Washington in gridlock, the Fed acting responsibly, what's not to like?
Steve Cook on Disciplined Investing


Have You Seen This?


  • Make money by accessing all our Portfolios, the supporting research and Price Disciplines using our paid subscription blog, Strategic Stock Invetments. Our work is focused on making money for our Portfolios not as some academic exercise in Internet investing. Check our performance (audited)--our Dividend Growth Portfolio has beaten the S&P by 500 basis points per year for the last seven years but with a beta of only .62. (Mandatory Disclaimer: past performance is not a guarantee of future results.) We give you everything you need to duplicate our results, in particular, a strict price discipline for both Buying and Selling.

Have You Seen This?

The Market

    I gotta tell you at 8:15 yesterday morning with the dollar rising, the IMF announcement that it was going to sell $6 billion in gold, both jobless claims and the producer price index higher than expected, I thought that stocks and gold would get the crap kicked out of them.  Instead, the Averages (DJIA 10392, S&P 1106) rose, closing not only above the former support turned resistance level (10238, 1084) for the third day in a row but also above that minor resistance level I pointed to in yesterday’s Morning Call (10320, 1104).  The next area of resistance becomes the longer term down trend line off the October 2007 highs which now intersect at circa 10404 and 1108. At the close, the Averages remain within their trading range (9645-10725, 1109-1150.

    The other factors impacting stocks: volume was almost nonexistent, breadth was OK, the dollar ended the day unchanged (scoreboard: stocks up, gold up, oil up) and the VIX was down big but is still in a trading range.

    Bottom line: the more resistance levels stocks take out, the more confidence I have that the dominant trend is a trading range and the worse case low is the 9645, 1009 area.

    Sentiment indicator shifts to neutral (short):


    During Market hours most of the chatter was about the economic indicators released--three out of four of which were disappointing (jobless claims, leading economic indicators and producer prices).  So given the positive pin action, either investors were focused on other issues or the data was already reflected in equity prices.

    The real news came after the Market close: the Fed announced a 25 basis point increase in the discount rate (0.50% to 0.75%).  Three points:

(1)    it was only yesterday that I ragged on the Fed for continuing to yak up the tools available for its ‘exit’ strategy but giving no hint of the timing.  Well, they have started.  So count my criticism as premature if not misguided; and count this move as a positive, albeit very minor,

(2)    I say minor because almost no financial institution is currently using the discount window.  So basically the move is symbolic; and I would expect the next couple of moves to be similar, that is, the Fed will start reining in programs that were set up to combat the credit crisis but were either never used/needed or are no longer of much use/need.  It leaves open the question as to when the real tightening process will begin; and most of the smart guys I talk to think that is still aways away. Indeed the Fed emphasized in its statement that this was not a tightening move: ‘The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy . . .’  Nevertheless, symbols are important.  In this case, it represents a concrete first step--and that means investors are now on notice that other steps are coming.

(3)    having said that the discount rate increase is a positive but largely symbolic, the Markets sold off hard and the dollar was up big in after hours trading.  Clearly, somebody thinks that it is neither symbolic nor positive, although there is some likelihood that this trading was an over reaction in an illiquid market.  How ever Markets trade today, Angel I for one am pleased that the Fed has formally began the ‘exit’ process, Beer I think that in doing so it at least gives itself a chance to avoid the mistake that every other Fed has made following a recession--which is staying too easy for too long and that Coffee doing nothing was far more negative for stocks long term than doing something.

Bottom line: we now have Washington in gridlock and the Fed starting to exercise some monetary responsibility.  How can that be bad?

     Thoughts on Investing—Three Keys to Dividend Investing from Dividends4Life

    To ensure a retirement that is free from financial concerns, there are certain things that must be done today. For many people this is not a desirable task. However, building a secure future by investing in quality dividend stocks is neither complicated nor overly burdensome. Below are three simple keys that will help you to be a better investor:

I. Understand Your Goals

If you don’t know where you are going, how do you know when you get there? A large number of investors fail because they have no goals or investing convictions. Instead, they jump from one investing method to whatever is hot today. Before investing, you should clearly define what you are tying to accomplish, then determine your goals and desires. It is my goal to create an ever-increasing income from dividend stocks, while it is my desire to beat the S&P 500 index over the long-term.

II. Select the Right Stocks

It is our nature to want it now. In dividend investing this means high yields. Depending on the direction you chose in I. above, a portfolio of high yield stocks may not be the best means to help you accomplish your goals. Historically, high-yield stocks have been more prone to cut their dividends, so for me, they don’t align well with my goal of “ever-increasing income”. That is not to say I don’t hold some high-yield, high-risk income stocks, but they are not my core income holdings. Instead, I prefer to focus on stocks with a reasonable yield and a long history of consistently raising their dividends. Companies in this category include:

Abbott Laboratories (ABT) – [Analysis]
Yield: 3.02 | Dividend Growth: 8.4% | Consecutive Years of Increases: 37
Genuine Parts Co. (GPC) – [Analysis]
Yield: 4.25 | Dividend Growth: 2.6% | Consecutive Years of Increases: 53
Johnson & Johnson (JNJ) – [Analysis]
Yield: 3.07 | Dividend Growth: 7.5% | Consecutive Years of Increases: 47
The Coca-Cola Company (KO) – [Analysis]
Yield: 3.02 | Dividend Growth: 7.9% | Consecutive Years of Increases: 47
McDonald’s Corporation (MCD) – [Analysis]
Yield: 3.28 | Dividend Growth: 16.9% | Consecutive Years of Increases: 33
The Procter & Gamble Company (PG) – [Analysis]
Yield: 2.86 | Dividend Growth: 7.3% | Consecutive Years of Increases: 53
SYSCO Corporation (SYY) – [Analysis]
Yield: 3.50 | Dividend Growth: 4.2% | Consecutive Years of Increases: 39

III. Patience

The stock market does not travel in a straight line. There will be times it consistently goes down leaving you wondering if it will ever hit bottom. These are the times that many investors’ patience is tried. But for those with clear goals and confidence in their chosen strategy, they will find that these are the times that present the greatest opportunities.


   This Week’s Data

    January leading economic indicators rose 0.3% versus expectations of a 0.4% increase.

    The Philadelphia Fed’s index of general business conditions came in at 17.6 versus estimates of 15.0 and the January reading of 15.2.

    The January consumer price index rose 0.2% versus forecasts of up 0.3% while the core CPI fell 0.1% versus an anticipated increase of 0.1%.


    Thomas Hoenig, President of the Kansas City Fed, distills the alternatives that our government officials have to get us out of the current financial mess (long):

    An in depth look at yesterday’s unemployment number (short):

    The implications of yesterday’s producer price report on Fed policy (short):

    Update on the Fed’s balance sheet (medium):


For the morbidly curious amongst you, here is excerpts from the suicide note left by the guy who drove his plane into the Austin, TX IRS office (medium):

Posted 02-19-2010 8:29 AM by Steve Cook