Temporary panic attack

I have received a few emails requesting I add my comments re yesterday's broad market decline.

Not to appear coy, but I have little to add to my warnings stated several weeks ago. In fact, I note that as most market commentators attempt to explain the declines in global markets, each notes several key items that mimic the reasoning for my stated warnings; the difference is that they explain after the fact whereas I warned in advance. I find this difference crucial; you -- well, those of you who respect my mumblings sufficiently to adhere to them -- were prepared via reducing risk, and exposure. I suppose it to be silly, but for me to say more now would be akin to rubbing salt in an open wound.

I deem worth your attention, however, two explanations for yesterday's global market declines plus one statistical picture; each suggests clues and expectations investors should watch for from this moment forward.

First is a statistical table with related comments by Dorsey Wright...

-- David M Gordon / The Deipnosophist
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Another thing we know about market volatility is that many of the “Best Days” and “Worst Days” for the market are often clustered together. It is these wild swings that get investors scared in the markets and cause irrational decision making. As you might imagine, a number of the best and worst days were clustered around the Crash of 1987. As well, 1998 had its fair share of high volatility days as did 2001 and 2002. Believe it or not, we did not just live through one of the "20 Worst Days for the Market", at least not by measure of the S&P 500/SPX. With a decline of 3.47% the S&P narrowly avoided making the list below.

[click on each image to enlarge]

Highlights of Volatile Days
(Volatile Days are those which made the top 20 best or worst percentage move days since 1986)
• Over the past 20 years, 14 years did not have any of the 10 best days while 6 of those days occurred in 1987 and 2002.
• 1987 had 5 of the 20 worst days with 3 of those occurring in October.
• 10 years did not have any of the 20 worst days.
• 7 out of 9 Trading Days in 1987 were volatile days (4 down / 3 up)
• 2 out of 2 Trading Days in 1997 were volatile days (1 up / 1 down)
• One month in 1998 had 5 Trading Days as volatile (3 down / 2 up)
• 2 days in a week in 2001 were volatile days (1 up / 1 down)
• 8 days between July - October 2002 were volatile days (2 down / 6 up)

While Tuesday is just further evidence that no one can know in advance the best days and the worst days, having a solid game plan and sticking to a non-emotional strategy will enable an investor to achieve attractive returns in an environment of sound risk management. Address problem stocks as they arise, make sure your stop loss points are realistic and palatable if hit, and remember that this is nothing that we haven't seen before. The headlines are always a little different, but our reasons for taking action are not.
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Second is this essay by Scott Grannis, Chief Economist at Western Asset Management...

Equity markets took a drubbing today (yesterday), with the S&P 500 falling 3.5%, as bad news from several quarters undermined confidence.

Overseas, Chinese equities were down almost 10% as the government took steps to prick what is perceived to be an equity bubble amidst ongoing efforts to slow what is feared to be an overheating economy. It's ironic that China's problems stem ultimately from the fact that things are so good there. With massive reserves at its disposal, the Chinese central bank can virtually guarantee that its currency will not be devalued, thus truncating a potential source of downside risk for global investors. But it's even better than that, because the government has essentially conceded to U.S. demands that it revalue its currency against the dollar, and it has been doing so at a regular and predicable pace for over a year and a half. Here's the deal: the central bank has given the world a free put option on the yuan, and the government has given investors a free, in-the-money call option on the yuan. It's hard to pass up a bargain like that, so it's not surprising that the country should be flooded with liquidity, which in turn has been bidding up the prices of Chinese equities (up 130% in the past 18 months even after today's rout) and "overheating" the economy. The government is trying to slow things down, but that's a difficult task when investors still see asymmetrical rewards for investing there.

