In our August 2017 Interest Rate Monitor, we said the following:
“…we’re holding to the idea that the current range in the trend will remain, until proven otherwise.”
As seen in the chart below, the range that we spoke of is holding strong, for now.
Performance Review
From our October 2016 Insurance Watch List, we have the following performance of the entire watch list.
| symbol | name | % chg |
| CNO | CNO Financial Group, Inc. | 56.67% |
| THG | The Hanover Insurance Group, Inc. | 24.84% |
| HALL | Hallmark Financial Services Inc. | 12.98% |
| ORI | Old Republic International Corp. | 6.44% |
The average change for the list was +25.23% as compared to the iShares Dow Jones Insurance Index ETF (IAK) gain of +22.51%. Below is the performance of the same stocks relative to the analyst estimates:
How’s this for a stunner? Take a look at the performance Old Republic Title (ORI). What in the world is that all about? The analysts called for a +6.44% gain and that is exactly the amount the stock has increased one year later. Let’s dare them to do it two years in a row.
The stock that we highlighted was Hallmark Financial Services (HALL). We pointed out the downside target however only one ($9.68) was achieved. The underperformance of HALL was expected and therefore continues to put the stock in the position of being undervalued at the current price.
In our section titled “Sell the Principal” we highlighted the stocks that we thought investors should consider selling the principal. Below is the performance of those stocks.
| symbol | name | % chg |
| GNW | Genworth Financial, Inc. | -32.67% |
| STC | Stewart Information Services | -17.39% |
| KFS | Kingsway Financial Services Inc. | -2.65% |
| NATL | National Interstate Corporation | 0.25% |
| ENH | Endurance Specialty Holdings Ltd. | 1.19% |
| CRD-B | Crawford & Company | 1.97% |
| HTH | Hilltop Holdings Inc. | 9.72% |
| PFG | Principal Financial Group Inc. | 30.14% |
| SYCRF | Syncora Holdings Ltd. | 36.30% |
| UNM | Unum Group | 44.21% |
| LNC | Lincoln National Corporation | 58.14% |
Four stocks exceeded the average return of the iShares Dow Jones Insurance Index ETF (IAK). The average change of the entire list increased by +11.74% as compared to the iShares Dow Jones Insurance Index ETF (IAK) gain of +22.51%.
October 2017 Insurance Watch List
Below is the latest list of stocks that we’re watching and the analyst estimates for the stocks:
Below is the data of Dow Jones Industrial Average declines in the period indicated as a recession according to the National Bureau of Economic Research (NBER) from 1902 to 2009. The percentage change is arrived at by taking the first trading day of the month indicated as the beginning of a recession and the last trading day of the month indicated as the end of the recession.
Posted in NBER, recessions
In an article dated October 24, 2017 on BNN, Eddie Lampert, CEO of Sears Holdings complained that “Sears Canada could have avoided liquidation.”
Lampert, who has been lauded as the next Warren Buffett, seems to think that Sears Canada executive chairman Brandon Stranzl made a mistake when he introduced his “Sears 2.0” strategy in 2016. Lampert, through his ESL Holdings held a large stake in Sears Canada and said that, “ESL believed that [Sears 2.0] strategy was highly risky and unlikely to succeed.”
Let’s look at the failings of Brandon Stranzl at Sears Canada and Eddie Lampert at Sears Holdings by comparing the stock prices of the respective companies. As Warren Buffett’s mentor Benjamin Graham said, “in the short run, the market is a voting machine but in the long run, it is a weighing machine.”
Brandon Stranzl tenure at Sears Canada:
Eddie Lampert tenure at Sears Holdings:
There is such a refreshing difference between the Lampert years at Sears Holdings compared to the job done by Stranzl. The primary difference is that Sears Holdings was already in a rising trend in the stock price before Lampert took over. Therefore, we cannot necessarily attribute the near doubling in price to the fact that Lampert did anything revolutionary at the company.
