The Morning Call
2/26/15
The Market
Technical
The indices
(DJIA 18224, S&P 2113) had a quiet day (Dow up, S&P down), ending
within uptrends across all timeframes: short term (16657-19429, 1939-2920),
intermediate term (16706-21847, 1762-2476) and long term (5369-18860,
797-???). They both closed above their
50 day moving averages and their mid-December highs. The S&P finished above the former upper
boundary of its long term uptrend while the Dow remains well below its
comparable boundary.
NASDAQ’s run
(medium):
Volume
was flat; breadth deteriorated. The VIX rose,
closing within its short term trading range, its intermediate term downtrend
and below its 50 day moving average.
The
long Treasury was up again, finishing within its short, intermediate and long
term uptrends and above its 50 day moving average. Long term muni ETF’s remain the largest
segment in our ETF Portfolio. At the
open this morning, our ETF Portfolio will Buy a position in BWX, the Barclay’s
International Treasury ETF.
The rise of the bond
market and its impact on portfolio allocation (medium):
GLD
was up, ending within its short term uptrend, its intermediate term trading range,
a very short term downtrend and below its 50 day moving average. While GLD has remained above the lower
boundary of its short term uptrend, it shows few signs of strength. If we get some upward momentum, our
Portfolios may Add back shares. However,
a break of the lower boundary of its short term uptrend will prompt a complete
exit from this position.
Bottom
line: the indices rested yesterday and
volume remained light. Still after the
sprinting up on the positive news of the Greek bail out and Yellen’s dovish
Humphrey Hawkins testimony, a slow news day offers the opportunity for profit
taking; and we got very little of that. That
suggests continuing momentum to the upside.
TLT had another good
day and seems to have put the recent sell off behind it. I continue to believe that it is more likely
that interest rates go lower rather than higher. Our ETF Portfolio will continue to look for
value in this space. On the other hand,
GLD’s pin action is less inspiring and remains more of a trading vehicle than a
longer term investment.
Fundamental
Headlines
Finally,
we get a day in which the economic numbers are just mixed: weekly mortgage
applications fell but the more important purchase applications rose; January
new home sales were down, just not as much as expected. Still these stats are not going to cause anyone
to become more upbeat.
Overseas,
China’s February flash PMI inched back into positive territory but exports
declined.
On
a broader front:
(1)
Yellen spent another day charming our legislators and
her dovish tone on monetary policy was unchanged,
(2)
there was little out of Greece/EU as we await approval
of the latest bail out deal from several sovereign parliaments [Germany,
Finland]. Voting is scheduled for this
weekend.
Greece’s
biggest problem (short):
No way for Greece to escape austerity
(medium):
(3)
while the shooting seems to be abating in Ukraine, the
war is shifting to the economic [read, gas] realm (short):
Bottom line: yesterday’s
US economic numbers did little to assuage my concerns about the current trend
in lousy stats. On the other hand, the
recent tendency towards more mixed international economic data is a plus.
I remain a
skeptic as to how helpful/useful central bank easy money is to improving the
economic outlook. I worry about its
potential negative impact via competitive currency devaluations. And I am convinced that it is grossly
distorting global asset prices---a problem for which investors will pay dearly
sooner or later.
Following the
Greek/EU/ECB/IMF agreement investors have their happy shoes on, assuming that
no matter how negative an impact that the current monetary/fiscal policies are
having on the PIIGS and no matter how dire the rhetoric becomes, the euros will
always manage to ‘muddle through’. I am
reminded of a phrase from Herb Stein that basically said ‘bad economic policy
will remain in place until it can’t’. I
have no doubt that current EU monetary/fiscal policies will continue until they
can’t. The Market assumes that will be
for a long time. I don’t have quite that
level of conviction. That said, the
current assumption in our Economic Model is that the EU ‘muddles through’. I just doubt that the odds are 100%.
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.
Career
risk as an investment principal (short):
Earnings
season update: 90% of S&P companies have reported, 74% beat profit
expectations, 56% beat revenue projections.
Company Highlights
CF Industries
manufactures and distribute nitrogen and phosphate fertilizers in North America . The
company, which went public in 2005, has grown profits from $.60 to $19.40 in
2014 and dividends from $.02 to $5.00 in the same time frame. It has earned between 12% and 20% return on
equity. CF should continue its above
average growth rate because:
(1) capacity
expansion,
(2) recent
acquisition of Terra has made it the leading global producer of nitrogen
fertilizer,
(3)
stock buyback program,
(4)
falling natural gas prices, a key ingredient in the making of fertilizer.
Negatives:
(1) price competition with its domestic
competitors,
(2)
its business serves a highly cyclical
industry.
CF
is rated A by Value Line, carries a 49% debt to equity ratio and its stock
yields 2.2%.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio Since 2005
CF 2.2% 31% 27% 6
Ind Ave 3.6 18 48 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
CF 49% 21% 3 21% A
Ind Ave 36 17 NA 13 NA
Chart
Note:
CF Industries stock made great progress off its March 2009 low, quickly
surpassing the downtrend off its July 2008 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 an uptrend (purple
lines). The wiggly red line is the 50
day moving average. The Aggressive
Growth Portfolio owns a full position in CF.
The upper boundary of its Buy Value Range is $286 (I have left CF on the
Buy List despite its trading slightly above this boundary); the lower boundary
of its Sell Half Range is $428.
2/15
Investing of Survival
How
retirement planning vastly underestimates inflation (medium):
News on Stocks in Our Portfolios
·
Revenue of $274.7M (+184.3%
Y/Y) beats by $39.45M.
Economics
This Week’s Data
January
new home sales declined fractionally versus expectations of a 2.2% decline.
January
CPI came in at -0.7% versus estimates of -0.6%.
January
durable goods orders rose 2.8% versus forecasts of up 2.0%; however, ex the
highly volatile transportation sector, they were up 0.3% versus consensus of up
0.7%.
Weekly
jobless claims were up 31,000 versus an anticipated increase of 7,000.
Other
A
review of the impact of US monetary/fiscal policy (short):
Politics
Domestic
International War Against Radical Islam
Our
failed negotiations with Iran (medium):
Iranian live fire demonstration
(short):
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