Meanwhile, back at home our markets were quite vulnerable to any unexpected, adverse developments. Implied volatility was very low in both stock and bond markets, risk premia were very low, and stocks had been moving straight up for the past seven months. First the bad news early this morning from China, then the bad news about an 8% drop in durable goods orders. Then the recollection that Alan Greenspan yesterday said a recession by the end of the year was a possibility. To cap things off, David Malpass in an op-ed in today's WSJ laid out the very real threat of a ratcheting upward of tax burdens over the next several years. And let's not forget the emerging consensus that fourth quarter GDP will very likely be revised down from 3.5% to 2.2% or so, making it clear that the U.S. economy decelerated from a 3.5% pace a year or so ago to what is now probably a 2-2.5% pace. Finally, despite scattered good news here and there, the housing downturn has not yet run its course and will likely remain a drag on growth for at least another 6 months.

Are there instructive parallels between today's environment and other times of crisis? The 1997 S.E. Asian currency crisis was all about devaluations, but that is highly unlikely in the case of China today. However, both the Asian currency crisis and the LTCM/Russian debt crisis of 1998 came during a time when credit spreads were relatively low. Nevertheless, liquidity conditions were generally tighter back then than they are now, since the U.S. Fed had been tightening monetary policy for several years and was not expected to ease, and the dollar was rising, gold was falling, and commodities (and energy prices) were falling. In addition to tighter liquidity conditions, we had substantially higher implied volatility in 1997-98 in both stock and bond markets than we've had in recent years. The U.S. economy was pretty healthy back then, but it was a much tougher world for emerging economies and those with big debt burdens.

Today's panic attack comes at a time when there are few, if any, signs of a dollar liquidity shortage. The dollar is weak, gold is strong, commodities are strong, and oil prices are up 500% from their 1998 lows, all in fact suggesting that dollar liquidity is generally abundant. The global economy is booming, corporate profits are robust all over the globe, and the market expects the Fed to ease 2 or 3 times over the next year or so. And to keep things in perspective, while we haven't had a 3.5% one-day selloff in the stock market for quite some time, such an event is not too unusual most of the time. Indeed, it's been the lack of volatility recently that has been remarkable. The bond market, meanwhile, remains quite calm.

So while the current panic might not pass for a few weeks, it seems unlikely to spiral out of control or trigger any serious repercussions in the economy.
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And last (but never least) is this helpful snippet from today's commentary by the always-insightful, Tim Villano...

Yesterday's massive 3.47% decline for the S&P 500 Cash Index (SPX -50.33 1399.04) took out all downside stops, firstly (SPX 1450) and secondly (SPX 1436). Once again, the similarities to last year are notable as the entire creeping intraday wave-5 rise of the first quarter has been given back in short order. This vulnerability was most clear in the position of Commercial stock index futures traders, who have remained net-short throughout this period. Similar to last year, the entire first quarter appears to have been a game of chicken, which has cut short potential upside timing periods recently mentioned for the beginning of March.

From a data standpoint, yesterday's decline is comparable to some of the worst historic rapid market selloffs, including 1987. Three statistics point to the possibility of a developing selling climax.
1) Extreme low NYSE TICK Index readings, including a (-1033) figure, were recorded.
2) Yesterday was an impressive 98.5% down-volume session for the NYSE, which in part accounts for the closing NYSE TRIN reading (15.77).
3) Finally, the +64% rise in the CBOE Volatility Index (VIX +7.16 18.31) has historically been followed by some stabilization and short-term rebounding.

While these factors suggest that short-term support is likely on weakness during Wednesday's session, yesterday's break may signal the beginning of a bona fide daily wave-4 movement for major indices, which would mean a choppy and difficult trade following a process of stabilization and rebounding.

From a pattern standpoint, the NASDAQ 100 (NDX -74.32 1756.27) is in worse shape than the general market, indicating that rebounding into the (NDX 1780-1795) range will likely meet interim resistance. Short-term intraday patterns uniformly suggest that a test of lows or an unimpressive up-session cannot be ruled out on Wednesday but that rebounding is likely into the beginning of next week following more corrective activity today.

The Futures are rebounding sharply this morning but subject to more selling by the end of today's session. In other words, sharp upside this morning may be given back to a less certain settlement.

