August 31, 2011
Comment on Model Portfolio activity
added shares of Alcoa and Intel to accounts. We also added a few shares of Pep
Boys (the auto repair folks) ahead of earnings on 9/7 to accounts. Three months
ago PBY dropped 30% in price when earnings disappointed. Our guess is that it
won’t occur again.
took trading profits in Ingersoll Rand and Microsoft.
Telekom dropped 10% on news that the Justice Department will oppose the
AT&T/T-Mobile takeover. Deutsche Telekom owns T-Mobile. DT is cheap - with
a 7.8% dividend there is at least a 20% plus gain potential with limited long
term downside risk. If the deal doesn’t go through DT gets $3 billion from
are also taking a small flyer - in larger accounts - on Talbot’s common shares
at $2.95 ahead of earnings--losses. A hedge fund has acquired a 9.9% ownership
interest in Talbot’s. On that news in early August the share price ran up over
$4. The company then adopted a poison pill to protect management. We would too
if we were paying ourselves $13 million as our stock price tanked and losses
mounted. We think that part of Talbot’s problem-aside from lousy greedy
management- is that its demographic is just not spending money on clothes in
this slow economy. If it pops on earnings/losses we may sell.
August 29, 2011
Comment on Model Portfolio activity
the major market measures up strongly Monday morning we sold our Bank and
Semiconductor ETFS to place a bit more cash in accounts. Strong Monday mornings
have led to weak Tuesdays for the last month and we want to trade that action
with a few dollars. We hope the pattern changes and we are wrong since we own a
full complement of individual issues in all accounts.
This week may be volatile since
it is the last week of vacation ahead of Labor Day and also the Hurricane may
have some folks on the sidelines.
Want Investment Success?
Now's Not the Time to Be on the Sidelines
By Jeff Saut Aug 29, 2011 10:30 am
The time to stay out of the
market was months ago, not after a ~20% decline in the S&P 500 from its
intraday high on May 2 to its intraday low on August 9.
“The summer wind came blowin’
in from across the sea. It lingered there to touch your hair and walk with
-- Frank Sinatra, lyrics by
Irene “came blowin’ in” over
the weekend for the first hurricane to hit the East Coast in years. In fact,
New England has not experienced a hurricane since “Bob” attacked in 1991. For
over a year I have been commenting about the weird weather that was surely
coming. Since then we have experienced the anticipated extremely cold wet
winter, tornadoes in the Midwest of historic proportions, floods around the
world, hurricanes, and droughts. Indeed, in Russia droughts destroyed 40% of
the grain crop, sparking an attendant rise in grain prices. The same drought
caused 30-foot-deep “cracks” to appear in the farmlands north of China’s Inner
Mongolia Autonomous Region, keeping farmers out of the fields. Meanwhile, other
parts of China have been experiencing floods and mudslides. In this country
certain regions have seen 100-year floods, while places like Texas have had
100+ degree temperatures for months with no rain. I could go on, but you get
the idea -- the weather has turned undeniably weird.
To be sure, I have commented
that while to some degree the environmentalists are right about the climate
change being attributable to “man,” undeniably the weather is also being
compounded by a La Niña weather pattern coupled with more volcanic ash in the
atmosphere than anyone can remember. That combination has allowed the Tropics
to expand as the Tropic of Cancer and the Tropic of Capricorn have moved toward
the Poles. Well, that’s not factually correct because the Tropics can’t really
expand since they are defined as being 23° 16’ 16” above and below the equator.
What has expanded is the “reach” of the Hadley cell winds, which have moved
closer to the North and South Poles. Recall the Hadley cell winds dominate the
Tropics carrying hot equatorial air up into the troposphere where atmospheric
circulation carries that air north and south. The air eventually sinks back to
Earth. Where the air rises, the atmospheric pressure is low, causing heavy
rains and storms. Where it sinks, it produces high pressure areas characterized
by deserts like the Australian Outback. The shift in the Hadley cell winds has
played havoc with the trade winds, producing droughts in otherwise moist parts
of the world and monsoons in previously dry locals. Said “shift” has allowed
tropical zones, and deserts, to expand. This is not an unimportant event
because the changed weather patterns have major implications for agriculture
and the world’s soil bank.
To wit, much of the world’s
topsoil is eroding and therefore declining in nutrient quality. According to
“Topsoil is the upper surface
of the Earth's crust, and usually is no deeper than approximately eight inches.
The Earth's topsoil mixes rich humus with minerals and composted material,
resulting in a nutritious substrate for plants and trees. It is one of the
Earth's most vital resources.”
Unfortunately, topsoil erosion
is occurring much faster than nature can replace it. In addition to the
weather, modern agriculture techniques have hastened the erosion, as has row
crop planting (corn, soybeans, cotton, tobacco, etc.) since row crops erode
soil much faster than sod crops. Regrettably, once soil is gone, you can’t get
it back! Plainly, this has grave implications because as I have stated for
years, “When per capita incomes rise, the first thing people want is clean
water, the second is a better diet.” With per capita incomes rising rapidly in
emerging countries, the burgeoning food demand has left global grain
consumption exceeding production; and over the next few decades the situation
is likely to get worse because food production needs to expand by some 50% just
to meet the estimated demand. Ladies and gentlemen, this means an additional ~6
billion acres of land is needed to meet the upcoming food demand, but only ~2
billion acres of good land is available. Thus, farmland should be a good
investment and there are select public companies that play to this theme. Also
of interest are ag-centric “technology” companies that hopefully can ameliorate
some of the upcoming food shortfall.
I revisit the weather, water,
and agriculture themes today not only because they have been three of my
long-standing themes, but to emphasize why they should continue to be viable
investments going forward. Importantly, water is by far the most undervalued
asset I know of, yet it is difficult to find water-centric investments. Not so
As for the stock market, recently
the most ubiquitous question has been, “Was that the bottom?” My response has
been, “I think so.” Verily, if one has been using the October 1978 and 1979
bottoming patterns as a template, the correlation, at least so far, has been
pretty remarkable. If that R² continues, it suggests the “selling climax” lows
occurring on August 8 and 9 should prove to be the lows. However, that does not
mean we can’t spend a few more weeks in “bottoming mode.” As stated, the
October 1978 bottoming sequence took six to seven weeks, while the 1979
sequence encompassed only four to five weeks.
The ideal chart pattern would
be what a technical analyst terms a “wedge” formation (see chart below).
