An Analysis of Daily Events that Impact Your Money
Wednesday, July 2, 2014
Morning Journal--Canada tells Obama to 'stick it' on Keystone pipeline
News on Stocks in Our Portfolios
o
Paychex (PAYX):
FQ4 EPS of $0.40 beats by $0.01.
o
Revenue of $628.8M (+7.4% Y/Y) beats
by $11.45M.
Economics
This Week’s Data
The
International Council of Shopping Centers reported weekly sales of major
retailers up 1.0% versus the prior week and up 4.6% on a year over year basis;
Redbook Research reported month to date retail chain store sales down 1.7%
versus last month but up 3.1% versus the comparable period a year ago.
The
June Markit PMI came in at 57.3 versus expectations of 57.0.
The
June ISM manufacturing index was reported at 55.3 versus estimates of 55.6.
May
construction spending rose 0.1% versus forecasts of up 0.5%.
Weekly
mortgage applications fell 0.2% while purchase applications were down 1.0%.
The
June ADP private payrolls reported job growth of 281,000 versus consensus of
213,000.
Other
Goldman’s
global leading economic indicator falls in June (short):
Politics
Domestic
International
Canada
tells Obama to ‘stick it’ on Keystone pipeline (medium):
Don’t
be fooled by the ‘help’ the EU is providing Ukraine (10 minute video):
Latest
from Iraq (medium):
The Morning Call--Higher and higher
The Morning Call
7/2/14
The Market
Technical
Everything was
coming up roses yesterday as the indices (DJIA 16956, S&P 1973) moved up to
within smelling distance of the upper boundaries of their long term uptrends. They remain above their 50 day moving
averages and within uptrends across all time frames: short (16145-17624,
1895-2062), intermediate (16416-20781, 1835-2635) and long (5081-18193,
757-1974).
Volume was down;
breadth was up slightly. The VIX fell,
finishing below its 50 day moving average and within very short, short term and
intermediate term downtrends.
The long
Treasury plunged, closing back below the lower boundary of its short term
uptrend. That re-starts the clock on our
time and distance discipline. It also
means that TLT just made a lower high.
While it is still above its 50 day moving average, the chart remains
confusing and with yesterday’s pin action has become a bit more negative.
GLD was off
fractionally, though it remained above last week’s trading range and its 50 day
moving average. It is in a short term
trading range and an intermediate term downtrend.
Bottom line: the
Averages are on the doorstep of the upper boundaries of their long term
uptrends; and nothing appears to stand in the way of more upside. The question now is, will they be able to
confirm the break above those boundaries? Further, can they take out those
‘round’ numbers (17000/2000)? Momentum
says yes; multiple divergences says no.
The bond and gold markets are still struggling to confirm the scenario
that has equity investors so pleased---better economic growth but with an easy
Fed.
If the bond and
gold markets confirm the aforementioned outlook, our ETF Portfolio will likely
lighten up on its bond position and all Portfolios will start adding to
GLD. I would much rather own GLD which
is near a four year price low than stocks that are near or at all time highs.
As far as stocks are concerned, our strategy
remains to do nothing save taking advantage of the current momentum to lighten
up on stocks whose prices are pushed into their Sell Half Range or whose
underlying company’s fundamentals have deteriorated.
Fundamental
Headlines
Yesterday’
US economic news was indecisive: the June Markit PMI was slightly better than
expected, weekly retail sales were mixed, the June ISM manufacturing index was
a little below estimates and May construction spending was well below
forecasts. Nothing noteworthy.
Overseas,
the economic news was also balanced: Chinese PMI came in higher than anticipated,
Japanese PMI lower.
Bottom line:
with the indices approaching long term trend highs as well as psychologically
big ‘round’ numbers, the Market itself is the headline. Until we get some major unexpected
economic/political/military event, this scenario is not apt to change. What
could that event be? I don’t know; but
at the moment, I believe that it more likely to be negative than positive. How much longer can this advance last? I don’t
know; but statistically this market is very mature. How far can it go? I don’t that either; but
how much further can it go when it is already at all-time valuation highs.