We view yesterday's decline as a return to normalized trading patterns from the uncomfortable extended rise of the past few months. According to the S&P 500 Cash Index, a daily wave-4 is now in effect, which could ultimately be followed by a test of highs or new highs. Such an event, should it occur, would likely conclude the bull market which began in March 2003 -- to be followed by a more difficult overall market environment perhaps in the second half of this year and into 2008.

Line Rider

Today's hard decline really is little more than another market oscillation, except this time it is down and ferociously so. It is, in fact, the decline I sought to occur ~3-4 weeks ago, but my timing was off. Its delay merely worsens the ferocity.

Oddly, my nephew created this video (with hard rock music included) that seems a perfect metaphor for the market and our riding its waves, or lines... As in trend lines.




Way to go, Connor -- great show!
-- David M Gordon / The Deipnosophist

A day like any other day

On a day like today -- a wildly down opening, and with massive gaps -- the first item to seek is relative strength. Which stocks among those you track rebound first and with alacrity?

Among my list of opportunities, I note beguiling strength in the following:
Abbott Labs/ABT, Colgate-Palmolive/CL, Clorox/CLX, General Mills/GIS, Heinz/HNZ, Hologic/HOLX, Intuitive Surgical/ISRG (again bouncing off that trend line!), Kellogg/K, Kimberly Clark/KMB, Pepsi/PEP, Research in Motion/RIMM, and Zumiez/ZUMZ. This list could change, and probably will, as the day proceeds.

From this narrowed list, I watch for follow-on strength via studying the intra-day patterns. Subtle clues will abound, and are there for the discerning investor. It would not be a surprise should the market continue its downtrend to several days (or more) from an opening gap down and intra-day decline. Invest with discipline, as always.

Of course, if you proceed with a trader's mindset, then openings such as today's are manna from heaven -- you simply act rather than watch. And then you watch the intra-day patterns build; if they assume a bearish tilt, you sell rather than hope.
-- David M Gordon / The Deipnosophist

The error of my ways

I purchased recently Starbucks/SBUX for various reasons, but two primary reasons devolve to the chart action -- I believed the most recent down trend sufficiently aged to seek a reversal and that reversal should occur on the rising bottoms line. However, I stopped out this morning at $32.35, breaking even after costs.

This is a position I favor - and have for a very long time - but must acknowledge that the shares quietly lose their leadership status. Late Friday, a corporate memo leaked of the CEO's concern that the company's products were commodifying - never good to discover - and the stock reversed hard.

Today, the stock breached the identified rising bottoms line. Even though I can identify support points at current prices, I cannot ignore the reality of what transpires. On to other, better (I hope) opportunities.
-- David M Gordon / The Deipnosophist

We'll Be Together Again

The legendary saxaphonist, John Coltrane, discussing Stan Getz...
"Let's face it. We tenor saxophonists would all play like him, if (only) we could."



Enjoy!
-- David M Gordon / The Deipnosophist

The Transparent Society

On risk and diversification

I received an interesting email message yesterday. It regards my thoughts re hedging. The writer, who prefers to remain anonymous, shares several important and profound insights. It so happens the writer's notion of "farm team" investing is precisely my methodology.

What can I say but that I wish I had written the letter. Oh well, it remains well worth your time to read -- whether you are an investor or a student of the markets.
-- David M Gordon / The Deipnosophist
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Hi, David,

Read and enjoyed your comments on risk and diversification.

I think nine to be a perfectly good number, and I agree that it reduces stock-specific risk to a significant enough degree that it is a reasonable way to go for many investors. Certainly some great investors have achieved tremendous returns through this level of concentration. On the other hand -- and ignoring hedging entirely -- I think it's awfully important to look at risk control (and risk-reward maximization) from a number of angles beyond the number of stocks that one holds in a portfolio. First, and most importantly, there's the issue of diversification, or lack thereof, amongst sectors. A portfolio of nine biotech's is a very risky portfolio, although it might also be a very rewarding portfolio if one holds it during a bull phase in biotech. As to the proposition that thirty or more stocks in a portfolio essentially equals investing in an index, that is demonstrably not true for a significant number of great managers. The legendary Peter Lynch crushed the averages over a very long period of time with portfolios of many hundreds of stocks. I could add the names of many other great investors who have also done so -- over very long periods -- because their portfolios (exceeding 30 stocks) are concentrated in the right places at the right times -- as to industry, value, growth, big cap, small cap, etc.