S&P 500 -- 3-Month
Candlestick Chart (Courtesy of Thomson Reuters)
According to StockCharts.com:
“Wedge: A reversal chart
pattern characterized by two converging trendlines that connect at an apex. The
wedge is slanted either downwards or upwards demonstrating bullish or bearish
While a “wedge” bottoming
formation should take a few more weeks to complete, many stocks have likely
for this week: Just like the surfer interviewed over the weekend who grabbed a
board and leapt into the Irene-induced waves, investors need to “grab a board”
and catch a wave if they want to achieve investment success. But to do that,
first you need to get into the water! The time to stand on-shore was months
ago, not after a ~20% decline in the S&P 500 (SPX)
from its intraday high on May 2 to its intraday low on August 9. While my firm
has been pretty conservative in our stock recommendations over the past three
weeks, we would become more aggressive if the SPX can break out above the
recent rally-high of ~1208. And while the odds of a recession have clearly
increased (to 30%), my hunch remains we will avoid it. Accordingly, I will
leave you with this quip from our restaurant analyst, “Every casual dining
company that has spoken to Wall Street has said they have seen no evidence of
behavior change despite all the scary headlines of the past six weeks or so. If
we have a recession, this would be the first one in my 25 years as an analyst
that was not foreshadowed with weakness at full service (the most
August 26, 2011
August 24, 2011
Comment on Model Portfolio activity
We sold KRE (the Regional Bank ETF) to buy American Eagle as
it dropped 10% in price today on earnings. We sold the stock at $12.30 three
weeks ago to be out when earnings were announced and we bought back today at
AEO yields 4% – an income stock – and has $500 million in
cash on hand ($4 per share) and no debt. Same store sales were flat for the
quarter and earnings for the year are expected to be about 90 cents per share.
this note on a website and we wish to share it since it is a concise
explanation of our outlook: (author’s name not provided)
reflects people’s fear perceptions and has no earnings power or value except
the hope that someone else has a greater fear than you, so you can sell to them
at a higher price—sound familiar? i.e. the real estate market 2002 to 2007.
S&P 500 reflects the earnings and growth potential of the real world, not a
perception of fear.
August 23, 2011
Comment on Model Portfolio activity
added Ford warrants to accounts and sold BP to buy KRE and KBE.
August 22, 2011
Comment on Model Portfolio activity
First a story: we took a trip to Flagstaff, Arizona to
deliver some furniture to our newly married daughter. On the return- we drove-
we were just past Pueblo Colorado on the interstate when a grizzly bear bounded
out of a ditch running straight for our car. We swerved and he did also and
then ran behind us and made it across the four lanes without being hit. They
run very fast. And so we avoided one bear while we were away but the second
bear has been threatening ours or clients’ accounts. Hopefully we will survive
this bear also.
1112 is important support and the S&P closed there a
two weeks ago Tuesday and also last Friday. The S&P opened 1.2% higher this
morning and then moved back down to even before rallying for a second time at
noon. But by the close the major measures were flat to negative.
We couldn’t take the pain and switched GM to Nvdia and the SPDR Financial.
GM is very cheap but is under selling pressure. Our guess is that there is
shorting being done by hedge funds and who knows how low they will take it. We
have exposure to autos through our large Ford
position and the NVDA and XLF purchases will allow us to make
back the GM loss plus. We also sold three of the individual bank stocks we own
and add eth proceeds from those sales to our ownership of the SPDR Major Bank
and SPDR Regional Bank ETFs. We added Briggs
& Stratton at $13.95 to accounts that owned Northern Trust and Microsoft
and Intel to some of our larger
The stocks we own are cheap. We can’t control Mr. Market
but we can control what we own. We have been adjusting ownership moving from
good to better as the markets have corrected and will continue to do so.
August 19, 2011
August 18, 2011
August 17, 2011
Comment on Model Portfolio activity
We switched Hewlett Packard to Dell today on a share for share basis. Dell’s earnings
were better than but revenues weren't and Dell cut growth forecasts for the year.
Part of the revenue miss was from exiting low margin businesses which is a
longer term plus but the short term hindrance to price. With Dell down 10%
today and HPQ down 5% and HPQ earnings due tomorrow after the close
we are exiting HPQ’s unknown results for Dell’s known and lower price.
Given the market’s current dislike of HPQ and the mixed market action of today
we would rather be out than in for the report.
August 16, 2011
Comment on Model Portfolio activity
After doing some reading and thinking last night – we do both at the same time –
we repurchased Nokia in accounts 30 pennies higher than the sale price.
It seems the reason Google is buying Motorola is for the patents and
Nokia has some important patents witness the billion dollar settlement in
Nokia’s favor with Microsoft.
We also added shares of The Hartford to accounts.
August 15, 2011
Comment on Model Portfolio activity
We sold the Internet ETF IGN for a short gain and Nokia for a scratch on the pop
both had today on news that Google is acquiring Motorola. We still like Nokia
but we don’t think Microsoft will acquire them – especially after Google’s
action since it would look like follow the leader.
August 12, 2011
August 10, 2011
Comment on Model Portfolio activity
couldn’t resist buying Disney down $4 per share this morning and down from $44
to $30 in the last 3 months. The share price dropped as analysts nit-picked DIS
Disney: Zacks Equity
Research, On Wednesday August 10, 2011, 11:35 am EDT
performance of the Media Networks and Parks and Resorts divisions facilitated The
Walt Disney Company (NYSE: DIS - News) to deliver better-than-expected third-quarter 2011
results that outshined the Zacks expectations.
quarterly earnings of 78 cents a share came ahead of the Zacks Consensus
Estimate of 73 cents and jumped 16% from 67 cents earned in the prior-year
quarter. However, on a reported basis, including one-time items, quarterly
earnings came in at 77 cents per share.
revenue in the quarter increased 7% to $10,675 million from the year-ago
quarter and came ahead of the Zacks Consensus Revenue Estimate of $10,451
million. Total segment operating income increased 8% to $2,731 million.
Disney has made a positive comeback in the reported quarter, beating
performance in the previous quarter. The company remains well positioned to
drive revenue growth in the coming quarters through its strategic initiatives.
a move to boost the performance of ESPN, the company signed 2 new agreements.
ESPN was the key driver of revenues at the Media Networks division during the
reported quarter. Disney gained a 12-year deal for multi-platform rights for a
wide range of Pac-12 conference sports and also entered into a 12-year deal to
be the exclusive U.S. broadcaster of Wimbledon.
moves not only fortify its position but also expand its coverage area while
creating long-term opportunities.
is in talks for cash retransmission payments for owned television stations and
license fees from affiliated stations. Disney notified that its owned stations
have entered into agreements with quite a few multi-channel distributors and
has completed license agreements with non-owned affiliates.
reported its quarterly results amid the financial turmoil following the
Standard & Poor's first-ever downgrade of U.S. debt. However, the company
did not change its strategies and remained focused in deploying its capital
toward expanding its Parks and Resorts business and in turn, enhancing its
markets and creating long-term growth opportunities.
