Thursday, December 26, 2013

SUBSCRIBER ALERT
12/26/13


In their most recent review, Quality Systems (QSII) and Sun Hydraulics (SNHY) failed to meet the financial criteria for inclusion in the Aggressive Growth Universe.  Accordingly, at the Market open tomorrow, the Aggressive Growth Portfolio will Sell both of these positions.

Saturday, December 21, 2013

The Closing Bell

The Closing Bell

12/21/13

The Christmas Holidays are upon us.  We have family coming in for Christmas; then we leave to visit others afterward.  I am taking off though New Year’s week and will return January 6.  As always I stay close to the Markets; so if something happens that requires action, I will be in touch via Subscriber Alerts.

Statistical Summary

   Current Economic Forecast

           
            2013

Real Growth in Gross Domestic Product:                        +1.0-+2.0
                        Inflation (revised):                                                              1.5-2.5
Growth in Corporate Profits:                                   0-7%

            2014 estimates

                        Real Growth in Gross Domestic Product                       +1.5-+2.5
                        Inflation (revised)                                                             1.5-2.5
                        Corporate Profits                                                              5-10%

   Current Market Forecast
           
            Dow Jones Industrial Average

                                    Current Trend (revised):  
                                    Short Term Uptrend                               15584-20584
Intermediate Uptrend                              15584-20584
Long Term Trading Range                       5050-17400
                                               
                        2013    Year End Fair Value                                     11590-11610

                  2014    Year End Fair Value                                     11800-12000                                          

            Standard & Poor’s 500

                                    Current Trend (revised):
                                    Short Term Uptrend                          1758-1912
                                    Intermediate Term Uptrend                       1662-2243 
                                    Long Term Trading Range                         728-1900
                                                           
                        2013    Year End Fair Value                                      1430-1450

                        2014   Year End Fair Value                                       1470-1490         

Percentage Cash in Our Portfolios

Dividend Growth Portfolio                              43%
            High Yield Portfolio                                        46%
            Aggressive Growth Portfolio                           46%

Economics/Politics
           
The economy is a modest positive for Your Money.   This week’s economic data tilted to the plus side: positives---November housing starts, weekly retail sales, November industrial production, third quarter nonfarm productivity, third quarter GDP, November leading economic indicators and the October federal budget deficit; negatives---weekly mortgage and purchase applications, existing homes sales, weekly jobless claims, the December NY and Philly Fed manufacturing indices and third quarter corporate profits; neutral---the December Markit flash PMI and CPI/CPI ex food and energy. 

The big numbers to highlight this week were (1) November industrial production---points to good progress in a key economic sector, (2) the upward revised third quarter GDP---indicating continued growth in the overall economy, (3) the conflicting new and existing home sales---not a disaster but something to watch and (3) third quarter corporate profits---profits play a big role in stock valuation.  If they are starting to slip, that will likely be a problem for equities. 

Overall there was a generally positive data flow; so it keeps our forecast on track.  That said, there is nothing in these figures to suggest a stronger economy than reflected in our outlook:

a below average secular rate of recovery resulting from too much government spending, too much government debt to service, too much government regulation, a financial system with an impaired balance sheet. and a business community unwilling to hire and invest because the aforementioned along with...... the historic inability of the Fed to properly time the reversal of a vastly over expansive  monetary policy.
                       

        The pluses:

(1)   our improving energy picture.  The US is awash in cheap, clean burning natural gas.... In addition to making home heating more affordable, low cost, abundant energy serves to draw those manufacturers back to the US who are facing rising foreign labor costs and relying on energy resources that carry negative political risks.
           
       The negatives:

(1) a vulnerable global banking system.  It’s Christmas, so I am going to include some goods news in this section---don’t think that it is going to last.

EU bank balance sheets are improving (medium)

‘My concern here.....that: [a] investors ultimately lose confidence in our financial institutions and refuse to invest in America and [b] the recent scandals are simply signs that our banks are not as sound and well managed as we have been led to believe and, hence, are highly vulnerable to future shocks, particularly a collapse of the EU financial system.’

(2)   fiscal policy.  The new budget proposal has been passed by both the house and the senate.  All that is left is Obama’s signature.  The good news is that [a] investors/the electorate won’t have to endure another shutdown threat for two years and [b] the increased spending could act as a stimulus short term. 