There's also much to be said for the "farm team" approach to portfolio construction -- a strategy that many great investors employ -- where roughly half of the value of a portfolio will be concentrated in their best ideas (perhaps ten stocks), with another twenty or thirty names comprising much smaller positions on the "farm team." The advantage of this approach is that it puts some skin in the game on the smaller positions, which always has the effect of bringing a higher level of awareness to those positions than is ever achieved by simply putting them on a watch list. There's nothing like money at stake to concentrate the mind on your "watch list," thus enabling one to elevate a particularly promising minor leaguer to the majors at a propitious time.

The whole question of striving to achieve the best possible risk-reward ratio for a portfolio is obviously one of great complexity -- hence the volumes of studies on the subject. But at the end of the day -- at least as to the question of reducing risk -- I would echo the master, Warren Buffett, when he counsels that "risk is not knowing what you own.

Hedging

Over on Seeking Alpha, I received several excellent and important questions. I bring them here, as they are of equal importance to you...

Greetings,
Doesn't 30+ stocks start to replicate an index? Where is the edge there?

Also, why do you dismiss hedging as a "ploy"? It works well for Buffett.

And my reply...

Good morning, John,
Excellent questions; thank you! In fact, each reminds me that I must always address the newer readers who lack familiarity with my earlier posts.

Yes, 30+ stocks replicates an index, and, yes, there is no "edge" to be had there. However, the list is for my readers who have their own investment objectives and risk tolerances: big cap or small cap, growth or value, high price or low price, trending higher or trending lower, and across the wide spectrum of sectors and groups. So I make the list as complete as possible, and thus allow the readers to make their own decisions based on which opportunities resonate for them. I limit my portfolio's holdings to 9 names -- this number has proved optimal in study after study; once long 9 positions, a new position must be arguably compelling as it must displace one already long in my portfolio.

I am not one to shower disrespect on Warren Buffett: he is smarter than me and has more money as well! Nor do I intend to sound dismissive of hedging by terming it a ploy. No, I am a plain vanilla investor: long (only), make money, and when the market is in a mood not to cooperate, take my money and seek balance in my life. That balance expresses itself via my relationships with other people, my incessant travels, and an abiding interest in photography. At those moments -- whether with other people or on the road -- I have nary a care in the world, and find that I pursue the ultimate hedging "ploy" -- living life.
-- David M Gordon / The Deipnosophist

Kindred Spirits

Many people are suspicious of relationships predicated on meeting first via the Internet. If I were equally suspicious, I would not have met many of you. And I would not have met Roger Austin. I have considered Roger always with fondness and affection; Roger and I are, in some ways, kindred spirits.

Roger has just now read that phenomenal essay by Joseph Epstein that I shared here more than 2 weeks ago. In response, he wrote to me privately, which I in turn share with you (with Roger's permission)...

Of course, Roger's comments flatter me, just as Cash's video haunts me. I suspect Roger knew this would be.
-- David M Gordon / The Deipnosophist
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Just read the essay on your blog. That's a keeper. Some great lines to remember. One big advantage of age is the perspective it brings... and the wisdom that time will run out before we know much.

One of my favorite music videos is Johnny Cash's version of Hurt. It was his last as he died later that year (2003)... four months after the death of his wife. He basically sings his own epitaph. He was 71. The original was written by the lead singer of Nine Inch Nails nine years earlier. It was intended as a fatalistic view of life, written when the author was in despair over drug abuse and had been rejected by the love of his life. When he saw Johnny Cash's video he found himself weeping and realized that the song no longer belonged to him. Cash intended it for good. You perhaps have seen it. The producer has written that it strikes a chord with many who write him to thank him for it.