Ultimately, Lampert, when faced with challenges, was not equal to the task, as reflected in the subsequent decline in Sears Holdings. Contrast Lampert’s good fortune of taking over when the company stock price was already in a rising trend to the challenge of Stranzl who took over Sears Canada after the stock price had been in a multiyear declining trend.
If the passage of time truly weighs the impact of stock value then Lampert’s years have proven to be of little merit to the shareholders of Sears Holdings. Meanwhile, Stranzl’s two year history at Sears Canada was merely a vote of no confidence as a result of prior lack of leadership.
Below is the 2-year performance of our Dividend Watch List from October 23, 2015 to October 26, 2017 as compared to the Dow Jones Industrial Average.
Posted in CSL, NLO analysis, Performance Review, SIAL, WWW
In a recent Vanity Fair article by William Cohan, DoubleLine Capital bond manager Jeffrey Gundlach is interviewed regarding his take on bonds.
Gundlach’s answer is straightforward, “Why would anyone invest in bonds?” Seldom does anyone get such a contrasting view on an investment that is counter to their own best interests. And yet, somehow, Gundlach manages to go downhill from there.
Posted in Gundlach, interest rates
In the period from 1920 to 1989, the Dow Jones Industrial Average would consistently be undervalued or overvalued at set Altimeter levels (15 and 30, respectively). An investor could almost count on these general points to accumulate and sell stocks without fail. Note the various dates when a “sell” or “buy” indication was given. All points until after 1987 were useful indications for market under or over valuation.
After 1987, the Altimeter for the Dow Jones Industrial Average started to change. What has changed that made the Altimeter vary so much from the normal levels? We think it has to do with the selection of companies that are included in the Dow Jones Industrial Average with less of an emphasis on dividend payments, lower dividend yields and lower relative payout ratios. In addition, inclusion of companies like Visa, Apple, Microsoft, Intel and Cisco Systems has shifted the course of the index which might more appropriately reflect the changing nature of the U.S. economy, as seen in the chart below.
Posted in bull market, Dow Altimeter, Rank
Performance Review
On October 21, 2016, we posted analyst estimates for the expected gains for our watch list stocks dated October 14, 2016. Below is the performance review of the stocks that were part of that assessment.
At the time, we grouped the stocks into three separate categories (“high risk, high return,” “average risk, average return,” and “high expectation, low return”) as seen in the chart below:
As separate categories, the returns were as follows:
We have to be mindful of the fact that the high, average, and low returns are based on long term expectations for similar stocks. When contrasted against the Dow Jones Industrial Average, which gained +27.91% over the same time, the gains of each category are hardly “high” or “average.”
Two indicators of the California real estate market that we’re tracking are the median price of existing detached homes and the violations of California regulations for real estate licensees, agents, brokers and non-licensed individual/firms involved in real estate transactions*. Below we have the monthly and 12-month moving average data for these two series from 1990 to the present.
Posted in Uncategorized
The bull market march on this week. The S&P 500 is only 25 points away from 2,600. Though it is difficult to find quality companies to purchase at a discount price when the market is at the all-time high, we managed to put together a list of high quality companies which pay dividend trading near their yearly low. Below are list of 30 companies for this week. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
Tagged members
Below is the 5-year performance of our Dividend Watch List from October 19, 2012 to October 20, 2017 as compared to the Dow Jones Industrial Average.
Posted in NLO analysis, Performance Review
On September 12, 2016, we assess the real estate market. In this update, we’ll reconsider the points that we made to determine the progress that has been made with our analysis. There are some surprises as we go through the limit info that is tracked.
In this assessment, we track the Housing Starts of New Privately Owned Housing Units. At the time of the September 2016 review, we said the following:
“The latest trend from September 2015 to the present appears to show topping out action as the Housing Starts data seems to be running out of steam. Additionally, the dotted red line in the chart shows the Dow Theory halfway point at which either the market booms higher or stalls & stutters before declining substantially, relative to the most recent rise.”
So far, the data has fallen in alignment with our claim of topping out action, as seen in the chart below.
Posted in cycle analysis, real estate, Wenzlick
As of November 2014, the Industrial Production Index* has been in a declining trend.