The bad news is the loss of what fiscal discipline our ruling class had for what amounted to an all too short period of time.  I know; I have heard all the political commentary on how Ryan saved the GOP, how the focus will now be on Obamacare in 2014, how that will result in a republican majority in the senate and how that will lead back to fiscal discipline.  It may turn out that way; but I will believe it when it happens and not a nanosecond before.

All of which ignores the 900 pound gorilla in the government expenditure room---Obamacare.  This thing is perhaps the greatest governmental administrative clusterf**k in history; and unfortunately, it is the electorate that will pay in both human and dollar terms.  I suspect that this law will eventually implode based on its unworkability.  What it costs you and I before that occurs is the question. 

(3)   the potential negative impact of central bank money printing:  The key point here is that [a] the Fed has inflated bank reserves far beyond any comparable level in history and [b] while this hasn’t been an economic problem to date, {i} it still has to withdraw all those reserves from the system without creating any disruptions---a task that I regularly point out it has proven inept at in the past and {ii} it has created or is creating asset bubbles in the stock market as well as in the auto, student and mortgage loan markets. 

Well, the Ber-nank did it.  Give him credit.  Sure it was tapering for pussies; and yes, the Fed appears intent on keeping interest rates abnormally low for your and my lifetimes.  But it is a start.

On the economic side, the issue which I have held front and center throughout QE Infinity now becomes paramount: can the Fed successfully transition from easy to tight money without bungling the process---which it has done at every other such juncture in its history? 

Despite my congenital cynicism, I am open to the Fed being successful.  Indeed, I hope that is the case for all of our economic sakes.  And frankly, increasing the odds of that happening is the fact that QEInfinity [except for QEI] had little impact on economic activity.  It is not unreasonable to argue that if it didn’t distort economic activity on the way up, why should it have an impact being unwound?  In the end, though, history says that there will be problems.

As far as the Markets go, it is a different story.   This is where QE was been felt the most---in the run up of asset prices everywhere.  So I feel much more comfortable assuming that at some point, the Markets will have to pay the price for the Fed’s monetary experiment. 

I recognize that the initial reaction was upbeat.  On the other hand, a good start does not mean a good finish---just ask Tony Romo.  So the opportunity remains that the Fed will muck this transition up just as it has all of its predecessors.

My task is to watch with an open mind.

 (4) a blow up in the Middle East.  The latest news is that Iran may be coming back to the negotiating table---though there is no clue why.  If it is the tough stance by John ‘the hammer’ Kerry, then this is likely good news.  If it because we gave away the ranch in behind the scenes negotiations, then this will be just another feel good exercise by our political class that gives Obama some good news to offset the disaster that is Obamacare; and in the process will raise the paranoia level of Israel and most of the sunni muslim powers injecting more not less instability into the region.

(5)   finally, the sovereign and bank debt crisis in Europe.  The economic news out of Europe remained mixed this week.  My hope is that Europe is recovering in the same fashion as the US---slowly, fitfully but on a sustained basis.  That would allow our ‘muddle through’ scenario to remain in tact. 

And:

S&P lowers EU credit rating (medium):

Bottom line:  the economy continues to click along nicely.  It will likely be helped at the margin by the new budget agreement; though as you know, I think the deal is a negative for the long term as it represents the continuing inability of our ruling class to come to grips with fiscal discipline.

The fact that the Fed did anything with respect to terminating its abdominal monetary policy also is a positive.  However, I really don’t view it as much of an effort to transition to a more sound policy.  While I was clearly wrong on the timing of tapering, there remains much more important issues like (1) will the Fed really prove effective in unwinding QE without causing economic disruptions? and (2) how will the Markets handle tapering for pussies under conditions of extreme valuation?

There was little out of Europe this week to alter our outlook which remains that it will ‘muddle through’.

This week’s data:

(1)                                  housing: weekly mortgage and purchase applications were down; November housing starts soared though existing home sales were a disappointment,

(2)                                  consumer:  weekly retail sales were up; weekly jobless claims rose more than expected,

(3)                                  industry: November industrial production was stronger than expected; the December Markit flash PMI was roughly in line; the December NY and Philly Fed manufacturing indices were well below estimates,

(4)                                  macroeconomic: third quarter nonfarm productivity was up more than anticipated while unit labor costs were negative; November leading economic indicators were better than expected; third quarter GDP grew more than thought, though corporate profits came up short; November CPI was flat, ex food and energy, it was higher than consensus; the October federal budget was lowered than forecasts.