Disney Store, the retail merchandising arm of the company, is opening
interactive concept stores in more than 40 locations in 2011, thus expanding
its reach to new markets.
by the successful launch of the innovative design store in 2010 coupled with
the huge demand from retail property owners, Disney Store is optimistic about
its interactive store and plans to open 60 new concept stores in 16 major
markets in North America across 8 countries by the end of 2011.
results enable the company to enhance shareholders value through share
repurchases and dividend payout. The company notably augmented its rate of
share repurchases during the quarter and bought back 35.1 million shares for
approximately $1.4 billion.
the consequences of the above amplified the reported quarter’s earnings per
Networks revenue rose 5% year over year to $4,949 million due to revenue
increase across Cable Networks (up 7%), partly offset by a decline in
Broadcasting revenue (down 1%). Segment operating income rose 11% to $2,094
Networks’ operating income jumped 10% to $1,844 million driven by growth across
ESPN and the Disney Channels. Operating income at the Broadcasting division
soared 20% to $250 million, reflecting rise in advertising revenue at the ABC
Television Network coupled with the fall in programming and production costs.
and Resorts revenue rose 12% to $3,170 million. Segment operating income
increased 9% to $519 million, reflecting higher guest spending at domestic
parks and higher passenger cruise days, partly offset by lower revenue from
Tokyo Disney Resort and Disneyland Paris.
Entertainment revenue inched down 1% to $1,620 million compared with the
year-ago quarter, while operating income plunged 60% to $49 million. The
reduction reflects poor domestic and worldwide theatrical performance.
Products revenue rose 13% to $685 million and segment operating income jumped
32% to $155 million. The growth reflected increased licensing revenue from Cars
merchandise and higher revenue from Marvel properties.
Media revenue for the quarter surged 27% to $251 million, but posted an
operating loss of $86 million compared with an operating loss of $65 million in
the prior-year quarter. The loss reflected the impact of acquisition accounting
resulting from Playdom buyout.
the quarter, Disney generated free cash flows of $1,106 million. The company
ended the quarter with cash and cash equivalents of $3,519 million, net
borrowings of $9,719 million and shareholders’ equity of $38,946 million,
excluding a non-controlling interest of $1,976 million.
Disney is one of the world's leading diversified entertainment companies.
Moreover, the company commands a formidable portfolio of globally recognized
brands, primarily its namesake brand Walt Disney, followed by ABC, ESPN and
Marvel Entertainment. These brands offer a strong competitive edge to the
company and bolster its well-established position in the market against major
players like News Corporation (NasdaqGS: NWSA - News) and Time Warner Inc. (NYSE: TWX - News).
August 9, 2011
Comment on Model Portfolio activity
By the by, the S&P 500 was down 6.66% yesterday which
we take as a good omen. Not that it was down but the 666 number- which is of course
the sign of the devil- also was the intraday Day trading low on the S&P 500
back in March of 2009.
This morning on the first rally (there were many) we traded
out of 1/3rd of KBE for scratch and switched it to DELL and all of XLF for a 35
pennies loss and switched half to Cisco.
We added to Cisco which is $1.25 lower than we sold last week. Cisco
at $13.90 is priced below its March 2009 low trade. We traded DELL in
June in the $15 range and repurchased here at $13.97. Earnings for both
come are 8/10 CSCO-8/16 DELL. We sold Cisco last week but the price drop in
CSCO from the vicious sell off of the last week is compelling. We also think
Dell is weak because of upcoming earnings but our guess is that these stocks
are more tied to market action given the significant corrections in both. And
so we bought half our usual amount.
We added AT&T with a 6% yield to large accounts and
repurchased some Dell and Hewlett Packard 10% below last week’s
sale and picked up a few shares of Walgreen and Ingersoll Rand
for larger tax free accounts also 10% below last week’s sale price.
Our playbook of the last five days has played out as our
crystal ball predicted. The HFT/Program trading boys and girls are working
overtime spinning their machines. Early in the day the HFT/Program trading
machines took the DJIA from up 130 at 8:45AM back to even by 8:50AM and then to
up 240 and back to up 80. The DJIA dropped from up 130 to down over 200 in the
blink of an eye after the Fed announcement. The DJIA then ran back to even and
down 100 several times in less than 15 minutes time. In the final 30 minutes
the major market measures skyrocketed with the DJIA up 429 points on the day;
the S&P 500 up 53 points and the NAZZ gaining 124 points. Crazy.
We are content with our purchases and the prices at which we
purchased but the volatility caused by the HFT & Program traders is more
than we can take. And so we are heading to the sidelines for at least a few
weeks. The correction we envisioned has occurred and we have readjusted portfolios
and now have to wait and see if there is more downside and let the fear/greed
equation play out.
From here –over the short term- we don’t have a clue.
European banks holdings of distressed country debt (Ireland, Spain, Portugal,
Greece, Italy) is the problem that needs to be solved. We think the ECB will
work out an arrangement to purchase the distressed European countries’ paper
held by European banks similar to the one the U.S. Treasury used when it
partnered with private money and guaranteed private money against losses to buy
some of the distressed paper the Treasury had acquired from U.S. banks
back in 2009. When that facility is arranged the markets should make a bottom.
Sooner is obviously better than later.
Ford Motor Co. (F),
which fell below $10 yesterday for the first time in 13 months, is not
receiving the credit it deserves from investors, Bank of America Corp. said.
which dropped 41 percent this year through yesterday, are trading at 2.6 times
earnings before interest, taxes, depreciation and amortization, compared with a
historical average of 4 to 5 times earnings, Bank of America analyst John Murphy wrote in a note today. Murphy
added Ford to the company’s US 1 list of stocks with a buy recommendation.
in the downside scenario of a double-dip recession, Ford’s stalwart balance
sheet is substantially healthier than in 2008,” Murphy wrote. “But we believe
that the market is not giving Ford’s stock credit for the company’s balance
had net income of $4.95 billion in the first half of the year, as
fuel-efficient models like the Fiesta subcompact attracted buyers in a slowing
U.S. auto market. Ford paid down debt by $2.6 billion in the second quarter,
leaving it with $22 billion in automotive gross cash and $14 billion in debt.
recovery in U.S. demand should drive the auto stocks higher while Ford’s
product cycle hits a sweet spot driving market share gains, with a
‘fortress-like’ balance sheet,” wrote Murphy, who has a price objective on Ford
stock of $26. “It should also be noted that second-quarter results were solid.
article was written by Collins Stewart LLC's Chief Equity Strategist and
Director of US Equity Research Tony Dwyer.
we did not expect such a dramatic drop in prices, and at this point “levels” or
sentiment are not too useful because the market is being driven by extreme
emotion. To give you perspective on yesterday’s decline, according to my stats
dude, declining stocks outpaced advancing stocks by 67-to-1.
you perspective on what the financial press is calling the “Barack-o-lypse Now”
decline yesterday (due to the president's comments leading to an acceleration
to the downside) -- dating back to 1940, the others that came close were:
5/13/40 (66-to-1). German tanks broke through French armies during WWII.
5/21/40 (63-to-1). Again, investors were stunned by German advances in WWII.
10/19/87 (38-to-1). The Black Monday crash.
