, having come this far, I can't believe that the indices won't attempt an assault on the upper boundaries of their long term uptrends. On the other hand, I continue to believe they will be unable to successfully challenge to any meaningful extent. So the risk/reward is not favorable on a technical basis. I think that argues for caution.

    The long Treasury's recent pin action continues to suggest either inflation or a re-evaluation by investors of the sustainability and/or efficacy of QE. Both clearly run counter to the message to the stock market. Plus the volatility in gold, oil and the dollar only add their own version of a confused message. I have no clue what long rates are going to do; but I worry that about the 'why' of what they will do.

    The latest from Stock Traders' Almanac (short):

    http://jeffhirsch.tumblr.com/post/119468913253/nasdaq-lags-typical-pre-election-by-over-10

    Fundamental

    Headlines

    There was one secondary economic data release yesterday: weekly mortgage and purchase applications were down. Probably no one cared given Tuesday's housing starts number and everyone seemed to be awaiting the release of the minutes of the most recent FOMC meeting.

    To summarize what has become the pattern of Fed communications recently---confusing: the FOMC (1) thinks that the first quarter economic weakness was transitory, (2) 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, (3) gave little support for a rate hike in June, (4) but said that any decision will be data dependent and so it is not ruling out an increase in June, (5) 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 of which are a result of Fed and/or other government agency regulatory policy.

    More (medium):

    http://www.zerohedge.com/news/2015-05-20/fomc-minutes-show-fed-fears-post-hike-volatility-dollar-drag-doesnt-rule-out-june-ra

    And what Fed whisperer Hilsenrath says that they said (medium):

    http://www.zerohedge.com/news/2015-05-20/hilsenrath-confirms-hawkish-fed-sees-q1-weakness-blip-june-liftoff-possible

    And what Goldman says that the Fed model says (medium):

    http://www.zerohedge.com/news/2015-05-21/feds-computer-model-us-economy-sees-little-slack-and-big-clue-gartman

    And what Martin Feldstein thinks (medium and must read):

    http://www.zerohedge.com/news/2015-05-20/even-harvard-economists-admit-fed-policy-has-created-dangerous-risks

    The Fed and bubbles (short):

    http://www.bloomberg.com/news/articles/2015-05-18/bubble-blowing-to-continue-so-long-as-yellen-isn-t-raising-rates

    Mudding the waters even more, the Bureau of Economic Analysis is parroting the San Francisco Fed's 'first quarter seasonal adjustment factors are all screwed up' thesis, suggesting 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.

    http://www.zerohedge.com/news/2015-05-20/stocks-slump-after-liesman-reports-gdp-be-double-seasonally-adjusting-upward

    On the international scene, first quarter Japanese GDP was reported up much more than anticipated. That is the first good bit of economic news out of that country in a long time (though remember that they have been fibbing a lot lately). In addition, the Bank of England kept key interest rates at record lows, adding a small boost to the QEInfinity scenario.

    ***overnight, the May EU composite flash manufacturing index was below forecasts, Japan's was above and China's was negative for the third month in a row.

    The bad news is that a Greek official said that his country would be unable to make the June 5 IMF debt payment and the ECB met to consider raising the discount it places on the collateral Greek banks use for loans. Just to make matters worse, Moody's warned of Greek deposit 'freeze' (medium):

    http://www.zerohedge.com/news/2015-05-20/gloves-come-moodys-warns-greek-deposit-freeze-schabule-wont-rule-out-default

    Bottom line:

    (1) the FOMC minutes---as usual you need linguistics expert to decipher the message, assuming that the Fed even knows or is willing to admit what it really believes. With the BEA apparently ready to adjust first quarter seasonal factors, the optimists can once again cease ignoring the economic data. The question is, after all this jerking around with first quarter data, what happens if the second quarter isn't materially better---which you will recall the Atlanta Fed has already forecast.

    The most stunning part of those minutes was the Fed's acknowledgement that its primary reasons for its concern with raising interest rates are largely the result of its own policies. I am just not sure why the sudden baring of its soul: [a] admitting that it can't increase rates is its own fault or [b] apologizing in advance for when it does. Color me confused.

    What the Fed hath wrought (medium):

    http://www.zerohedge.com/news/2015-05-20/fed-has-created-clockwork-orange-market

    (2) the improvement in the Japanese GDP figure. The key now is, like our own housing numbers, follow through.