Cash artfully expresses his darkest thoughts with his brightest hopes. He juxtaposes his own pain, self inflicted and otherwise, with his redemption by Christ. There is a good deal to read between the lines. I have watched the video dozens of times. Each segment seems to be woven into a purposeful conclusion. Perhaps the most fascinating thing to me is that Cash wears his neuropathy on his face and the only emotion he shows is anguish. He died of autonomic neuropathy, a complication of diabetes.

Anyway, the Epstein essay of life at 70 made me think of Cash. I miss him. I followed his roller coaster life since I was in high school. I have always been attracted to his transparency and candor. I have retired police friends who are not aging well. Some have died young. Others wear their neuropathy on their face. I feel like a survivor.

Here is Johnny Cash, reflecting at 71...



I don't get to your blog often, but when I do I stay a while and enjoy myself. You have many unique gifts and share them freely. Yes, we are kindred introspective spirits. It was you that encouraged me to express myself on the old Gilder forum and kept giving me positive feedback. I really had kept so much hidden... even from myself. In this chapter of life I am spending lots of time with the horses and less time on the computer. Life is good.

Best to you.
Roger

"Take pictures..."

Enjoyed a weekend away, and had the great good fortune to see and meet Kristin Hersh in 'concert'...

[click on each photo to enlarge]

Yes, I was that close; Kristin was perhaps 4 feet from my outstretched cell phone's camera eye. (Which accounts for the lousy photo quality -- a 1.3 megapixel camera.)

Kristin came on stage and proceeded to belt out ~10 songs - most from her just-released CD, but some older titles as well! - in an almost (Janis) Joplin-esque manner: very emphatic, heartfelt, wistful, painful, and of course voice-shredding. She is extraordinarily talented. See Kristin Hersh at a show near you.
-- David M Gordon / The Deipnosophist

Ray LaMontagne

It's Friday, so it is time for some music... The snippet of a review below is by AMG:

If it weren't for his singing voice, so full of smoke and ether, one would be hard-pressed to believe that Till the Sun Turns Black was made by the same man who recorded Trouble just two years prior to it. Ray LaMontagne takes a brave leap... Whole comparisons to Nick Drake will be forthcoming, no doubt, but it's only really accurate when thinking of Drake in his work with John Cale, who fully and implicitly understood the singer's intent. Check LaMontagne's opener, "Be Here Now," with the guitar finding its way toward the singer as a quartet of violins, two cellos, and a bowed bass emerge to support his voice in the void of silence Johns creates around it. Johns' piano fills in odd spaces. They don't seem to add up, but they do when LaMontagne's vocal whispers its way forward into that small swell of shadow..."

Download and listen to the phenomenally lush and indescribably wonderful, Be Here Now...



But why limit your listening pleasure to one song no matter how fine it is? Buy the entire CD, Till The Sun Turns Black here.
-- David M Gordon / The Deipnosophist

Inflation outlook

Twice in the same week! The commentary below is by Scott Grannis, the inestimable Chief Economist at Western Asset Management.
-- David M Gordon / The Deipnosophist
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Bernanke's testimony yesterday revealed that although the Fed believes that inflation pressures are going to diminish, they remain on guard since it will be several months at least before they can be sure that inflation has turned the corner. The core PCE deflator has been above the Fed's 2% target for two and a half years, and continued complacency could weaken the market's faith that the Fed will keep inflation under control.

In the Fed's view, inflation pressures increase if the economy grows above its "potential," and decrease if the economy slows down. The fact that growth in the last 9 months of 2006 slowed to a roughly 2.2% pace (taking into consideration that Q4 GDP growth will likely be revised down from the originally reported 3.5% to 2% or so due to adverse news on net exports and inventories) is thus a source of comfort to the Fed. But the labor market remains "tight," with low unemployment, rising wage gains, and no sign of any increase in the pace of layoffs. With productivity having fallen, the Fed's estimate of potential growth has also fallen, which means that the economy will likely have to grow at a sub-3% pace to avoid triggering greater inflation concerns among Fed governors. The housing market is likely to be a drag on growth for most of this year, and if that keeps the economy growing at the pace of the past nine months then perhaps the Fed can breath a sigh of relief as it will have executed a nice soft landing and no further action on the interest rate front will be required. For the time being, the Fed is likely to remain on hold.

