The Morning Call-The pause before the storm (Thursday) | All American Investor

The indices (DJIA 12534, S&P 1319) rebounded modestly yesterday, remaining well within their primary trends: (1) their short term trading ranges [12022-13302, 1266-1422]. Within these short term trading ranges, initial support exists at 12344, 1292 and resistance at 12744, 1338 and (2) their intermediate term uptrends [11869-16869, 1248-1828].

Volume declined, breadth expanded. The VIX closed right on the lower boundary of its short term uptrend (that is not a break under our time and distance discipline). Holding this uptrend is a negative for stocks. It also remains above the lower boundary of its intermediate term trading range.

GLD sold off slightly, finishing above the lower boundary of its intermediate term trading range.

Bottom line: the current volatility notwithstanding, I see no technical threat that stocks will break out of either of their primary trends. So below S&P 1300 would put this index in the lowest quartile of its current short term trading range; and that roughly marks the level that our Portfolios would commit cash.

Fundamental

Headlines

Yesterday’s economic news was basically mixed: weekly retail sales and the Case Shiller home price index were positive (though both are secondary indicators); the June consumer confidence reading was slightly disappointing while the Richmond Fed’s manufacturing index was really bad (also a secondary indicator). Not the kind of follow through to Monday’s data that I would have liked to see; however, there is nothing about which to be concerned.

Europe was also reasonably quiet. The lead headlines being (1) a downgrade of Germany’s credit rating by Egan Jones from AA- to A+ and (2) an exchange via the news media between Italy’s Monti (Italy has to have more credit or I’ll resign) and Germany’s Merkel (good luck). The important part of Merkel’ comments was that she is unwilling to provide additional funds unless Germany has a senior credit position to existing bondholders---not good for any borrower or their current creditors.

Greece is finished (medium):
http://www.nakedcapitalism.com/2012/06/yanis-varoufakis-greece-is-finished.html

Central banks are running out of options (medium):
http://www.minyanville.com/business-news/the-economy/articles/central-banks-eurozone-inflation-unemployment-financial/6/25/2012/id/41964

Don’t assume Germany will bail out Europe (medium):
http://www.zerohedge.com/news/ray-dalio-dont-assume-germany-will-bail-europe-out-consider-fat-tail-significant-possibility

Bottom line: investors got a rest yesterday which they will probably need ahead of Thursday (Obamacare decision and the EU summit meeting). At current price levels, stock values aren’t sufficiently out of line that would cause me to want to hedge any particular outcome. So I sit on my hands.

However, if stocks trade below the 1300 level suggested above, that would put them roughly 5% below Fair Value. That combination of stocks being 5%+ below Fair Value and in the lowest quartile of a trading range provides a good rationale for spending some cash.

The latest from David Rosenberg (16 minute video):
http://www.zerohedge.com/news/rosenberg-opens-pandoras-global-economic-shock-box

Second quarter earnings estimates tank (short):
http://www.bespokeinvest.com/thinkbig/2012/6/26/sp-500-q2-earnings-growth-estimates-tank.html

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.

via allamericaninvestor.blogspot.com

Morning Journal-The terrible state of retirement funding | All American Investor

Domestic

The sorry state of pension and health insurance plan funding for retirees. If you are at or close to retirement, you absolutely have to read this (medium):
http://www.zerohedge.com/news/us-retirement-benefits-underfunding-rises-record-14-trillion

via allamericaninvestor.blogspot.com

Automatic Data Processing (ADP) 2012 Review | All American Investor

Automatic Data Processing (ADP) provides payroll and tax filing services, brokerage services, comprehensive human resource services and financial services to auto and truck dealerships.

The company has grown profits and dividends 7-14% over the last 10 years and has earned an 18-20% return on equity. While the 2008-2009 recession impacted ADP somewhat, it did very well relative to other companies. Long term, the company should continue to prosper based:
(1) the economic recovery has led to an increase in both customers and the number of checks processed,
(2) the contribution from the recent acquisitions [8 in the last year],
(3) a dedicated effort to technological upgrades,
(4) its stock buy back program.
Negatives:
(1) a decline in the interest earned on funds held,
ADP is rated A++ by Value Line, has only 1% of its capitalization in debt and its stock yields 3.1%.
Statistical Summary

	Stock Yield	Dividend Growth Rate	Payout Ratio	# Increases Since 2002
ADP	3.1%	7%	56%	10
IND	1.4	9	23	NA

	Debt/Equity	ROE	EPS Down Since 2002	Net Margin	Value Line Rating
ADP	1%	21%	2	13%	A++
IND	15	23	NA	12	NA

via All American Investor