    (3) Greece is one day closer to default and intensity of its food fight with the Troika only escalates. I have said before that the euros are masters of pulling back from the brink; but so far, there is no evidence of that happening. I remain cautious about the impact of the final outcome.

    This is a pretty good assessment of the alternative outcomes (medium):

    http://www.zerohedge.com/news/2015-05-21/democracy-under-fire-troika-looks-force-greek-political-reshuffle

    And then there were two: Portugal vows no more austerity (medium):

    http://www.zerohedge.com/news/2015-05-20/portugals-left-wing-forces-threaten-troika-revolt

    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.

    Is Dr. Copper sending a message? (short):

    http://gavekal.blogspot.com/2015/05/dr-copper-is-down-not-out.html

    When what's working no longer works (medium):

    http://www.minyanville.com/business-news/markets/articles/SPX-DJIA-gold-central-bank-interest/5/20/2015/id/56062

    Final earnings and sales 'beat' rate for the first quarter (short):

    https://www.bespokepremium.com/think-big-blog/q1-earnings-season-over-sector-winners-and-losers/

    Company Highlight

    Tiffany & Co is an internationally renowned retailer, designer and manufacturer of fine jewelry, silverware, china, crystal and gift items. The company has grown profits and dividends at an 11-22% rate over the last 10 years earning a 14-19% return on equity. While revenues and profits are impacted by economic activity, TIF has weathered difficult times well and should sustain an above average growth rate as a result of:

    (1) increased marketing to modernize the brand,

    (2) increased penetration in international markets,

    (3) a growing customer base resulting from opening a line of new smaller stores with lower priced, higher margin products,

    (4) declining precious metals prices.

    Negatives:

    (1) earnings from its foreign operations are exposed to currency fluctuations,

    (2) fashion obsolescence,

    (3) its customers are sensitive to macroeconomic events.

    TIF is rated A+ by Value Line, carries a 23% debt to equity ratio and its stock yields 1.8%.

    Statistical Summary

    Stock Dividend Payout # Increases

    Yield Growth Rate Ratio Since 2005

    TIF 1.8% 9 35% 10

    Ind Ave 1.8 12* 32 NA

    Debt/ EPS Down Net Value Line

    Equity ROE Since 2005 Margin Rating

    TIF 23 18% 2 13% A+

    Ind Ave 28 17 NA 6 NA.

    *many retailers do not pay a dividend.

    Chart

    Note: TIF stock made good progress off its March 2009 low, quickly surpassing the downtrend off its October 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 a trading range (purple lines). The wiggly red line is the 100 day moving average. The Dividend Growth Portfolio owns a 50% position through a fairly circuitous route. In 2009, it Bought a full position in TIF. However, in mid-2011, the company had a serious earnings hiccup and the holding was Sold. In mid-2012, after the news was digested and the outlook became a bit more visible, a one half position was repurchased.

    (click to enlarge)

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

    5/15

    Investing for Survival

    12 things I learned from Morgan Housel: Part 9

    9. "It can be difficult to tell the difference between luck and skill in investing."

    Investing involves both skill and luck. Sorting out how much of a given result is skill versus luck is neither easy or always possible. The very best books on this topic have been written by Michael Mauboussin, including The Success Equation. Howard Marks also has useful view on the difference between luck and skill and investing: "Success in investing has two aspects. The first is skill, which requires you to be technically proficient. Technical skills include the ability to find mispriced securities (based on capabilities in modeling, financial statement analysis, competitive strategy analysis, and valuation all while sidestepping behavioral biases) and a good framework for portfolio construction. The second aspect is the game in which you choose to compete. You want to find games where your skill is better than the other players. Your absolute skill is not what matters; it's your relative skill." Warren Buffet describes the object of the process simply: "Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we're trying to do. It's imperfect but that's what it's all about."

    News on Stocks in Our Portfolios

    Donaldson beats by $0.01, misses on revenue

    · Donaldson (NYSE:DCI): FQ3 EPS of $0.36 beats by $0.01.

    · Revenue of $568.01M (-9.0% Y/Y) misses by $1.23M.

    Economics

    This Week's Data

    Weekly jobless claims rose 10,000 versus expectations of up 6,000.

    The April Chicago Fed national activity index came in at -.15 versus estimates of +.10.