As I noted
above, if equity investors euphoria about growth and easy money are confirmed
by the bond and gold markets, our Portfolios will likely add GLD which I think
has a much better risk/reward ratio than stocks.
My
bottom line is that for current prices to hold, it requires a perfect outcome
to the numerous problems facing the US and global economies AND investor
willingness to accept the compression of future potential returns into current
prices.
I can’t emphasize strongly enough that I
believe that the key investment strategy today is to take advantage of the
current high prices to sell any stock that has been a disappointment or no
longer fits your investment criteria and to trim the holding of any stock that
has doubled or more in price.
Bear
in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and
their cash position is a function of individual stocks either hitting their
Sell Half Prices or their underlying company failing to meet the requisite
minimum financial criteria needed for inclusion in our Universe.
It
is a cautionary note not to chase this rally.
Update
on Market valuation (short):
David
Rosenberg on the Fed (medium):
Optimism
bias (short):
Tuesday, July 1, 2014
Kimberly Clark (KMB) 2014 Review
Kimberly Clark
develops, manufactures and markets personal care products (Huggies, Pull Ups,
Little Swimmers, Goodnights, Kotex, Depends, Kleenex, Scott, Cottonelle tissue,
Viva paper towels, workplace health products [soaps, sanitizers, etc.] and
healthcare products). KMB has
grown its profits and dividends at a 4-10% annual rate over the past 10 years
earning an amazing 30%+ rate of return on equity. As with many of our companies, Kimberly has
had a rough go of it in 2008-2011 as customers ‘traded down’ to generic
brands. However, the company has seen improvement
in its bottom line which should continue as a result of:
(1) significant
cost cutting as well as better supply chain management,
(2) expansion
into emerging markets,
(3) new product
innovation,
(4) a significant
stock buyback program.
Negatives:
(1) volatile
commodity prices,
(2)
macro-economic uncertainty.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2004
Ind Ave 2.3 10 49 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2004 Margin Rating
Ind Ave 48 16 NA 8 NA
Chart
Note:
KMB stock made great progress off its March 2009 low, quickly surpassing the downtrend
of its June 2007 high (straight red line) and the November 2008 trading high
(green line). Long term it is in an
uptrend (blue lines). Intermediate term,
it is in an uptrend (purple lines). The
wiggly red line is the 50 day moving average.
The High Yield Portfolio owns a 50% in KMB, having Sold Half of its
holding at around $85 per share in early 2013.
The upper boundary of its Buy Value Range is $54; the lower boundary of
its Sell Half Range is $93.
7/14
Morning Journal--Income inequality and poverty
Economics
This Week’s Data
The
June Chicago PMI came in at 62.4 versus expectations of 64.0.
May
pending home sales were up 6.1% versus estimates of up 1.0%.
The
June Dallas Fed manufacturing index was reported at 11.4 versus 8.0 recorded in
May.
Other
Income
inequality and poverty (medium):
The
Affordable Care Act and economic growth (short):
Politics
Domestic
The Supreme
Court deals Obamacare a setback (medium):
And
some thoughts (short):
International
The
latest from Iraq (medium):
The
latest from Ukraine (short):
The Morning Call---The pin action in bonds and gold confuse the picture
The Morning Call
7/1/14
The Market
Technical
The
indices (DJIA 16826, S&P 1960) had a ho hum (slightly down) end-of-the-quarter
day, though they closed up above their 50 day moving averages and within
uptrends across all time frames: short (16145-17624, 1895-2062), intermediate
(16379-20744, 1835-2635) and long (5081-18193, 757-1974).
Volume
fell; breadth weakened. The VIX rose but
remained within very short term, short term and intermediate term downtrends
and below its 50 day moving average. Its
performance reflects investors continued complacency with respect to the
Market.