For more than 10 years I have used a different model of inflation, one based on an analysis of sensitive market indicators of inflationary pressures. This model assumes that inflation is a monetary phenomenon, not a byproduct of excessive growth. Inflation results from an excess of money relative to the demand for money, and this imbalance can be observed in a variety of key indicators. Signs of easy money and rising inflation pressures include 1) a weak dollar, 2) rising tangible asset prices (gold, commodities, and real estate), 3) low credit spreads, 4) low real interest rates, 5) a steep yield curve, and 6) rising breakeven spreads on TIPS.

After consistently forecasting low and falling inflation throughout the 1990s and early 2000s, I switched to a forecast of rising inflation in early 2004. At the time I made this call, the dollar had declined 30% from its early-2002 high, gold had risen from a low of $250 to over $400, real estate and commodity prices were rising everywhere, credit spreads were low (swap spreads were less than 40 bps), real interest rates were relatively low, the yield curve was steep (2-30 spreads were over 300 bps), and breakeven spreads had risen from a low of 1.2% to 2.3%. In short, all the key indicators suggested that monetary policy was accommodative, and the Fed also told us so, promising to keep the Fed funds rate at 1% "an extended period". I thought that the Fed had been too easy for too long, ignoring all the signs that liquidity was abundant and the economy was accelerating, and that this pointed clearly to a rising inflation trend over the next several years.

As it turned out, the core PCE deflator bottomed at 1.1% in Sep. '03, and the core CPI registered a low of 1.1% in Nov. '03. Both measures subsequently rose to 2.5% or so, briefly touching 3%. That's not much of an acceleration, and to be honest it was a good deal less than I expected to see, but the trend was indeed up. Interest rates have also trended up (albeit very gradually) since then, and the Fed ended up raising the funds rate somewhat more than the market expected.


Surveying the inflation landscape today, the first four of my key inflation indicators suggest that monetary policy is still accommodative: the dollar is quite weak, gold is strong, industrial commodity prices are very strong, spreads are low, and real interest rates are relatively low. Real estate prices are soft on the margin, but remain quite elevated. The last two suggest that monetary policy is just about right or maybe a bit tight: the yield curve is partially inverted, and breakeven spreads are low and stable. So as I read the monetary tealeaves, I conclude that the current outlook for inflation is mixed, but the balance of risks points to a modest uptrend in inflation over the course of the next few years, and gold at $670 is giving the strongest such signal. The fact that gold rose and the dollar weakened in response to Bernanke's testimony supports the view that keeping policy on hold equates to remaining somewhat accommodative.

[click on each image to enlarge]

As Bernanke indicated, of course, it's going to be at least several months before we know whether inflation is indeed declining, or stable, or whether it continues to drift irregularly higher. My best guess is that the rise in inflation will be very gradual and relatively modest. If I'm right, the Fed is likely to make some modest upward adjustments to its funds rate target later this year and next. None of this should pose a serious threat to the economy or the financial markets, but a tighter Fed would probably give a boost to the struggling dollar, and this could help mitigate the extent to which inflation rises in coming years.

Needless to say, it's going to be very interesting to see how the inflation picture shapes up over the course of this year.

Chernoff faces

I neither like nor enjoy being wrong. Most recently the market proved me wrong by not turning down as I had expected. But I live with such occurrences (well, non-occurrences), as I also have learned that I am always wrong. (A tale for another time.) So I not only live with it; I work with it. How? By focusing my attention at all times on those investment opportunities I deem worthy. Not to sow additional confusion, but there is a bullish perspective to consider...