    Other

    I normally look with skepticism on any 'paper' coming out of bureaucracies, like the IMF; and, hence, I should with this one also. But the thesis it puts forth (the declining marginal value of more financial products) is intriguing and seems to reflect economic history since the 1990's. This is a good read and worth thinking about, whether you agree or not. (medium):

    http://www.nakedcapitalism.com/2015/05/imf-paper-finds-that-too-much-finance-is-bad-for-growth.html

    This summary of a recent Chinese government economic outlook is a bit confusing when compared to its also recently announced QE; either that or the Chinese are just knowing making the same mistake as the rest of the world's central bankers (medium):

    http://www.advisorperspectives.com/commentaries/20150520-loomis-sayles-china-is-choking-on-its-own-debt

    April architectural billings (short):

    http://www.calculatedriskblog.com/2015/05/aia-architecture-billings-index.html

    Five banks including Citi, JP Morgan and Bank of America plead guilty to currency manipulation---but no one goes to jail (medium):

    http://www.bloomberg.com/news/articles/2015-05-20/once-unthinkable-criminal-pleas-by-u-s-banks-get-investor-meh-

    Politics

    Domestic

    International War Against Radical Islam

    May 21 9:25 AM | Link | Comment!
  • The Morning Call: Housing: A Change In Trend Or An Outlier?

    The Morning Call

    5/20/15

    The Market

    Technical

    The indices (DJIA 18312, S&P 2127) were basically flat yesterday, with the Dow up and the S&P down. Both closed above their 100 day moving average and their all-time highs.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17201-20001, 2019-2998), intermediate term (17345-22473, 1823-2593 and long term (5369-19175, 797-2135).

    Volume rose slightly; breadth remained mixed for a third---not a sign of strong upward momentums. The VIX rose but still ended below its 100 day moving average and the upper boundary of a very short term downtrend---both positives for stocks. I continue to think that at current price levels, it is attractive as portfolio insurance.

    Those pesky divergences (short):

    http://jeffhirsch.tumblr.com/post/119391736073/dow-theory-asks-wheres-the-confirmation

    The long Treasury was down, finishing below its 100 day moving average and near the lower boundary of a short term downtrend.

    GLD got whacked and closed below its 100 day moving average and the neck line of the head and shoulders pattern. GLD continues to be unable to get out of its own way.

    Oil fell back below the upper boundary of its recent short term trading range; while the dollar soared back above the lower boundary of its recently broken short term uptrend.

    Bottom line: everyone appears to have taken a rest yesterday, weighing the tightening implications of those blowout housing start and building permits numbers against the ECB 'front end' loading of QE statement. The pin action in other markets reflected this uncertainty with bonds and the dollar seeming to point to the prospect for a stronger economy and higher rates while GLD and oil indicating just the opposite. In short, investors in these various asset classes continue to read the tea leaves differently. I think that argues for caution whichever one you might be interested in.

    That said, the indices are very close to challenging the upper boundaries of their long term uptrends. I can't imagine them coming this far and not attempting an assault. Nonetheless, I continue to believe they will be unable to successfully challenge to any meaningful extent. On the other hand, longer term, the trends are solidly up; so at the moment, there is little threat of a measurable sell off.

    The long Treasury's recent pin action continues to suggest either inflation or a re-evaluation by investors of the sustainability and/or efficacy of QE. Both clearly run counter to the message to the stock market. Plus the volatility in gold, oil and the dollar only add their own version of a confused message. I have no clue what long rates are going to do; but I worry that about the 'why' of what they will do.

    Update on Fed liquidity and the markets (medium):

    http://gavekal.blogspot.com/2015/05/monetary-movements-economic-mirage.html

    Valuations and the Fed model (short):

    http://blog.yardeni.com/2015/05/valuation-fed-model-excerpt.html

    The lament of another investor (i.e. like yours truly) that has been bearish on the Market (medium):

    http://humblestudentofthemarkets.blogspot.com/2015/05/why-i-am-bearish-and-what-would-change.html

    Fundamental

    Headlines

    Yesterday's US economic stats were mixed: month to date retail sales softened versus last week, but April housing sales and building permits were gangbusters numbers. Clearly the latter are by far the more important. It is the first really good stats we have gotten from a key economic indicator in months. Whether this is the sign that the economic slowdown has bottomed or is just an outlier will only be known in the future. I will repeat what I have said about other positive datapoints of late, we need some pluses just to keep from having to lower our economic growth estimates for a second time.

