It's taking every bit of will power I have not to buy
Steve Cook on Disciplined Investing

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Have You Seen This?


The Market
    
    Technical

    The indices (DJIA 10969, S&P 1186) turned in a mixed performance yesterday but remain well within their up trends off the March 2009 lows (10555-13045, 1127-1451).  Additional resistance exists at 1181, 1311, support at 10725, 1150.

    Volume picked up a bit, but is still anemic; breadth worsened; the dollar rebounded as the charts suggested it would (scoreboard: stocks mixed, gold up, oil up); the VIX fell below its former support level.

    Bottom line: stocks tried to correct yesterday but couldn’t get it done.  I want a test but the charts look like the Averages just started another leg up.

    On the other hand, here is a great chart of the history of advances over 40 days long (we are now at 42) without a 1% of greater correction:
    http://www.investmentpostcards.com/2010/04/07/does-anybody-remember-what-a-stock-market-correction-looks-like/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    Pricing of oil versus gold (chart):
    http://www.businessinsider.com/chart-of-the-day-oil-barrels-per-an-ounce-of-gold-2010-4?utm_source=Triggermail&utm_medium=email&utm_campaign=CS_COTD_040610

   Fundamental
       
    Headlines

    I was impressed by the strength in the weekly retail sales numbers released yesterday (see below), notwithstanding the month over month fall in the Redbook Research report.  Given the other stats, this looked like some sort of outlier to me.  The data portrays a consumer that is starting to accelerate their rate of spending money which in turn suggests to me that the strength we are seeing in the industrial sector isn’t just going to be inventory building.

    This survey of world business confidence is another indication that this recovery is stronger than I had expected (short):
    http://www.investmentpostcards.com/2010/04/07/global-business-sentiment-back-to-pre-recession-levels/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    The Fed released the minutes from the FOMC’s March 16 meeting.  The general tone was pretty dovish which is to say that there was no hint of tightening.  As you might suspect that is not only a disappointment to me (more of same bureaucratic/political lack of discipline) but a bit surprising given the recent strength of the data (I guess they think it important to keep giving the banks free money to invest in 3%+ Treasury notes so that they can crank up profits and pay bigger bonuses).  However, as you also know, I think that the Market is going to impose the discipline anyway (indeed is already in the process of doing so); and it could do so quicker and with more force than if the Fed had sounded more hawkish on monetary policy.

    Bottom line: I can continue to pay very close attention to our cash equivalent holdings with an eye to Sell when technical weakness becomes manifest.  In addition, I am working on an upward adjustment to our 2010 economic forecast.  That in turn will result in an upward adjustment in 2010 Fair Value.

    However, please remember that in doing so, I am simply accelerating the pace at which growth tops out at a below average long term secular rate.  Nothing has changed in our long term forecast.  Here is another reason why the long term picture hasn’t improved (long):
    http://hbr.org/2010/04/welcome-to-the-false-recovery/ar/pr

    More on bonds (medium):
    http://money.cnn.com/2010/04/05/news/economy/fed.rates.fortune/index.htm

    A differing opinion on bonds (short):
    http://www.zerohedge.com/article/key-global-macro-pivots

    Here is a short but great analysis of current market valuation accompanied by a handy, dandy chart to allow you to make your own assumptions:
    http://www.investmentpostcards.com/2010/04/07/will-earnings-expectations-be-met/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers up 2.1% versus the prior week and up 4.7% versus the comparable period a year ago: Redbook Research reported month to date retail chain store sales down 1.6% versus the prior month but up 5.2% on a year over year basis.

    Weekly mortgage applications fell 11%:
    http://www.calculatedriskblog.com/2010/04/mba-mortgage-refinance-actvity-declines.html
   
   Other

    A lengthy discussion on the likelihood of rising inflation, but worth the read:
    http://www.minyanville.com/businessmarkets/articles/inflation-deflation-economic-recovery-aggregates-us/4/6/2010/id/27617

    More on the developing situation in Greece (medium):
    http://www.zerohedge.com/article/greece-sets-10-year-bund-spread-level-when-total-pandemonium-breaks-out-450-bps

    Why we need to stop obsessing about the loss of manufacturing jobs (short):
    http://mjperry.blogspot.com/2010/04/lesson-for-manufacturing-jobs-from.html

    Rail traffic continues to show solid signs of recovery (short):
    http://mjperry.blogspot.com/2010/04/rail-freight-traffic-show-solid-signs.html

    Why cap and trade is redundant (medium):
    http://scottgrannis.blogspot.com/2010/04/oil-price-update.html

Politics

  Domestic

If you didn’t see this play by the White Sox Mark Buerle on the sports highlights, but it is worth watching (1 minute video):
http://www.powerlineblog.com/archives/2010/04/026011.php

    Another stellar Obama nominee (medium and today’s must read):
    http://www.powerlineblog.com/archives/2010/04/026007.php

    The latest on financial reform (short):
    http://www.ritholtz.com/blog/2010/04/are-we-trading-away-real-bank-regulations-for-a-consumer-protection-agency/

    More nanny state interference in our lives.  This time it’s interns (short):
    http://stossel.blogs.foxbusiness.com/2010/04/06/feds-crack-down-on-unpaid-internships/


  International War Against Radical Islam

    The Iranian charade (medium):
    http://article.nationalreview.com/430407/the-great-iran-charade/rich-lowry
    A brief thought on Obama’s new nuclear weapons policy (short):
    http://www.powerlineblog.com/archives/2010/04/026004.php






Posted 04-07-2010 8:19 AM by Steve Cook