The Market-Disciplined Investing
           
  Technical

The indices (DJIA 16221, S&P 1818) finished the week on a strong note, closing within uptrends along all timeframes: short term (15842-20584, 1758-1912), intermediate term (15584-20584, 1662-2243) and long term (5050-17400, 728-1900).

Volume on Friday was huge as a result of option expiration; breadth improved considerably---though overall it remains negative.  This notion is supported by the latest dismal reading of our internal indicator.  The VIX was down, ending within its short term trading range and intermediate term downtrend.   It continues to provide no guidance on Market direction. 

The long Treasury was up, finishing well within a short term trading range and an intermediate term downtrend and continuing to build a head and shoulders formation.

GLD bounced off the lower boundary of its long term trading range, though it remained within its short and intermediate term downtrends.  Despite a sick looking chart, that fact that GLD couldn’t successfully challenge its long term trading range is a positive.  I am once again seriously considering starting to re-build this holding.

Bottom line:  all trends of both indices are up.  True, trading has been a bit more erratic lately but I continue to believe that the seasonal bias will drive equity prices towards the upper boundaries of the Averages long term uptrends (17400/1900).  If that is the case and the downside is simply Fair Value (11600/1440), then the risk reward from current levels is not all the attractive.

If one of our stocks trades into its Sell Half Range, our Portfolios will act accordingly.

               
   Fundamental-A Dividend Growth Investment Strategy

The DJIA (16221) finished this week about 39.8% above Fair Value (11600) while the S&P (1818) closed 26.2% overvalued (1440).  Incorporated in that ‘Fair Value’ judgment is some sort of half assed attempt at getting fiscal policy under control, a botched Fed transition from easy to tight money, a historically low long term secular growth rate of the economy and a ‘muddle through’ scenario in Europe.

The economy continues to track our forecast.  It will get a little short term help from slightly more government spending.  That said the problem of too much spending, too high taxes, too much regulation that has plagued investors for over a decade is not going away. 

The GOP can argue all it wants that its budget compromise sets the stage for the recapture of the senate and white house which will lead to a new fiscal nirvana.  I suspect that is bulls**t even assuming they can accomplish those election goals.  Of course, at the moment, it is irrelevant because they control neither.  So until they (1) succeed in their electoral goals and (2) prove that as a party, they have found fiscal religion [2017], we are stuck with the current bunch of irresponsible liars, thieves and whores of the moneyed interests and with them, the prospect of an ever growing federal debt and burdensome regulatory environment.

Tapering for pussies not withstanding, I believe that the wild card in the Market future remains QEInfinity.  To be sure, the fact that the Fed has started a transition to tighter money is a positive in the sense that it marks the beginning of the end.  Unfortunately, given its tentativeness and the expectation that the Fed could still be tapering when my six year grandchild goes to college, I am not looking at this a solid attempt at normalizing monetary policy.

Hence, all the old issues associated with an unwinding of QE remain: what happens when, as and if the transition gets serious, what happens if the Fed never gets serious, how long will the Markets accept ever more government paper without demanding a higher risk premium.

I don’t know the answer to those questions although history gives us a hint---and the consequences are not positive.

Bottom line: the assumptions in our Economic Model haven’t changed; and like the budget deal and the new Volcker Rule last week, tapering for pussies assures us that things aren’t likely to get dramatically better. 

The assumptions in our Valuation Model have not changed either.  I remain confident in the Fair Values calculated---meaning that stocks are overvalued.  So our Portfolios maintain their above average cash position.  Any move to higher levels would encourage more trimming of their equity positions.
   
That said, 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.
 
          This week our Portfolios did nothing.
       
DJIA                                                    S&P

Current 2013 Year End Fair Value*                11600                                            1440
Fair Value as of 12/31/13                                 11600                                                  1440
Close this week                                                16221                                                  1818

Over Valuation vs. 12/31 Close
              5% overvalued                                 12180                                                    1512
            10% overvalued                                 12760                                                   1606 
            15% overvalued                                  13340                                                  1656
            20% overvalued                                 13920                                                    1728   
            25% overvalued                                   14500                                                  1800   
            30% overvalued                                   15080                                                  1872
            35% overvalued                                   15660                                                  1944
            40% overvalued                                   16240                                                  2016
           
Under Valuation vs.12/31 Close
            5% undervalued                             11020                                                      1368
10%undervalued                                  10440                                                  1296   
15%undervalued                             9860                                                    1224

* Just a reminder that the Year End Fair Value number is based on the long term secular growth of the earning power of productive capacity of the US economy not the near term   cyclical influences.  The model is now accounting for somewhat below average secular growth for the next 3 to 5 years with somewhat higher inflation. 