    Meanwhile, we got our second laughable Fed economic study in as many days. You have to wonder what is prompting all this upbeat propaganda. Surely not a coming rate hike. (medium):

    http://www.zerohedge.com/news/2015-05-19/what-feds-computer-model-predicts-about-future-us-economy

    Overseas, the UK and EU April CPI's came in above expectations---another sign of a stronger growth and keeping Europe as the bright spot in the international economic picture. In addition, an ECB executive said in a speech that the ECB intends to 'front load' its QE. That helped European stock markets, though I remain a skeptic on its ultimate impact on their economies.

    ***overnight, first quarter Japanese GDP was reported up much more than anticipated; the Bank of England kept key interest rates at record lows.

    The dark spot in Europe remains how the Greek bail out end game plays out. The latest bit of negative news coming out of Germany where Merkel is having a tough time selling a bailout in any form to her parliament. (medium):

    http://www.zerohedge.com/news/2015-05-19/merkel-faces-german-parliament-revolt-greece

    ***overnight, a Greek official said that his country would be unable to make the June 5 IMF debt payment. Meanwhile the ECB met to discuss raising the discount it places on the collateral Greek banks use for loans.

    Bottom line: yesterday's housing numbers offered some welcome relief from the barrage of poor economic data. Follow through, of course, is the key; without it, all we have is an isolated stat that could very well get revised down.

    The data and the likelihood of recession (medium):

    http://www.zerohedge.com/news/2015-05-19/recession-check-updating-indicators

    I am a bit taken back by the two recent Fed studies attempting to paint a smiley face on the economy. I am not sure anyone in the real world is believing it; the big question is do they? Because if they do, we could see higher rates sooner than many investors think---except, of course, for the bond guys.

    Yesterday's EU CPI numbers were encouraging (a sign of economic growth). Unlike the US data, they are part of an improving trend. Hopefully, this will continue; because as I noted in last week's Closing Bell, I am clinging to a 'muddle through' international economic scenario like it is the last bottle of Famous Grouse on earth.

    It won't be long now---until we know whether the euros can solve the Greek bail out without blowing something up. I remain cautious about the impact of the final outcome.

    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.

    Another look at valuations (medium):

    http://www.advisorperspectives.com/commentaries/20150519-cmg-capital-management-group-on-my-radar-valuations-and-forward-return

    Are art auctions a sign of the top (medium):

    http://www.minyanville.com/business-news/editors-pick/articles/peter-atwater-art-auctions-art-prices/5/18/2015/id/56059

    A thought experiment from a bull (medium):

    http://www.bloombergview.com/articles/2015-05-19/investors-underestimate-odds-of-virtuous-circle

    Strategists year end S&P target (short):

    http://tickersense.typepad.com/ticker_sense/2015/05/chief-strategists-sp-500-year-end-targets.html

    News on Stocks in Our Portfolios

    Hormel Foods beats by $0.04, misses on revenue

    · Hormel Foods (NYSE:HRL): FQ2 EPS of $0.67 beats by $0.04.

    · Revenue of $2.28B (+1.8% Y/Y) misses by $120M.

    Economics

    This Week's Data

    The growth in month to date retail chain stores sales slowed---1.8% versus last week's 2.1%.

    Weekly mortgage applications fell 1.5% while purchase applications were of 4.0%.

    Other

    More on China's new QE (medium):

    http://www.zerohedge.com/news/2015-05-19/china-officially-launches-critical-local-government-debt-swap-%E2%80%94-pboc-really-just-iss

    Politics

    Domestic

    Patrick Moynihan on the Clinton involvement in Haiti (medium):

    http://www.providencejournal.com/article/20150514/OPINION/150519620#150519620

    UBS gets slap on the wrist for rigging foreign exchange market (short):

    http://www.zerohedge.com/news/2015-05-20/ubs-gets-probation-rigging-5-trillion-day-fx-market

    International

    The convoluted policy mix of US, Germany, Russia and Ukraine (medium):

    http://www.nakedcapitalism.com/2015/05/john-helmer-how-angela-merkel-has-been-abandoned-by-john-kerry-victoria-nuland-and-vladimir-putin.html

    ISIS is winning in Iraq (medium):

    http://www.zerohedge.com/news/2015-05-19/iraq-isis-winning-and-united-states-losing

    May 20 9:06 AM | Link | Comment!
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