The
long Treasury advanced remaining above the lower boundary of its short term
uptrend---part of a strong bounce beginning the day after the confirmation of a
break of that trend. Despite the fact
that the break was technically confirmed, because of the sharp rebound, I am
leaving the short term trend in effect with the caveat that the TLT chart
remains somewhat confusing. As I noted
yesterday, a move above the 115 level would do a lot to establish the validity
of the uptrend. However, that hasn’t
happened as yet. The uncertainty generated
by a cloudy chart pattern aside, the disconcerting part is trying to figure out
what the bond market is trying to tell us fundamentally, to wit, if bond prices
are suggesting economic weakness and disinflation then that directly
contradicts the opinion of the preponderance of the mainstream economists as
well as the current pin action in GLD.
Speaking
of which, GLD had a good day and appears to have pushed above last week’s trading
range. That provides some assurance that
the short term trend has indeed re-set from a downtrend and suggests that more
inflation is in the cards.
As I noted
Monday, for the sake of continued confidence in (1) our economic scenario and
(2) our current or potential investments in bonds and gold, I would really like
for them either to be in sync or for a scenario to advance that would explain
why they aren’t. For the moment, I
remain uncertain.
Bottom line: the
Averages continue to perform splendidly though the same can’t be said for the
rest of the Market, plagued as it is by miserable volume and multiple
divergences. Whether or not stocks in
general can re-sync with the indices is the $64,000 question right now. That said, the momentum in the Averages seems
to be sufficient to push them to the upper boundaries of their long term
uptrends if not the next set of ‘round numbers’ (Dow 17,000/S&P 2000).
Our strategy remains to do nothing save taking
advantage of the current momentum to lighten up on stocks whose prices are
pushed into their Sell Half Range or whose underlying company’s fundamentals
have deteriorated.
Update
on sentiment (medium):
Fundamental
Headlines
On
the economic news front, we got three secondary US stats yesterday: (1) June
Chicago PMI fell short of expectations and (2-3) May pending home sales and the
Dallas June manufacturing index both of which were better than
anticipated. There is not a lot of news
value in this information; certainly nothing to make us question our outlook.
The
only other economic news was a $9 billion (no misprint) fine imposed on and a
guilty plea entered by BNP Paribas for financial dealings with sanctioned
nations (Sudan, Syria, Iran). In other
words, yet another example of bankster malfeasance. Incidentally and not to state the obvious, $9
billion is a substantial chunk of change.
BNP has only reserved $1 billion for this settlement; so this fine will
do some damage to its balance sheet---again providing an example of why I am
concerned about the real financial strength of the ‘too big to fail’ banks.
***overnight,
Chinese PMI was in line but housing prices are falling and Japanese PMI missed
estimates.
Bottom line: while
the indices continue sanguine about the economic outlook, the bond and gold
markets appear to be a bit more circumspect.
Not that the Fed won’t extricate itself and the economy sans pain from
the greatest monetary experiment (gamble) in modern times; not that fiscal,
regulatory policies will remain headwinds to growth; not that Japan and China
won’t get their economies under control or the ECB won’t be successful in pursuing
a policy already proven wrong; and not that our feckless foreign policy won’t
end with a military or economic/energy problem that harm our own growth.
None of this may
occur; but given the current generous valuation of equities, I am in the camp
of the bond and gold investors who appear to taking a more cautious
approach.
My
bottom line is that for current prices to hold, it requires a perfect outcome
to the numerous problems facing the US and global economies AND investor
willingness to accept the compression of future potential returns into current
prices.
I can’t emphasize strongly enough that I
believe that the key investment strategy today is to take advantage of the
current high prices to sell any stock that has been a disappointment or no
longer fits your investment criteria and to trim the holding of any stock that
has doubled or more in price.
Bear
in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and
their cash position is a function of individual stocks either hitting their
Sell Half Prices or their underlying company failing to meet the requisite
minimum financial criteria needed for inclusion in our Universe.
It
is a cautionary note not to chase this rally.
Henry
Blodget on ‘it’s different this time’ (medium):
The
latest from John Hussman (medium):
Fed
executes record reverse repos on quarter close (short):
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