2.22.14: Weekend Linkfest: Interesting Reading Over the Past Week

Home Depot reports Tuesday morning, Feb 25th. At 15(x) cash flow, we aren’t adding to the stock. Here is my 15 minutes of fame on CNBC’s Big Data download about a  year ago. In hindsight it was a very good call (I thought). Here is our earnings preview, on Home Depot as found on Seeking Alpha. Very little has changed around HD as we find it today. Great company, reasonably-expensive stock, comp growth and share repo’s driving results. Thought CNBC would have me back after the Home Depot and BAC call but no such luck. (Long HD and BAC)

It has now been 316, 317 days without the SP 500 touching its 200-day moving average, per Ryan Detrick at Schaeffer’s Investment Research in Cincinnati. Bespoke put out a note on January 30, 2014 noting that at that time it was 835 days that the SP 500 had gone without a 10% correction. In fact the SP 500 had rallied 65% without a 10% correction per Bespoke.

Good charts from Gary S. Morrow and his “This Week on Wall Street” partners. (Long IBM.)

Excellent Forbes article found on Tim Connolly’s twitter feed (@sconsetcapital) on stock market valuation as a % of GDP. I’ve always liked this metric. Retailers are thought be fairly-valued at 1(x) 4-quarter trailing revenues.

Jeff Carter, a fellow Chicago and Lincoln Park blogger on the return of the retail trader. Does that mean this is a market top ? In his first paragraph Jeff talks about January of 2000, but I wonder if Jeff meant January, 2001. That was the month Greenspan cut rates after the very poor 4th quarter of 2000 and the tech and growth stock bubble was starting to unravel. Greenspan raised rates in late 1999, after cutting the fed funds rate for the Long-Term Capital Crisis in late ’08.

More and more we are reading weekly earnings commentary about SP 500 earnings growth. Here is Briefing.com’s shot at analyzing the earnings data. They make several good points, all noted in our earnings blog for the last few years now. Still I think more attention to this process is worthwhile.

T Rowe Price’s star small-cap stock picker is wary of the Russell 2000’s valuation. We bought some IWM for a trade in 2013, and sold after the first of the year.  The SP 500 and Sp 100 are still pretty attractive from a p.e and earnings growth perspective. Less downside risk in a pullback too. Still Russell 2000 acting well. Let’s see how it acts relative to the SP 500 if and when there is a breakout above 1,850 for the SPY. One of the signs that we failed to catch on to during the late 1990’s bull market, was that the market leadership started to get thinner and thinner as we headed towards 1999 and 2000. Small-caps all but went dead after mid 1997. Starting in October, 1998, or the recovery from the LongTerm Capital Crisis, 80% of the SP 500’s return was driven by 20% of the stocks. Not only was it a tech bubble but a large-cap growth bubble. Market “breadth” today is still flashing green in terms of the health of overall US equity markets.

Josh Brown with the Fed Transcripts dealing with the 2008 Financial meltdown. it was clear that the Fed, FOMC and pretty much everyone underestimated the depth and breadth of the 2008 Crisis. I lost some important clients over the 35% decline in the SP 500. The fact is the market’s action throughout 2008 should have had me being more cautious. It wasn’t that we were being aggressive or imprudent, it is just that after the 2001 – 2002 bear market and our earnings model still rising into July, 2008, and I didn’t think that whatever was happening would turn out to be as BAD as it did.

Today in our opinion, as even Bespoke noted in their weekend letter this past week, with two 50% SP 500 corrections between 2000 – 2008, most investors remain very skittish, and I think that is why these market pullbacks are so short. We are in a sentiment and “risk” environment that is the exact opposite of the late 1990’s.

Abnormal Returns blog, written by Tadas Viskanta. Some good links here.

Love this analysis fr0m Todd Salamone of Schaeffer’s Investment Research.

Really puzzled by the divergence in homebuilder stocks like Lennar (LEN) and Toll Brothers (TOL) and the recent housing and homebuilder data. Selling LEN and TOL in May ’13 was one of our best sales of the year, but we’ve now watched both stocks make new highs on what seems to be bad data. Here is this link from @Soberlook that graphically portrays why I am puzzled.

We use the weekend Linkfest to get a feel for the coming week and whether anything is changing or should be looked at differently in terms of sector allocations, etc. Nothing has really changed, i.e.  we are still bullish on US equities, still bearish duration and neutral on credit and municipal’s, and waiting for higher rates, still no positions in emerging markets, but we are starting to do more homework on the asset class, both from a fixed-income and equity perspective.

Our top 5 holdings in client accounts in no particular order are 1.) Facebook, 2). Microsoft, 3.) Charles Schwab, 4.) JP Morgan 5.) Alcoa and Pfizer. Our top 2 fixed income weightings are the TBF ETF (Inverse Treasury unlevered) and the JRO (John Nuveen’s fixed-income Floating Rate ETF). (Long FB, MSFT, SCHW, JPM, PFE, AA, TBF, JRO)

Thanks for reading. There are a lot of sites competing for your eyeballs. We appreciate you taking the time to read the Linkfest.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

 

 

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