11/3/48 (36-to-1). President Truman was re-elected. Investors didn't like that.
markets are clearly looking forward to today’s FOMC meeting, where it is widely
expected the Federal Reserve will show increased monetary accommodation through
either extending maturity of Fed holdings or cutting the interest rate on
reserve deposits. Those expectations were around yesterday too, but it did not
help the markets as they were in a full-blown panic. Driving that was continued
partisan politics in Washington following the S&P downgrade of US debt. In
order to even make a temporary low, the banks need to stabilize, credit needs
to regain some of yesterday’s panic, and the market needs to hold its gains in
the first hour of trading.
Declines like the past 12 days are very rare and typically are followed by a
violent double-digit reflex rally and then a retest of the low. There is no
question it will take time to make an intermediate-term bottom similar to any
other major low. For example, while the charts look like a “V” bottom in the
1998 Russian debt default and Long-Term Capital Management crisis, the market
acted as follows:
dropped 21% from 7/20/98-09/01/98 and was 12.6% below 200-day moving average,
(SPX currently down 18% from peak and 13.2% below 200-day). To match this
decline would suggest another 3% downside.
rallied 13% over the next two weeks.
dropped 12% and retouched the low on 10/08/98.
recent decline really smoked confidence in our global leadership and financial
system, and that confidence should take time to rebuild – but it will, in my
firm's view, because the capital markets always make our governments and
central banks do the right thing. And unfortunately, pain is normally the
motivator, and this has been a phenomenal amount of pain. In our view, similar
to the post-1998 crack, there is likely to be negative monthly Personal Consumption
Expenditure reading, but ultimately the stimulative effect of lower commodity
prices and interest rates should make a spending retrenchment temporary.
August 8, 2011
Comment on Model Portfolio activity
new highs and 1304 new lows on the NYSE says it all. By that we mean that the
markets tanked but that the selling is overdone. Of course Mr. Market does his
own thing and so it may stay oversold for a while longer.
DJIA was down 5.5% and the S&P 500 6.6% and the NAZZ 6.9%.
S&P downgraded U.S. debt even
after a $2 Trillion (yes that is trillion) figuration error on the amount of
total debt incurred over 10 years was pointed out to them. As a counterpoint to
all the negative talking head nonsense about the downgrade U.S two year
Treasuries traded at a historically low yield (historically high price) of
0.25%. In effect folks are loaning money to the government for two years and
earning no return. They want the safety of U.S Treasury securities.
the S&P 500 at our correction target of 1115 we added shares of Merck
and Newell at their yearly lows. Merck yields 4.9%. We traded Newell
at $15 for a $1 profit a few weeks ago and we bought it back at $12.80 to hold.
We reentered DreamWorks below our June sale price and added to Morgan
Stanley and purchased Northern Trust, JP Morgan, KRE
(regional center bank ETF) and KBE (money center bank ETF) all to hold. We
bought XLF to trade. GE traded lower on the opening and we added
to positions. We also bought British Petroleum with a 4% yield.
Three stocks in same industry:
Ford: is priced at $37
billion in the marketplace with revenue of $130 billion and $20 billion of cash
on hand and operating earnings of $7 billion.
GM: is priced at $37
billion in the marketplace with revenue of $140 billion and $30 billion of cash
($20 billion net cash) and operating earnings of $7 billion.
Toyota: is priced at $240 billion
in the marketplace with revenue of $225 billion and $40 billion of cash and
operating earnings of $15 billion.
Ford and GM sell at 25% of sales
and 6X earnings. Toyota sells at 1X sales and 16X earnings. Go figure.
Jeff Saut, Raymond James
Rumors were flying while I
watched last Thursday’s tumble.
The two most credible were:
A major rating agency was
about to downgrade the US credit rating.
A major institution was in
trouble and being forced to liquidate its portfolio.
Obviously, one was right and
the other wrong, as late Friday Standard & Poor’s downgraded our nation’s
debt rating to AA+. And, “There is no joy in Mudville -- mighty Geithner has
struck out,” as our treasury secretary has repeatedly declared, “There is no
chance the US will lose its top credit rating.” Such statements have left a
bevy of cries for Secretary Geithner’s removal, fostering at least the illusion
of a shakeup in the country’s financial course.
While it is doubtful Tim
Geithner is even marginally responsible for our debt debacle, in politics it is
all about illusions. In fact, the current national malaise reminds me a lot of
President Jimmy Carter’s 1979 “Crisis of Confidence” speech. If you have five
here to watch it.
So what are the implications
of Friday’s downgrade? While it will likely take weeks for that question to be
answered, as of this writing the answer seems to be “not much.” That “consensus
call” is based on what happened to Canada, Australia, and Japan when they lost
their AAA status. The result was only a minimal economic impact in those countries.
That said, we are not so certain that will be the case here given our nation’s
reserve currency status and the fact there are so many other financial
instruments geared to US Treasuries. As Raymond James chief economist Dr. Scott
It should go without saying
that nobody knows precisely how things will unfold from here. One issue is that
while S&P downgraded, Moody's and Fitch have not. Some have suggested that
a downgrade would lead to higher borrowing costs for the US However, we haven't
seen much of an increase in bond yields in other cases where sovereign debt was
Treasuries are still
considered to be the "safe" asset – so, I wouldn’t expect a big
increase in Treasury yields. The bigger concern will be second- and third-round
effects through the financial markets. Downgrades to agency debt (Fannie Mae,
Freddie Mac), a number of states, and municipalities will follow on Monday.
Money market outflows are likely to increase (as people move to insured bank
deposits). The Fed is likely to move to support the money markets (as they did
during the financial crisis) and may set up other liquidity facilities. In
issuing guidance to banking organizations for risk-based capital purposes, the
Fed indicated that risk weights for Treasuries and agencies will not change.
Still, a number of banks have large holdings of agency debt and may be inclined
to increase capital and tighten loans for consumers and businesses. We’ll have
to wait to see how markets react and what the expectations are for US equities.
Accordingly, we wait to see
the economic impact of recent events while contemplating Soren Kierkegaard’s
sage words, “Life can only be understood backwards; but it must be lived
So what do we think we know
about “living forwards?” Well, while I didn’t believe it was going to happen,
the Dow Jones Industrial Average (DJIA) confirmed the Dow Jones Transportation
Average (TRAN) last week when both of those indices broke below their
respective March 16, 2011, closing reaction “lows,” thus rendering a Dow Theory
“sell signal.” It was the first such “sell signal” since November 21, 2007.
Unlike the November 2007 “sell
signal,” this one came at much lower valuation levels and following a nearly
11% decline since the selling stampede began on July 8, 2011. Recall, however,
that selling stampedes typically last 17 to 25 sessions, with only one- to
three-session pauses/corrections before they exhaust themselves. Last Friday
was the 21st session in the selling skein, making this decline long of tooth.
