Wednesday, November 5, 2008

Earnings: DUK & SBGI & Volatility Index based Asset Allocation Model

I was surprised more by Obama's popular vote margin than the electoral college numbers.   It looks like the Beanpole will win the popular vote by over 7 million.  The importance of voting is illustrated once again by the the few hundred votes currently separating  Coleman and Franken in Minnesota as well as the narrow margins in the Presidential race in states like North Carolina.   Bush's approval rating is at 27% and I believe that he did not appear in public with a single Republican seeking re-election this year.  You would think that losing states like Virginia and Colorado will cause a re-examination by thoughtful Republicans about their brand.  Personally, as a fiscal conservative, it has been hard for me to detect much difference between the George Bush Republicans and your average Democratic politician.    The Democrats do not appear to have won enough Senate seats to stop a filibuster in the Senate.  Many people do not know that it takes 60 votes in the Senate to pass any controversial legislation due to its cloture rules.

I was disappointed with the earnings from Duke this morning.   Excluding one time items, Duke posted net income at $ .33 versus an expectation of  $.44. Yahoo! Finance  I have a small position in this electric utility and will not add to it.

I also have a small position in Sinclair Broadcasting (SBGI).  It  beat the forecast by $.05, earning $.14.Yahoo! FinanceSinclair Reports Third Quarter 2008 Results: Financial News - Yahoo! Finance  At the current price, the dividend yield is over 23%.  I would not be surprised by a dividend cut, but it appears to me that the decline in Sinclair's stock from around 10 in February to 3.5 yesterday is not warranted.  The company does have a lot of debt for its size. SBGI: Balance Sheet for SINCLAIR BRDCST A - Yahoo! Finance

I mentioned in yesterday's post that Medtronic had broken out of its eight year trading range to the downside.   If I viewed that break as company specific, I would not have bought the stock yesterday.  Instead, I viewed the break as market related with the fundamentals of the company remaining positive.  The stocks of good companies with decent prospects will lose value in market routs because they are stocks.  In market breaks like we have seen in September and October of this year,  stocks -as a asset class- are being sold without any meaningful effort to evaluate differences among them.  If you wait long enough, there will always be an opportunity to buy a company like a Proctor & Gamble or Medtronic at a price that is significantly below a fair valuation for a long term hold.    Coca Cola recently broke 41 on 10/10/2008.  KO: Historical Prices for COCA COLA CO THE - Yahoo! FinanceWhile I am not a huge fan of that company, a price that low would be hard to ignore.  Over the next six months, there will be more opportunities to buy quality at discount prices.  We may be at the end of the most severe part of this bear market but we are not out of the woods yet by any means.  Unemployment will continue to rise, and earnings for many companies will look bleak for another two or three quarters.  If the VIX falls to below 20 and stays in a 18 to 20 range for at least 3 months, then we probably have the all clear signal in my asset allocation model based on the volatility indexes.  Even after declining recently, the VIX is still at extremely elevated levels, indicating to me a market that remains treacherous.  I have a fairly complicated asset allocation model based on a reading of VIX, VXN and RVX, and my model is still telling me to keep 20% in cash.  With my cash flow, however, I can make nibbles several times a month like I have been doing recently and will continue doing.   See, CBOE volatility indexes ^VIX: Summary for CBOE VOLATILITY INDEX - Yahoo! Finance^RVX: Summary for CBOE RUSSELL 2000 VOLATILITY IN - Yahoo! Finance^VXN: Summary for CBOE NASDAQ VOLATILITY INDEX - Yahoo! Finance

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