Dow Theory tracks divergences; when the Transports and Industrials averages strike new highs concurrently (not necessarily simultaneously), then such action confirms a bull market. With all three Dow averages now at new all-time highs, the market is at its first triple all-time high in nine years. (The last time all three indices made new highs was on March 17, 1998.) Since 1929 (78 years!), this event has occurred on only sixteen occasions.

[click on each image to enlarge]

Obviously, there is no divergence in these crucial averages, so Dow Theory is in upside sync. Please do not forget that oscillations of price will occur across the spectrum of periodicities, especially the shorter term, and at any time.

Included below is the NASDAQ Composite for the purpose of comparison...

Okay, so what does this mean to me, to you? That despite my sometimes unnecessary concerns re the market's dynamics, patterns, and setups, I keep right on investing; that is, buying. Sans various ploys to hedge one's portfolio, there do exist methods to retain upside exposure (profits) while reducing risk (losses). I have shared previously the high level consolidation; together, we found near twenty (20) stocks that trade in this profoundly bullish base for nigh on a decade now; in fact, several selections break out and up to new all-time highs.

Another method is to purchase relative lows; the presumed bottom of the base. Be careful, however; if you do not know how to recognize this type of setup, risk increases while reward decreases, and will frustrate only yourself as you watch other opportunities you did not purchase go higher without you.

Once again, I share below my master list of those opportunities I favor. The list is not complete; for example, I skip the resources sector (e.g., oil, metals, and uraniums). Too, it is necessarily sketchy; I will flesh out my reasoning in future posts that will limn the whys and hows for each opportunity.
1) Apple/AAPL: It is early yet in this presumed base, but to date it shapes up as a shallow correction, more of time than price. In fact, the low end of the range - and my optimal purchase point assuming the bullish resolution - occurs at ~$77.
2) Abbott Labs/ABT: Massive high level consolidation that sets up as bullish across its daily, weekly, and monthly periodicities.
3) Arena Pharmaceuticals/ARNA: Prepares to assault the $20 level... which is ~40% from here!
4) Avery-Denison/AVY: A reader recommends this one; I agree. Great story, great chart!
5) Anheuser Busch/BUD: See comment above, although BUD requires more work (time).
6) Colgate-Palmolive/CL:
7) Clorox/CLX: The train leaves the station for these two (CL and CLX), as they emerge from their profoundly bullish high level consolidations into all-time highs. Each might hesitate, albeit briefly, in that phenomenon known as trader's remorse.
8) Comerica/CMA: Another reader recommendation with which I agree. Great opportunity, great chart!
9) Chipotle Mexican Grill/CMG: Discussed here repeatedly. The shares continue in its great looking (to date), intermediate term base. Will its earnings report provide the catalyst to break out and up?
10) Genentech/DNA: Also discussed previously. Begins slowly to emerge from its lengthy (time) but shallow (price) consolidation.
11) General Mills/GIS: This stock has been a leader to the upside for those stocks that continue trading in their high level consolidation. I prefer to buy it down; i.e., lower -- say on or near its 200 day sma.
12 Google/GOOG: What more can I say? The stock continues in its high level consolidation, trading between $513 and $325; I believe, however, a new floor builds at $450. I would be very surprised to see it trade beneath that level. The investment firm, Amtech, likewise thinks that GOOG is,

"...interesting here after pulling back $40 following an in-line quarter and re-testing the $455-460 levels. Firm says that the problem is not with GOOG's business, but that expectations have caught up. Because it no longer seems to have the upside surprise factor, the firm says the stock correction is not really surprising, but they think valuation reflects this reality. Firm says a quick look at other mega-cap software names shows that GOOG is relatively cheap given its superior growth."