Also of note is the Dow’s dive has left the NYSE McClellan Oscillator more
oversold than it has been in years; likewise, the percentage of stocks above
their 10-day moving averages dropped to 0.79%, the lowest reading (most
oversold) since 1991. As InvesTech
Research’s astute James Stack writes:
On today’s close (August 4),
our short-term Pressure Factor hit an extraordinary oversold -169 (normally,
-80 is an ‘extreme’ oversold reading). There were only six occasions in the
past 60 years when the Pressure Factor has dropped below -160 ... None of those
instances saw the S&P even 1% lower one week later. Only one instance saw
the market negative one month later -- last summer, which marked the correction
bottom. And interestingly -- perhaps coincidentally -- five of the six saw the
market up over 19% twelve months later. Such oversold extremes typically do not
mark the beginning of a bear market.
While I certainly hope Mr.
Stack is correct, I must admit the Dow Theory “sell signal” concerns me. Still,
the bone-crushing decline since early July has used up so much energy (read:
extremely oversold) that it's reasonable to expect a “throwback rally” from
some sort of stock market low.
Indeed, just like you can only
press down on a spring so far before you get a “boing” bounce-back, the same is
true in the equity markets. Moreover, I think the recent rout is more about the
aforementioned “Crisis of Confidence” environment than the fundamentals. To be
sure, as of yet there is no economic evidence the country is sliding into
recession -- slow growth, yes; recession, no. That view is reinforced by the
Yield Curve, which has been one of the most reliable predictors of recessions.
To wit, every recession for the past 50 years has been preceded by an inverted
Yield Curve (short-term interest rates above long-term interest rates).
Currently, the Yield Curve is very steeply sloped, as can be seen in the chart
at the end of this article, from our friends at the Bespoke Group. In fact, the
US has the steepest-sloped Yield Curve of any I can find.
Meanwhile, we are wasting a
terrific earnings season with 61% of companies reporting beating estimates,
while 68% beat revenue estimates. The result has left the S&P 500’s (SPX)
earnings estimates for this year nestled around $100 and pushing toward $114
for 2012. If those estimates prove correct, at last week’s intraday low
(1168.09), the SPX was trading at a PE multiple of 10.3x next year’s earnings,
with an Earnings Yield of ~9.8% ($114 / 1168), leaving the Equity Risk Premium
for stocks at ~7.4% (Earnings Yield – 10 year T-note yield of 2.4%) for the
highest ERP in a generation.
This implies either earnings
estimates are too high (I don’t believe it), the country will slide into
recession (I don’t believe it), or stocks are undervalued (my position). Hence,
if you did not raise some cash last February to March as recommended, I think
it is a mistake to do so here since we should get some kind of rally either off
of last week’s low, or a low early this week. In that rally, it will be
important to monitor the market’s internal metrics with an eye toward pruning
underperforming stocks from investment accounts. While my hunch is last week’s
Dow Theory “sell signal” will prove false, like the one that occurred during
May 6, 2010’s “Flash Crash,” I would still tread carefully “living forwards.”
The call for this week: For
weeks I have stated that a credit rating downgrade was a fait accompli and
possibly already discounted by the markets; this morning that doesn’t seem to
be the case, with the pre-opening futures down around 30 points. Whatever the
various markets’ near-term reaction, the fact is that everyone is merely
offering their intelligent guesses as to the outcome of this historic
“downgrade” event. One thing I do believe is what I wrote last week, which is
likely a catalyst for the downgrade (as paraphrased):
While I don’t embrace the Tea
Party, their ‘sea change’ is palpable. Nowhere is this more apparent than the
current debt ceiling debate. The Tea Party seems to have surfaced our nation’s
"political corruption," which hinders the proliferation of prosperity.
Interestingly they are not the first, for such thoughts were first scribed by
Adam Smith in his book The Wealth of Nations (1776). Whether you like, or hate,
the Tea Party, there is definitely a palpable change afoot that over the long
term could be extremely bullish for the economy, the stock market, and our
In conclusion, I leave with
these thoughts from legendary investor Jim Rogers:
When asked how he made his
money, Mr. Rogers answered, “I sell euphoria and buy panic.” The way he
determines that is to wait until prices are “gapping” in the charts. Gapping on
the upside is “euphoria,” while gapping on the downside is “panic.” Currently,
gold and Treasuries are gapping on the upside; and, stocks are gapping on the
downside. The implication, even though I believe gold is in a secular bull
market, suggests partial positions should be sold in precious metals and the
freed-up cash should be used to buy fundamentally sound stocks with decent
dividend yields. Obviously, the weeks ahead will determine if this is the
correct strategy. All said, in my opinion it is too late to panic. The time to
panic, and raise cash, was months ago (we did). Now it is time to selectively
redeploy that cash into select equities.
August 5, 2011
Comment on Model Portfolio activity
one said it would be easy. The Employment Report was much better than expected
with 154,000 private sector jobs (and the last three months revised higher)
added and the major market measures rallied 1.5% at the opening. Then the
spoilsports arrived and the measure moved down 1% for a 2.5% reversal. Trading
then ranged between up on 1% and down 1% all morning. In the afternoon news
that Europe was going to take action (buying bonds/saving humanity?) sent the
major measures up 1% and then the measures see sawed in positive territory
entering the final hour with the NAZZ lower but the DJIA and S&P 500 up
the final hour the markets traded either side of flat as traders decided they
had enough risk/reward for the week. At the close the DJIA and S&P 500 were
grudgingly higher while the NAZZ was down 1%. Our ‘guess’, Monday down; Tuesday the relief rally begins.
basic fear remains that the Congress and President Obama and the leaders in
Europe are focusing on deficits when they should be spending money hand over
fist. There are myriad infrastructure projects in this country from
extending and improving the internet and the electrical distribution system;
increasing wind and solar energy production, building schools; and repairing
roads. These projects would be productive for 10/20/50 years and should not be
looked at as current expenses but as long term capital improvements. Anyone who
buys a house and puts 50% down is considered too conservative. We are sure most
of the lawmakers carping about Government debt have 80% or more mortgages on
their homes and those mortgages surely represent two or three times their year
net income. Yet when it comes to government spending they are nickel and diming
the country to recessional well we can’t change it so we have to trade around
don’t think there will be a Crash (20% one day drop) because the Employment
Report was positive. But the High Frequency traders will continue to roil the
markets. Long before the selloff began two weeks ago we wrote that we thought (but
didn’t expect) that the S&P 500 might drop to 1150 if the correction got
out of hand. Last year we went from 1250 S&P to
1040 from May to September 1 down 16%. This year we have gone from 1360 to 1180
today down 13%. 1150 (down 15%) should be the bottom on Monday unless…..The S&P 500 is at 1180 as we write at 11 AM.
Since it is within 2% of our target and with the 15% down swoosh over the last
two weeks – plus having refocused our portfolios- we are placing a bit more
capital at risk.
traded EWG (Germany ETF) -flat, KBE-down 20 pennies and XLF plus 15
pennies today. We bought them to hold but lost our nerve. It’s that kind of
did add to our GM and GE positions as we did to Ford
yesterday at the close because we plan to stick with them for the duration.