The Portfolios and Buy Lists are up to date.


Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973.  His 40 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns,  managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies.  Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.








Friday, December 20, 2013

Morning Journal--Household debt starting to rise again

  News on Stocks in Our Portfolios
·                                
Nike beats by $0.01, misses on revenues
o                                                        Nike (NKE): FQ2 EPS of $0.59 beats by $0.01.
o                                                        Revenue of $6.43B (+8% Y/Y) misses by $0.01B.
|4:16 PM|
 
Economics

   This Week’s Data

            The December Philadelphia Fed manufacturing index came in at 7.0 versus expectations of 10.0.

            November existing home sales fell 4.2% versus estimates of a 1.9% decline.

            November leading economic indicators rose 0.8% versus forecasts of +0.7%

            Revised third quarter GDP came in at +4.1% versus consensus of +3.6%; the GDP price deflator was +2.0%, in line; corporate profits were up 5.6% versus the prior reading of +5.8%.

   Other

            Household debt has started to increase (short but a must read):

            Update on who pays taxes and how much (medium):


The Morning Call---No follow through

The Morning Call

12/20/13

The Market
           
    Technical

            After a raucous day on Wednesday, the indices (DJIA 16179, S&P 1809) took yet another break yesterday.  I think that this lack of follow through is a sign of growing uncertainty/lack of firm conviction/increased schizophrenia among investors; and it is somewhat indicative of the pin action over the last month or so: it looks like stocks are signaling a move up/down, then nothing or just the opposite happens. 

In this latest instance, while I was surprised at the Market’s aggressive response to the Fed’s new tapering for pussies policy, I just assumed that I was wrong (not the first time) and stocks would be off for a run at 17400/1900.  Instead, they snoozed. True our internal indicator was rotten; but it hasn’t been upbeat for most of the year and the Averages just kept climbing.

            I am not angling for a firm conclusion here; I am saying that the Market action is confused and uncertain, that it could break either direction, I just don’t know which.  Meanwhile, the indices remain tucked nicely within uptrends along all major timeframes: short term (15566-20566, 1757-1911), intermediate term (15566-20566, 1660-2241) and long term (5050-17400, 728-1900).

            Volume fell, breadth deteriorated much more than the pin action would suggest.  The VIX rallied, remaining within its short term trading range and intermediate term downtrend but continuing to be of little value in discerning Market direction.

            The long Treasury fell again---not all that surprising given that some token tapering is about to start.  It finished within its short term trading range and intermediate term downtrend and is still building a head and shoulders formation.

            GLD was whacked big time, closing right on the lower boundary of its long term trading range.  As I have noted several time, how it handles this support level should say a lot about future direction.

Bottom line:  yesterday’s sleep fest notwithstanding, I still think that seasonal factors provide a better than even chance of the indices challenging the 17400/1900 level.  However, I will continue to use any advance as an opportunity for our Portfolios to take advantage of our Sell Price Discipline.

            The latest from the Stock Traders Almanac (short):

    Fundamental
    
     Headlines

            Yesterday’s US economic data didn’t make for all that good a reading: weekly jobless claims rose versus an expected decline, the December Philly Fed manufacturing index was lite of estimates and November existing home sales were not good.  Keeping the day from being a total bummer was November leading economic indicators which were above consensus.

            International news didn’t help: Chinese rates are spiking prompting the Bank of China to ease monetary conditions.  ***that continued over night

            As bad as the above sounds, it comes after a string of upbeat datapoints.  So I see nothing to worry about at this point.  Strangely, if investors were really as jazzed about the almost imperceptible change of direction in Fed policy as Wednesday’s pin action implied, then a couple of lousy stats should have made them all that more jiggy.  Nothing.

Bottom line: Market reaction to tapering appears to have come and gone.  That leaves the questions; (1) will the Fed prove effective in unwinding QE without causing economic disruptions?  (2) will it even matter to the Markets if current overvaluations persist or get more extreme?  The answers to those questions will likely play a major role in shaping the Market over the next 18-24 months.

