Eliminated cash and sold equal amounts CVS, KHC and KMB to add Ryder System, Inc.. and Walmart Inc.
On April 4, 2018, Americans awoke to Chinese autocratic society declaring it has no intention of predicating its relationship with Americans, as heretofore understood by Americans as an imperative for world economic peace and economic growth to provide means to improve world standards of living, but instead that it intends to join Russia and Mexico in gangland government intimidation in lieu of law, reason and human equality.
As suggested on January 1, cash was raised on the Friday before the equity averages began to fall after reaching only 2 points shy of our 2875 SP500 target price.
Not since 1999, have so many stock chart patterns paralleled each other. During 1999, pennant formations, following steep price increases, provided a short consolidation prior to blow-off pricing tops. Again, February, 2018, chart patterns for most industries and equity indices, when combined with empirical economic conditions and promises of world cooperation, briefly appeared as a pennant consolidation for an upside continuation to higher stock prices. Not anymore. Upward price trend immediately depends on a double bottom “W” displacing current set up for a descending triangle (precursor to a change in price direction).
CVS Health Corporation
The Kraft Heinz Company
PayPal Holdings, Inc.
The Timken Company
Current Income Portfolio components:
CVS Health Corp.
PayPal Holdings, Inc.
The Timken Company
As U.S. stock index averages see new heights (an additional 7% minimum upside by measured move) and the “Wall of Worry” crumbles, the stock markets will confound majority consensuses.
Generalizing, ensuing gains from capital appreciation will be retraced sometime in the not too distant future, in excess of 20% from peak to future trough, most likely to our secular trend line or our long term patterns dating to 2015.
As daunting as an “in excess of 20%” sounds, it’s a correction within a larger secular Bull. Ride the Bull. Weigh portfolio to 25% cash and 75% selected stocks during quarter as S&P500 index approaches 2875 (minimum upside target).
Technical Analysis is a process which provides discipline for buying and selling decisions to avoid action(s) based on outside your mind advice, incompetence and/or usury and fraud (not to mention greed and fear). Combined with stock selection based on visible future earnings (top down approach) sustainable balance sheets (bottom up approach) and valuations determined by performance accomplished (not promised), concentrated portfolios avoid losers (save crowd misbehavior).
January 1, 2018 Income Portfolio Components:
The Hershey Company
McCormick & Company
PayPal Holdings, Inc.
Happy New Year –Al
Lest we forget, GDP (a measure of additional income) is discounted for net trade.
Please reread the previous paragraph…”Lest we forget…”
China’s economy has slowed in recent years due to its buying of $U.S. debt with $U.S. trade surplus (contemporary currency manipulation) suffering U.S. economic diminution. Against this asset of new found wealth central planning over leverages initiatives while disadvantaging U.S. participation.
Popular U.S. opining equates “free trade” with competition – a ruse to maintain status quo cash flows and power structures – and, that to discuss sovereign debt in relation to growth and balanced trade is ignorant, as books are balanced on fiscal $.
Current trade policy is not a design for equality of effort or balancing trade but a zero sum game.
Contemporary currency manipulation by trading “partners” is disguised by not differentiating passive and active capital allocations. Unlike contemporary understanding that any capital inflow post gold standard regime is constructive, without gold to balance currencies on terms of trade, the deficit countries simply dwindle away by passive inflows (surplus countries buy deficit country sovereign debt – our current bond “bubble”) or, deficit country depreciates its currency to recognize diminutive wealth.
In 1971 U.S. unilaterally declared the $U.S. not to be convertible to gold unshackling constraints to growth and incentives to individual effort. Once again, unilaterally (leadership), U.S. must unshackle constraints on economic growth and individual effort by taxing foreign earnings on $U.S. debt (passive, not constructive to U.S. growth – contrarily contemporary currency manipulation falsely strengthening $U.S.) and reciprocally beneficial trade agreements automatically balancing terms of trade.
Income portfolio and Wall Street:
We’re only a 15% move from convergence of long term (months to years time frame) and secular trend (years to decades) minimum technical analysis targets.
Contrary to popular money management view, we are not 8 years deep (long in the tooth) into an overreached bull market cycle. Summer 2016 began long term moves for Dow Jones Industrial Average and both Standard and Poor’s 100 and 500 averages (income portfolio relevant indices). Secular bull has been running since 1998. Both DJI and SP100 have reached minimum secular targets both however having room to run to long term minimum targets of 24,500 and 1275 respectively. SP500 secular trend target is 3200, long term trend 2875. Consider cash a desirable position into long term target.
From a technical perspective “blow off” price tops (which can continue for some time) are characterized in the averages and their components at the end of a run. We’re not there yet. More characteristic currently is as a healthy “rolling bear” gouging individual stocks for not recognizing future income streams and continuous sector by sector rotations suppressing averages pricing.
Year End Income Portfolio:
Automatic Data Processing, Inc., The Hershey Company, McCormick & Co., PayPal Holdings, Inc., Synchrony Financial and Vantiv, Inc.
White House debacle has caused reversion of savings portfolio components to value priced income producing stocks (some fully priced – our new portfolio risk), rather than capital appreciation (see 2nd quarter post “Risk is to upside for U.S. stocks”).
Although I’ve been mostly successful in maintaining a bitten tongue, as this is a quarterly publication, this early post is to advise that portfolio character has changed (note 1.).
In alphabetical order:
note 1.) I’ve dumped calculus for the Trump agenda, not for the Charlottesville debacle, but for his lack of necessary foresight shown in his lashing out at Amazon.com Inc. No company more so reflects constructive progress, innovation, opportunity and sustainable effort (maintaining purchasing power for savings) more than it.
