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Steve Cook on Disciplined Investing

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Economics

   This Week’s Data

    The final second quarter gross domestic product came in down 0.7% versus expectations of down 1.2% and the prior number of down 1.0%; second quarter corporate  profits were off 19.2% on a year over year basis versus a decrease of 24.8% year over year at the end of the first quarter.

    The September Chicago purchasing managers index was reported at 46.1 versus estimates of 52.0 and a 50.0 reading in August.

    Weekly jobless claims rose 17,000 versus forecasts of a 7,000 increase.
    http://www.calculatedriskblog.com/2009/10/weekly-unemployment-claims-551000.html

    August personal income was up 0.2% better than expectations of up 0.1%; August consumer spending jumped 1.3% (due primarily to the successful cash-for-clunkers program) versus estimates of a 1.1% rise.

    The August personal consumption expenditure index (inflation) was up 0.1%; and the core PCE was unchanged.
   
   Other

    Growing protectionism (medium):
    http://www.forbes.com/2009/09/29/g20-trade-nhl-tires-obama-tariffs-opinions-columnists-thomas-f-cooley.html

    More of your tax dollars at work (long, but you should at least skim it):
    http://www.politico.com/news/stories/0909/27732.html

    The depressing math of unemployment (short):
    http://www.ritholtz.com/blog/2009/10/post-recession-employment-arithmetic/

    The latest statement on the Fed’s ‘exit’ strategy, this from Vice Chairman Donald Kohn (medium):
    http://www.ritholtz.com/blog/2009/09/central-bank-exit-policies/

    A look at the savings rate (graph):   
    http://www.businessinsider.com/chart-of-the-day-personal-saving-rate-2009-9

    Crude oil inventories (graph):
    http://bespokeinvest.typepad.com/bespoke/2009/09/crude-oil-inventories-continue-to-rise.html

Politics

  Domestic

As long time subscribers know, I railed constantly about the irresponsibility of W’s fiscal policy.  Regrettably, Obama makes him look like rank amateur  (medium):
http://www.american.com/archive/2009/september/making-bush-look-like-a-piker

    The latest cap and trade boondoggle:
    http://michellemalkin.com/2009/09/30/the-boxer-kerry-green-boondoggle/

    When you tax something, you get less of it (short):
    http://mjperry.blogspot.com/2009/09/500-million-of-missing-tax-revenue-from.html

  International War Against Radical Islam

    This from a democratic military advisor; and I agree completely.  Either force the Afghan government to meet a set of W-like Iraqi-type benchmarks as a price for continued US support or get out.  Otherwise we are staring at another Vietnam:
    http://www.slate.com/id/2231010

The Market
    
    Technical

    The Averages (DJIA 9712, S&P 1057) after a volatile day closed again within their up trend off the March lows (9365-11202, 1040-1272).  Volume picked up significantly while the VIX barely moved--though I should note that it is now in very short up trend (which is bad).

   Fundamental
   
    Pimco’s strategy for managing cash reserves (long, but you should at least skim it):
    http://www.pimco.com/LeftNav/Viewpoints/2009/Sept+Schneider-Reisz+Cash-Short+Term+QA.htm

      Headlines

    Economic data again dominated the news.  The Chicago purchasing managers index (see above) was a big disappointment.  Ordinarily investors look at this secondary indicator as interesting but not necessarily of great import; however, yesterday many appeared to be concerned that it presaged a poorer than anticipated Institute for Supply Management’s manufacturing index (a stat they do believe has import) this morning.  In addition, this worry trumped any positive impact of the second quarter GDP final number. 

    With the sell off following the PMI number, the bears had all they needed to break this Market lower.  But they couldn’t get it done.  Then when prices traded back into plus territory from being down triple digits, I thought that the bulls would push prices higher.  Wrong again. 

What’s going on? Investors are likely holding back making any large commitments in either direction ahead of third quarter earnings [and revenues].

          Two other items to keep in mind in the days ahead.  (1) the spat of negative economic news over the past two weeks suddenly has investors more uncertain about the recovery; and while it is still way too soon to be changing our forecast, you can count me among the ‘more uncertain’  (2) Obama is getting His first big test as commander-in-chief--the Iranian nuclear/missile program/problem--and investors may be growing nervous about the outcome.
    (Short): http://www.debka.com/headline.php?hid=6288





Posted 10-01-2009 8:25 AM by Steve Cook