 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.

            The Fed’s economic projections: myth versus reality (medium):

            Fed balance sheet hits $4 trillion (short):

            More from Doug Kass (medium):

            Corporate earnings projections declining (short):

     Subscriber Alert


            The stock price of South Jersey Industries (SJI) has traded below the lower boundary of its Buy Value Range but remains well above its Stop Loss Price.  Therefore, SJI is being Removed from the Dividend Growth Buy List, but the Dividend Growth Portfolio will continue to Hold it.



Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.

Thursday, December 19, 2013

Sysco (SYY) 2013 Review

Sysco Corp markets and distributes fresh, frozen and specialty meats, seafood, poultry, fruits and vegetables, bakery products, canned and dry foods, dairy foods, beverages, kitchen and tabletop equipment, paper and disposable products, sanitation items and hotel operating supplies to more than 400,000 restaurants, healthcare and educational facilities, lodging establishments and other food service customers.  It achieved a 9-13% growth in profits and dividends over the last 10 years earning an almost 25%+ return on equity.  The current period of slow economic growth has impacted Sysco’s profitability as restaurant sales declined and bad debt expenses increased.  The company is working to return to an above average growth rate by:

(1) stringent cost controls,

(2) the conversion to new state of the art plants improves operations [margins],

(3) acquisitions,

(4) share buybacks. 

Negatives:

(1) industry pricing pressures,

(2) economic headwinds.

SYY is rated A+ by Value Line, carries a 34% debt to equity ratio and its stock yields 3.5%

     Statistical Summary

                 Stock      Dividend         Payout      # Increases  
                 Yield      Growth Rate     Ratio       Since 2003

SYY          3.5%            8%             54%             10
Ind Ave      2.1               5                35               NA 

                Debt/                       EPS Down       Net        Value Line
                Equity         ROE      Since 2003      Margin       Rating

SYY          34%           22%            4                 3%           A+
Ind Ave      38              15             NA               3              NA

     Chart

            Note: SYY stock made good progress off its March 2009 low, quickly surpassing the downtrend off its September 2008 high (red line) and the November 2008 trading high (green line).  Long term SYY is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines).  The wiggly blue line is on balance volume.  The High Yield Portfolio owns a 50% position in SYY.  The upper boundary of its Buy Value Range is $27; the lower boundary of its Sell Half Range is $42.




12/13

Morning Journal--What Uncle Sam got you for Christmas

News on Stocks in Our Portfolios
·                                 Accenture (ACN): FQ1 EPS of $1.15 beats by $0.05.
·                                 Revenue of $7.4B beats by $0.15B.
o                                                        Oracle (ORCL): FQ2 EPS of $0.69 beats by $0.02.
o                                                        Revenue of $9.3B (+2% Y/Y) beats by $0.11B. Shares +2.3% 
 |4:06 PM|

      Paychex (PAYX): FQ2 EPS of $0.43 beats by $0.01.
o                                                        Revenue of $610.5M (+7% Y/Y) beats by $11.61M.
 |4:02
Economics

   This Week’s Data

            Weekly jobless claims rose 10,000 versus expectations of a 31,000 decline.

   Other

            Another soft patch ahead (short):

Politics

  Domestic

What the government got you for Christmas (short):

The Morning Call--A masterful bit of finesse

The Morning Call

12/19/13

The Market
           
    Technical

            So much for that very short term downtrend---gone.  The indices (DJIA 16167, S&P 1810) rallied mightily, closing near their former highs and within uptrends along all major timeframes: short term (15566-20566, 1756-1910), intermediate term (15566-20566, 1660-2241) and long term (5050-17400, 728-1900).

            Volume rose (modestly); breadth improved though the flow of funds and on balance volume indicators saw little of it.  The VIX dropped 14% but remained well within its short term trading range and intermediate term downtrend.

I ran another check of our internal indicator.  In a universe of 149 stocks, 19 finished the day at the proximate level of their all time highs (in line with the Averages), 21 closed above their former highs while 109 remain noticeably below their recent highs. To say that this is a significant divergence would be an understatement and, at least as of yesterday’s close, doesn’t suggest a strong follow through.