Ford and GM are both at 5 times earnings and GE is at 10X and is our closet
added the ETF - IGN which is a networking index ETF that has Cisco, Research in
Motion, and Juniper among its holdings. It gives exposure to the internet space
without the risk of owning individual stocks.
The iShares S&P North American Technology-Multimedia Networking
Index Fund seeks investment results that correspond generally to the price
and yield performance, before fees and expenses, of U.S.-traded
multimedia networking stocks as represented by the S&P North American
Technology-Multimedia Networking Index™.
Top Daily Holdings*
as of 8/4/2011
View all holdings
CISCO SYSTEMS INC
MOTOROLA SOLUTIONS INC
JUNIPER NETWORKS INC
RESEARCH IN MOTION
MOTOROLA MOBILITY HOLDINGS I
F5 NETWORKS INC
RIVERBED TECHNOLOGY INC
in our larger accounts we added a few shares of NVDA ahead of earnings; Molex
which is a fine small company based in Illinois; and Morgan Stanley on
analyst Uche Orji pointed to Mercury Research data showing Nvidia gaining
share in the overall graphics-chip market and the notebook graphics-chip
gained 8.9 points of notebook discrete [graphics-chip] share to 50.6%,” he
wrote. “Overall, Nvidia gained 3.8 points of share to 54.6%.”
gains came at the expense of Advanced Micro Devices Inc. AMD +0.85%
, which has focused more
sharply on the graphics-chip sector following its 2006 acquisition of ATI
Technologies. AMD did gain share in desktop graphics chips, Orji noted.
MOLX priced at 1 X sales. Insiders own 40 % of company. Earnings
estimated at $2 for this year (10X). Dividend yield 4%.
Molex Incorporated http://finance.yahoo.com/q/pr?s=MOLX+Profile manufactures and sells electronic components
worldwide. The company offers micro-miniature connectors, SIM card sockets,
keypads, electromechanical subassemblies, and internal antennas and subsystems
for telecommunications market; and power, optical, and signal connectors and
cables for end-to-end data transfer, linking disk drives, controllers, servers,
switches, and storage enclosures for data products market. It also designs and
manufactures connectors for home and portable audio, digital still and video
cameras, DVD players, and recorders, as well as devices that combine multiple
functions in the consumer market, as well as devices that combine multiple
functions. In addition, the company manufactures cables, backplanes, power
connectors, and integrated products that are found in various products, such as
electronic weighing stations, and industrial microscopes and vision systems;
interface cards, software for industrial networks, and connectivity solutions;
and compact robotic connectors and I/O connectors for servo motors, as well as
a range of products for automotive market. Further, it provides connectors and
custom integrated systems for diagnostic and therapeutic equipment used in
hospitals, including x-ray, magnetic resonance imaging, and dialysis machines.
Additionally, the company provides manufacturing services to integrate specific
components into a customer’s product. It sells its products to original
equipment manufacturers, contract manufacturers, and distributors. Molex
Incorporated was founded in 1938 and is based in Lisle, Illinois.
Morgan Stanley http://www.thestreet.com/_yahoo/story/11210610/1/morgan-stanley-ceo-sends-buy-signal.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA executives
have seized the market plunge to buy more of the company's stock. CEO James
Gorman disclosed on Thursday that he had bought 100,000 shares of the
investment bank for a total sum of $2 million, according to a regulatory filing
with the Securities and Exchange Commission. The latest purchase
increases his holdings in the company to 955,370 shares, valued at $20 million.
Morgan Stanley is trading at its lowest level in more than two years at $20.39.
Shares were bought at an average price of $20.62 each. Chief Financial Officer
Ruth Porat bought 25,000 shares at an average price of $20.50, increasing her
holdings to 665,169. Paul Taubman, co-president, international securities,
snapped up 50,000 shares at a weighted average price of $20.38, raising his
holdings to 1.1 million shares.
August 4, 2011
Comment on Model Portfolio activity
GM beat big time overnight and the shares are lower
after 10 minutes of trading. Dendreon, the company with the prostate
cancer drug, is off 66% today from $36 to $11. The markets are becoming a take
no hostage situation. The action reminds of 2009 when the HFT kids kept
piling on the selling and the hedge fund boys and girls seem to have
rediscovered the wonder of shorting stocks and scaring the pants off retail
action is setting up for a rally tomorrow on the Employment number after a
morning drop- or a Monday disaster. As we said yesterday we are leaning toward
a Monday disaster and so we sold the opening today raising more cash. Our first
sales were Cisco, Hewlett Packard and American Eagle. All
three still have to report earnings in the next few weeks and with the current
market mood – even if their numbers are good- we have no confidence the stocks
will hold current levels.
is down $4 per share today on a warning and so the AEO is also vulnerable
if the numbers are bad. AEO has the cash to survive and is a buyout candidate
but no one does buyouts when markets crash. The ‘smart’ guys wait until
stocks have recovered and then pay top dollar.
sold our individual bank stocks and traded XLF and KBE for the day but
eliminated both on front of tomorrow’s Employment Report. We sold Alcoa
because it was a market trade and Yahoo because a catalyst for a move higher is
not present and it will fade lower if the markets do.
we eliminated Walgreen and Ingersoll Rand, not because they are lousy stocks
but because in 2009 they sold at half the level at which they currently trade.
Ingersoll Rand is especially susceptible to bear shorting raids and so
reluctantly we are going to the side on these two.
added Ford to accounts at its yearly low with the idea of selling the Warrants
on a rebound rally. The warrants have a $1.20 time premium in them at the
respective prices and we want to capture it.
headlines tomorrow will be the Market Crash and juxtapositioned against these
headlines will be pictures on Obama’s 50th birthday party bash and super
fundraiser. That is what is known as bad timing
catalyst for a rally that we can envision is a ban on naked shorting of Country
Specific Credit Default Swaps. The Congress is on vacation and the Republicans
want Obama to fail. After the cut spending brouhaha of the last few months
there is no chance of a meaningful second stimulus and the Fed floating money
isn’t going to do much good since corporations are flush with cash. Batten the
August 3, 2011
Comment on Model Portfolio activity
We have raised cash over the past few days since the markets are not
acting as we expected. 1250 on the S&P 500 was strong support and the markets
slipped through that level to the downside very easily this morning. The
markets then rallied back to 1250 and turned lower again. That is not the kind
of action one sees when a rally is in the cards. (On the other side of the coin
the markets are down 8/9 days in a row and so a Thursday rally would make sense
to at least clear the oversold condition.)
We obviously have been wrong on the markets and we don’t
like seeing account values drop precipitously. But that is now spilled milk
and we have to deal with the markets as they are.