Opportunity costs (lost opportunities) are not catastrophic and governance remains preferable to his previously offered opponent. Nevertheless, securities will adjust future pricing for a new reality of solid U.S. strength with historically healthy fear of political vacuum, unfortunately all too familiar.
Dow Jones Industrial averages now midway in technical long term range of 18,000 (base) – 25,000 (minimum target) offering sizable space both north and south to correct for ensuing fear and greed.
Stock picking is back as favored strategy as fog from unconsidered information, sensationalizing news feeds, popular pundits and programming content now misguidedly skew strategies towards trading (price centric) while fundamental research defers to passive investing creating future herd for cliff diving.
Recent examples differentiating dynamism (constructive effort) to consensus acceptable stagnation and apparently consensus “fiduciaries,” include enterprise management and journalism. At its overpriced $75 per share price, Colgate-Palmolive was news feeding and pundit sensationalism fodder to create anxiety that soon it would become a $100 take over target. Any considered understanding of Colgate’s worldwide distribution and brand saturation would suggest that it’s they that are to takeover -reverse rolls- for a worldwide weak distribution enterprise such as Hershey Co., or that Walmart re-brands itself as Jet.com so that more than a handful of people know who they are, has a chance to compete with Amazon.com Co., and show they have an understanding of business execution for tomorrow, not yesterday. Branded value added food remains challenging for savings placement. While Kraft Heinz Co., shows them all how to execute all natural to legacy processed foods, they suffer too much debt while Campbell Soup blew its opportunity to lead with acquiring premium this and that and, carrot farms, leaving store center in 1950 appearance and food quality. Tesla Inc., digs underneath the argumentative upper crust eminent domain, time, regulation and costs to take those damn Prius’ off the traveled routes.
Approximately half of all U.S. listed stocks have disappeared in a single generation. Approximately half of those remaining are wasting assets. Don’t let the fog from unconsidered information and hierarchy blind your view to future income streams and value.
Consensus advice to “invest[sic]” offshore is not simply misguided but unconsidered breach of fiduciary care to churn stock sales for a fee (passive investment products manufacturing and fee manager razzle-dazzle justification for existence) in a very short term cycle within the cover of consensus.
Consensus advice is that “growth” is offshore and their cover is that current policy is protectionism and isolationism. Contrarily “profits (stock prices)” flow to those who are legally protected enterprises within politically stable borders that sell into growth. Is it protectionism and isolationism to want to live within our means for sustainability and posterity? Isn’t consensus advice that what’s good for the goose ain’t so for the gander?
The income portfolio is up 15% year to date, which should mean nothing to you unless you intend to sell tomorrow, as this is an income portfolio, not a trading platform. It remains uncharacteristically bias bent to classic growth (see last quarter’s post). Sign of a bubble? No. More characteristic of a continuing rolling bear market adjusting fear and greed one industry at a time. Recent $13.7B Whole Foods acquisition took out more than $60B market capitalization from those unwilling to step into the future.
Stocks with asterisks included in current income portfolio, others should be but are too expensive here for entry (your basis dependent -buy during a swoon):
*Amazon.com, *Celgene, *Cisco Systems, *Hershey, *Intuit, *NVDIA, *Skyworks Solutions, *United Technologies, *V.F. Corp., Tesla Inc., Chipotle Mexican Grill, Johnson & Johnson, W.W. Grainger, Colgate-Palmolive, Kraft Heinz Co., Lockheed Martin and The Boeing Co.
Hope this helps someone -Al
For second calendar quarter 2017, income portfolio was remade during February replacing staid consumer goods, due only to valuations, with classic growth for expected outsized capital gains (antithetical as it is). No changes for economic outlook or savings allocations (NOTE 1).
Macroeconomic backdrop remains 3+ billion east hemisphere dwellers (among others) chasing consumer conveniences into rising interest rates, worldwide, contemporaneously. Sell bonds, buy stocks and sell hard assets, buy consumables (NOTE 2).
On December 26, 2015, you were herein forewarned on “approaching bear trap” and suggested sale of any allocation to “hard assets, in general.” This is that time. Watch my faves (cool assets) too expensive to buy and on wrong side of macroeconomic backdrop for some years to come (Bunge – BG, Canadian Pacific Railway – CP, Equity Residential – EQR, and Union Pacific – UNP). These should, and will again, yield twice current levels or twice relative to treasuries and for its existing assets remaining equal in time (NOTE 3).
Good income stocks for ensuing macroeconomic backdrop too expensive to buy (hold if your basis discounts current prices by 25 – 40%):
The Hershey Co., WW Grainger, Johnson & Johnson, Colgate – Palmolive, The Kraft Heinz Co., Lockheed Martin, and Boeing Co.
2nd Qtr. 2017 income portfolio:
International Business Machines
Portfolio yield 2.1%, retained earnings 4.2% and return from operations excluding share price movement(s) of 6.3%.
Note 1 – Equity average’s index funds previously blessed as alternative to concentrated portfolio, are taking on ETF and mutual fund risk characteristics due to their popularity. Future marketplace dislocations will be exacerbated by herd stampede.
Note 2 – Reminder(s): This portfolio is for income and only for savings which can be committed for at least 5 years. Income taken should be limited to dividends (yield) to maintain future purchasing power and/or an obligation to posterity.
Note 3 – Best reads for understanding purchasing power maintenance by savings allocations into a rising interest rate age is “Investing In Purchasing Power,” Ken Van Strum, 1925, and the complete collection of annual letters to shareholders of Berkshire Hathaway.