The long Treasury fell slightly, indicating that the bond guys were not nearly as emotional about the day’s events as the stock boys.  It closed within a short term trading range and an intermediate term downtrend and continues to build a head and shoulders formation.

GLD declined, leaving it within short and intermediate term downtrends and nearing the lower boundary of its long term trading range.  As long as it holds this level, all is not lost; but there is little else about which to be happy.

Bottom line:  investors have to be overjoyed with yesterday’s price performance; and I am sure are anticipating even better times to come.   As you know, I have opined that there is a better than even chance of the indices challenging the 17400/1900 level.  Given yesterday’s bombastic pin action, the question is, should I raise those objectives and give myself a little more room?  Not at the moment at least. One day does not a trend make; so follow through remains a key; and our internal indicator actually supports the notion of a limited follow through/upside.  So I am sticking with my targets and will continue to use any advance as an opportunity for our Portfolios to take advantage of our Sell Price Discipline.
      
    Fundamental
    
     Headlines

            Yesterday’s economic news was mixed: weekly mortgage and purchase applications were down while November housing starts were gangbusters.  Overseas, UK unemployment hit a four and a half year low.

            ***overnight, the senate passed the new budget and Chinese interest rates spiked causing the Bank of China to ease liquidity conditions.

            Of course, none of that is relevant because the big news of the day was the Fed’s decision to start tapering---which it did in a masterful way: (1) it was tapering for pussies, i.e. it is only reducing its bond buying by $10 billion per month [so it is still buying $75 billion a month] and (2) it loosened up its guidelines for when any rise in the Fed Funds rate might occur.  So it took away a tiny bit of liquidity with one hand and offered an expended vista of lower interest rates with the other.  My hat is off to the Ber-nank for this finesse move.  Clearly, the stock jockeys agreed, though the rest of the Market [bonds, commodities] seemed relatively unimpressed.

            This makes me wrong on the call that the Fed wouldn’t taper in December if ever; but that is a lesser issue than:

(1)     am I wrong that the Fed will botch the transition? Has the Fed [Bernanke] really figured out how to make the transition from easy to tight money?  To be sure, one day of investor approval is not a sign of long term success; but it does raise the point: will this time be different?  I hate the very concept of ‘this time is different’ especially when there exists so many examples of the Fed’s inability to manage a transition properly.  Still, the issue is now before us and we must pay attention and allow for the possibility.  That is not the same thing as betting money on it at this early date.  But it is being prepared to be open minded and flexible.

(2)     am I wrong that either tapering will prompt a severe reaction from the Markets or that, sooner or later, the Markets will refuse to go along with a molasses like transition process?  Yesterday’s pin action notwithstanding, again, way too soon the make that call.  But let’s assume that I am wrong that the tapering process will be the catalyst that prompts investors to make a more realistic assessment on valuation---that doesn’t mean that some other event or series of events won’t.   As I noted previously, stocks can remain overvalued for a period of time until some event slaps investors ‘up side the head’.

(3)     finally, I should point out that even if [a] the Fed has figured out how to transition to a normalized monetary policy and, hence, avoid the negative economic consequences of either a too rapid or to slow transition to tighter money and [b] investors retain complete faith in Fed policy, they are only tangentially related to current overvaluation in stocks.  Stocks are overvalued based on historical relationships between price and trailing earnings, price and sales, price and book value and all the other valuation measures that I reference time and again on these pages.  The fact that the Fed won’t screw the pooch and make those valuation measures appear even worse, doesn’t keep them from being out of line today anyway.

Bottom line: clearly, I was wrong that the Fed wouldn’t start tapering, though I give myself some style points based on the lack of muscle in the taper and the fact that Bernanke suggested interest rates could stay low for my lifetime.  Nonetheless, a start has been made.  The questions are; (1) will it prove effective in unwinding QE without causing economic disruptions? [way too soon to know], (2) will it even matter to the Markets if current overvaluations persist or get more extreme? [this won’t continue indefinitely].

 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.

            Goldman’s take on the Fed action (medium):

            Hilsenrath’s take (medium):

            The key points and projections from the FOMC statement (short):

            Tapering versus tightening (medium):
                       
            Is this move a ‘feeler’? (short):

            What we learned (medium):

                What happened the last time a major central bank tapered (medium):

       Investing for Survival

6 retirement myths you should ignore (medium):

            The latest from Doug Kass (medium):




Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.