Value investing is taking it on the chin and with 75% of trading volume
controlled by the HFT boys and girls we are going to have to ride out the
storm. And our guess is that 1150 - 10% lower- is where the correction will stabilize.
This week is setting up like the October 1987 week that led to a Monday
Crash. A rally tomorrow (which should occur even if the markets are going
lower) and then a reversal lower Friday would confirm the similarity. Markets
never crash off the top and the 10% correction in the S&P 500 over the past
few weeks as created the 1987 Crash set up. And since the HFT folks have free
rein and downtick shorting is again coming to the fore we would rather prepare
for the worst while hoping we are wrong.
For that reason we have moved our larger accounts to 30% to 50% cash.
There are plenty of value stocks going begging for buyers but we seem to be the
only ones buying them. Rather the smart money is more comfortable trading Gold
and Green Mountain Coffee at 100 times earnings. Not much we can do about this
market but sit and watch.
a more positive view: http://www.minyanville.com/businessmarkets/articles/US-Treasuries-market-weakening-equity-market/8/3/2011/id/36110
thing hotter than Dallas right now is the emotion brought on by the confidence
crisis in Europe and Washington. Following yesterday’s whoosh lower in equities
and surge in flight into U.S. Treasuries, there is evidence the market could
weaken further given the obvious short-term breakdown in price support. It is
important to note, however, that the equity market is rapidly becoming oversold
enough to suggest that any further weakness – even if nasty – should be made up
in a sharp bounce, especially over the intermediate-term:
this week, I highlighted the equity market performance following a drop below
the S&P 500’s (SPX)
200-day moving average that found since the 2002 market low, when the long-term
moving average is in an uptrend and is breached, the SPX has dropped an additional
2% on average with a worst case drop of 3.4% prior to an oversold rally on
average of 10%. A worst case drop in the current correction would be roughly
1240 that should be followed up by new highs later in the year.
percentage of Lowry’s stocks above the 10-day moving average dropped to 4% and
is now below 10% for two consecutive days. Similar to the above stat, there
could be additional weakness. But when the selling is this intense over a short
period of time, it surrounds at least a temporary turning point.
of the SPX/10-year U.S. Treasury has reached a minus-3 standard deviation. My
pal Jason Goepfert from www.sentimentrader.com
points out this is a rare level of so quickly shedding stocks in favor of
bonds. Since 1962, this level has only been seen 17 times. On average it took
two more days to see a one-month low and the average gain one month out was
+3%. Two of the four negative occurrences a month later were in the heart of
weakness brought the 50-day moving average of the TRIN Index to 1.38. That
level has been seen five other times since 1996 -- 6/2002, 10/2002, 3/2003,11/2008,
and 6/2010. The past two occurrences led to a temporary bounce and then renewed
selling that represented very important turning points in the market (chart
below). The 2002 and 2003 instances were at or within a couple days of a major
there has been deterioration in the various technical metrics, it is important
to point out that just eight days ago, the NYSE and S&P 500 cumulative
advance/decline lines hit new all-time highs and the Lowry Selling Pressure
Index hit a new cycle low. Those two intermediate-term indicators don’t suggest
there can’t be corrections, but rather point to a pretty healthy market
environment coming into the current correction.
firm's Down, But Not Out
report, we highlighted that the economy doesn’t face a money problem, but
instead has a “using it” problem. There is a crisis of confidence given the
shenanigans in Europe and Washington that appears to be accelerating rather
than being resolved. The Europeans decided to buy PIIGS debt to solve the
crisis, but not for a few more months. Meanwhile there was a deficit agreement
in Washington, but the ultimate decisions have been postponed pending a panel
being set up to decide where we get spending cuts. We have yet to hear a single
leader suggest they think the legislation is good. Basically, the global
leadership is totally failing to convinced investors they have a solution to
the confidence problem, and the longer it lasts the longer the very slow-growth
environment will persist.
the monetary backdrop, C&I Loan demand and other stimulative metrics,
earlier this year we believed the Fed would raise rates sooner rather than
later. The pause in the economy due to the lack of confidence has made that
view wrong. If current policy were based on just the availability of money,
history suggests the Fed would have already raised rates. Unfortunately, the
combination of ObamaCare, Dodd-Frank and the deficit-reduction debate has kept
both business expansion plans and consumer spending at bay. That is the bad
news. The good news is that the ability to spend or access funds for growth is
there (as opposed to early 2008 when it was not), so unlocking it will be the
key. Again, we go back to the notion that the economy doesn’t have a money
problem, but a desire-to-use-it problem.
time being, to date – believe it or not – the various indicators we look at for
stress in the system are nowhere near where they were last summer, the middle
of the last cycle, or in the mid-1990s. As an example, the U.S. Dollar 2-Year
Swap Spread is currently at 25 basis points. Last summer it went above 50, and
in 2004 and early 1995 it reached the upper 40s. The same can be said of the
other interbank spreads in addition to other non-gov’t paper such as high yield
debt. High Yield Spreads to the 10-yr U.S. Treasury Bond have begun to tick up
but remain below the historic mean and are widening more because of the drop in
the 10-yr yield rather than aggressive selling in the corporate paper.
Confirming this is the lack of volatility in the various High Yield Debt CDS
no question the domestic economy is decelerating due to a slower China, very
weak eurozone and a discouraging domestic political environment, but this is
not unique. By 1995, the Chinese economy slowed from 14% annualized GDP to
under 10%, Latin America was a mess, Germany and France were in recession, U.S.
GDP showed just 0.8% annualized growth in Q1 & Q2 1995, the debt ceiling
limit was hit and parts of government were shut down, the U.S. debt was on
“credit watch negative” and as reported at the time – wages and salaries were
at a historic low as a percent of GDP. Again, recessions happen when there is a
need for money and limited or no access to it. We simply have enough money, but
just don’t want to use it due to the various macroeconomic and confidence
issues. It was very different prior to the last two major bear markets when
access to money from banks, credit investors and earnings were very limited and
we had the various macroeconomic issues of the time.
firm's view was based on politics in Europe and Washington, we would have a
different opinion. We have tried to be very consistent to point out that the
market correlates to the direction of EPS, and until there is limited or no
access to capital that takes place when credit investors are sellers, banks are
unwilling to lend, and earnings are in decline, the economy should stay
positive and we should maintain our bullish view. It is important to note that
the financial markets and various credit metrics were more problematic last
summer and seemed to be “telling us something"; they were telling us that
there was a confidence-driven nastier-than-expected correction taking place,
but that it was a temporary situation that resolved with new highs later in the
year. At this point, we view the current correction as the same. Although
further European debt dislocation and weak economic numbers in the U.S. over
the near-term may pressure equities further, we believe many of the potential
negative influences have already been discounted as recession fears mount.