The beginning of the rising trend was established in June 2009. When looked at from the percentage change over the previous year, there has been been only six out of 17 times when the Industrial Production Index had a negative declining trend AND a recession was not called by the National Bureau of Economic Research (NBER).
Posted in Industrial Production Index, NBER, recessions
As market pundits either celebrate or examine the stock market crash of 1987, there comes point when all analysis becomes a form of paralysis. Some say a crash won’t happen again while others proclaim, almost daily since the 2009 low, that a crash is just around the corner. When posed with such a question, we always ask, what is our point of reference?
To arrive at a point of reference, we read an article that says that the S&P 500 has had it “Too good, Too Long.” We liked this reference point as it charts the S&P 500 from 1996 to 2017. We decided to use the same number of trading days for the Dow Jones Industrial Average going backwards from the 1987 peak at 2,722.42, which led us to the beginning of 1966. When you contrast the price activity of the S&P 500 against the Dow Jones Industrial Average over the two periods, we get a point of reference that is all too telling.
Our observations of the market leading up to the the peak in the Dow Jones Industrial Average on August 25, 1987 contrasted with the S&P 500 since 1996 tells us a few things that need pointing out.
First, nothing that has happened in the exact same number of trading days between the two indexes is unique. The Dow had declines of –35%, –44%, and –26% in the late-1960’s and 1970’s. Likewise, the S&P 500 experienced declines of –49% and –56% in the period of late-1990’s and 2007-2009.
Second, the rise from the lows could be considered to be almost equal. If we take the low of 2009 for the S&P 500 and compare it to the corresponding low in the Dow Jones Industrial Average, based on the same number of trading days, we find that the increase in the S&P 500 is not unusual at this point as compared to the Dow. From the 1978 low in the Dow, the index gained +266% to the 1987 peak. The 2009 low in the S&P 500 Index the gain has been +278% so far. If we take the ultimate low in the Dow Jones Industrial Average from 1974, the increase was +371%. This puts the S&P 500 well within the range of “normal” for a market rise.
Third, looking at where the Dow Jones Industrial Average was and where it currently is, there is little to suggest that the action of the S&P 500 cannot go a significant distance above the current level with moderating declines in between. Does the S&P 500 have to do in the future what the Dow Jones Industrial Average has done in the past? Absolutely not! However, looking at what has happened could help to put the coming decline in the market into proper context. As our latest bull market ranking has demonstrated, there is still a lot of upside potential in this market.
In reality, a market crash is always on the horizon. Also, when data is provided, if there is no context then there is no meaning or value. So, what should investors being doing now in preparation for the next crash? Our opinion is that investors should stockpile cash as the stock market increases. Use that cash for when the next stock market decline ensues. Educate yourself on investment values and be ready to hold your nose and buy those values at significant lows relative to prior peaks.
Posted in Dow Industrials, Rank, S&P 500
Below is the 4-year performance of our Dividend Watch List from October 18, 2013 to October 18, 2017 as compared to the Dow Jones Industrial Average.
| symbol | Name | total return |
| LLY | Eli Lilly & | 94.00% |
| SYY | Sysco Corp. | 89.40% |
| NWN | Northwest Natural Gas | 76.71% |
| CAT | Caterpillar | 74.84% |
| ED | Consolidated Edison | 72.60% |
| PPL | PP&L Corporation | 58.85% |
| PM | Philip Morris International | 54.29% |
| KO | Coca-Cola Co | 35.75% |
| T | AT&T Inc | 26.86% |
| VMI | Valmont Industries, Inc. | 25.31% |
| SCG | SCANA Corporation | 22.83% |
| MAC | Macerich | 18.13% |
| XOM | Exxon Mobil Corp. | 7.79% |
| IBM | IBM | 4.23% |
| Average % change | 47.26% | |
| DJIA | Dow Jones Industrial Average | 67.71% |
The total return for the Dow Jones Industrial Average was +67.71% while the average total return for the entire watch list was +47.26%.
Posted in NLO analysis, Uncategorized