August 2, 2011
Comment on Model Portfolio activity
No Turnaround Tuesday
sold AT&T and Intel for scratch losses to raise cash and to
be able to comfortably hold more volatile issues. We bought both for a trade on
the debt increase. That trade didn’t’ work out- drop instead of rally. As we
said yesterday hope is not an investment option and we would rather have the
cash on hand.
is the eighth (for the DJIA) and seventh (for the S&P 500) down day in a
row so at least a relief bounce is closer than it was. There is no reason for
the markets to go higher but then that is usually when the rallies come. One
guru suggested that when S&P and Moody’s either do or don’t downgrade U.S
debt that the rally will occur
added to Fifth Third under $12 and did add a few shares of Ingersoll
Rand to some accounts that own.
August 1, 2011
Comment on Model Portfolio activity
Thankfully a painful July is over
but August is not beginning on a good note. The reaction to the news is more
important than the news and the debt deal agreement initiated a plus 1%
opening in the major market measures followed by a reversal; after on half
hour of trading to down 1% when the ISM manufacturing index came in at
50 when 55 was expected. Also a sell the news mood was evident in the early
morning guru talk.
That’s the way it is in
corrections and with the Employment report due on Friday the markets are seeing
the glass as half or more empty. But tomorrow is turnaround Tuesday and also D
Day for the debt deal so hope springs if not eternal at least it springs.
We wrote the above at 11AM.
At 2:30PM Boehner announced that he and the Republicans had saved the Republic
for -another month at least -and the DJIA turned positive for the blink of an
eyelash. The other market measures remained mired in negative territory and the
DJIA moved back to negative by the time the leadership had finished speaking.
The S&P 500 closed at 1286 - just above the 200 day moving average.
sold XLF, and KBE to raise cash when the rally failed. We have been trading the
financial and bank ETFs all year and were planning on selling them into the rally.
When the rally quickly failed we waited a few hours but decided discipline over
hope. We also switched Juniper to Cisco and added shares of Fifth Third to some
accounts. Finally we sold Nvdia. Nvdia’s earnings come on 8/10- the same day a
Cisco- but it is more volatile and the secondary tech stocks have been taking
it on the chin with even the slightest disappointment
the by, we think it is nuts to cut spending in a recession but we also
cynically believe that the announced cuts over the next few years are probably
smoke and mirrors.
Diane Swonk, Chief economist
Mesirow Financial; Manufacturing Slows, Construction Edges Higher
The Institute for Supply
Management (ISM) index for manufacturing activity slipped to 50.9 in July, off
from 55.3 in June, which suggests that the pace of growth in manufacturing
continued to moderate during the month. Disruptions created by the earthquake
in Japan persist, but given the backdrop of weaker-than-expected growth in the
second quarter and sharp downward revisions to the first quarter, the concern
is that recent weakness may be more pervasive. Most manufacturers that I talk
to still seem relatively bullish on their prospects for the second half, though
"relative" is a dangerous word in an economy that is so anemic in
Separately, construction spending edged up 0.2% in June, following a
downward revision for May. The gain, driven by increases in non-residential
activity, pushed construction spending to the highest level in six months
We own both: http://www.thestreet.com/_yahoo/story/11205130/1/hp-increasing-pressure-on-cisco.html
(TheStreet) – Hewlett Packard
is turning up the heat on networking rival Cisco, in the cash-strapped public
sector, according to the latest research from analyst firm Robert W. Baird.
Recent Baird survey of almost 100 Cisco resellers, who account for
around 12% of the networker's annual sales, found that HP is gaining ground
thanks to its aggressive pricing strategy.
"HP Networking [is] showing more progress," said Jayson Noland, an
analyst at Robert W. Baird, in a note released Monday. "We saw
incrementally more participants cite HP Networking as 'influencing deal terms'
or 'winning' over Cisco."
The results run counter to
recent comments from Cisco that it is fending off HP in the U.S. market
and highlight the price tension in the public sector, which makes up around 20%
of the beleaguered networker's business.
The survey found that a lot of
HP's wins are in state and local government, a market that's particularly
sensitive to price at the moment. With Washington struggling to resolve the
U.S. debt crisis, a host of tech companies, including IBM have cited weakness in public sector
spending. Last week, Cisco networking rival Juniper warned of
reduced government spending
in the second half of the year, which could impact IT budgets.
This upgrade by Goldman was
ahead of August 10 earnings. http://www.cnbc.com/id/43926665?__source=yahoo|headline|quote|text|&par=yahoo
raised its 12-month price target on Cisco
Systems by 34 percent to $21 Thursday, and upgraded the
company to "buy" from "neutral" based on the analysts'
expectations of higher earnings in coming quarters. Goldman's target is based
on a price/earnings ratio of 11 times Cisco's calendar-year non-GAAP earnings
estimate of $1.90 a share.
"Cisco is not a 'broken'
franchise," the analysts said, based on conversations with customers. The
analysts also said that "leading surveys suggest that Cisco’s customer
franchise is still solid. Moreover, the structural issues it faces are largely
contained to the switching business, which drives just one-third of
Goldman sees Cisco earnings rising over
several quarters after "four consecutive guide-downs and 43 percent
under-performance" against the S&P 500 over the
last 12 months.
Goldman expects fiscal 2012
earnings of $1.80 and 2013 earnings at $1.96, both higher than Wall Street
Goldman's analysts said the
Street has been "under-modeling" Cisco’s cost-cutting actions, which
they believe can add 5 percent to 10 percent to fiscal 2012 estimates.
The company said last week it would will cut 9 percent of its workforce, or 6,500 jobs,
in an effort to boost profits.
The Goldman analysts think
Cisco’s sales growth will hit bottom in the current quarter and "re-expand
toward what we consider its normalized longer-term growth rate" of 5
percent to 7 percent year on year into fiscal 2012, "even assuming a
declining switching business, as we estimate the growth rate of its remaining
portfolio at 8 percent to 9 percent."
We plan on being in business for at least the next twenty years
and with this in mind we are changing the frequency and content of our internet posts. We will maintain our
concentration on market activity while we simplify our business day. We have been writing about the markets
for 27 years - on a daily basis for 12 years - and giving investment advice for 45 years. Our guess is that
while we haven’t seen and said it all we are pretty close to having exhausted any new words of wisdom
we might wish to convey. Markets don’t repeat but they do rhyme. By not posting dally we will be
freed up to do some summer/winter activities such as gardening/snowshoeing, riding our horses,
walking the dogs and spending a bit more time with the prince and princess when they visit. And
so we are going to end our lengthy daily comments but we will continue to post periodically when
market events warrant and/or when there is activity in the Model Portfolio.
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For information on Mesirow SIPC and Excess SIPC protection SIPCmesirow.pdf.
For those clients of LY& Co and other
interested persons the Quarterly Report on the routing of customer orders under
All future SEC Rule11Ac1-6 Quarterly reports may be found by visiting the diclosures at LY& Co Clearing Broker Mesirow Financial at:
Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you
our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.
A list of all recommendations made by Lemley Yarling Management Co. for the preceding one-year period is available upon request.
Summary of Business Continuity Plan