This is, in a nutshell, precisely what I have been stating here, lo these past many months.
13) Heinz/HNZ: In gear to the upside on the daily chart, it remains in its high level consolidation basis the monthly.
14) Hologic/HOLX: Discussed previously (months ago), it recently emerged into new all time highs after a lengthy (time) but shallow (price) consolidation.
15) Isis Pharmaceuticals/ISIS: Continues to probe, but hold at, crucial support at $10, at which price it represents a low risk, high reward probability.
16) Intuitive Surgical/ISRG:
Note ISRG consolidates its breakout above the line of declining tops. Once resistance, now support. For how much longer will this minor consolidation continue before heading for $200/share? Does it await the simple moving averages to catch up to price action?
17) Johnson & Johnson/JNJ: Ideal purchase at ~$61; however, the shares might not decline even that low.
18) Kellogg/K: The huge base continues to build; its breakout lies at $51. The longer K trades sideways in this high level consolidation, the bigger the upside price movement when it fiinally occurs. The breakout is so close, one might as well await the signal itself. Unless the shares first decline sufficiently to diminish the risk.
19) Kimberley Clark/KMB: Same comment above re K.
20 Coca Cola/KO: Already discussed.
21) Qualcomm/QCOM: Yesterday's move negates the budding bearish setup. Watch shorts scramble for cover.
22) Research in Motion/RIMM: Building a new intermediate term base, and a shallow one at that, after an explosive upside move (~100%).
23) Starbucks/SBUX:
Long favored, I trade around its oscillations. This monthly chart (below) shows the possible ascending triangle, which is one reason I purchased recently some shares...

The daily basis chart (above) shows why purchases at or near the rising bottoms line make for a good speculation, and is a second reason I purchased. The stop is immediately beneath your acquisition price and it (the price) continues to rise, which means even if the stock breaches the line to the downside, your stop level might represent a profit. (I admit that purchasing such a setup is not for everyone, especially those for whom certainty is a key requirement.)
24) Snap-On Tools/SNA: Big base breakout at ~$46; the stock retraces to test that breakout.
25) Suntrust Banks/STI: Another reader recommendation, and a fine selection at that!
26) Triumph Group/TGI: Discussed already, and at length.
27) Under Armour/UA: Will UA decline to ~$43? Its decline to date proves to be comparatively shallow.
28) Unilever/UL: A reader proposes; I agree. Its recent short term retracment to point of breakout appears complete.
29) MEMC Electronic/WFR: Discussed previously.
30) Wal-Mart/WMT: Discussed previously, most recently in my chatter re high evel consolidations.
31) Yahoo/YHOO: Interesting hedge of a sort to GOOG; as GOOG trades in its high level consolidation, investment money will power higher YHOO.
32) Quicksilver/ZQK: Discussed previously, and at length.
33) Zumiez/ZUMZ: Discussed previously.

Okay, there you have it; my investment grocery list. Please recall that the names rarely change, only the prices. And that investors need not fear oscillations in prices and trends, but instead embrace them; those oscillations create our opportunities as investors. Too, this post has been necessarily brief, as the markets open soon; I intend to offer more of my thoughts both as new posts devoted to specific opportunities (those, at least, for which I have yet to offer my remarks) and in reply to your questions and comments (to this post). Of which I hope there will be many.

Thank you for reading and commenting.
-- David M Gordon / The Deipnosophist

Federal deficit vanishing act

The following commentary is by Scott Grannis, Chief Economist at Western Asset Management.
-- David M Gordon / The Deipnosophist
================================
Federal revenues have grown over 12% a year for the past 30 months, 11.5% over the past year, and at a 9% annual rate in the past six months. Things have cooled off a bit, but revenues have far exceeded expectations and continue to grow at an impressive rate, thanks to corporate profits, capital gains and incomes that continue to beat most expectations. Meanwhile, despite President Bush's inability to wield his veto pen, and despite the military buildup and the Iraq War, federal government spending has grown only 6.5%, 5.6%, and 3.2% over those same periods. The result is a dramatic decline in the budget deficit, which totaled only $192 billion in the 12 months ended January, or about 1.4% of GDP. At this rate, budget surpluses could be making headlines before the 2008 presidential elections.

[click on each image to enlarge]

Although the deficit is already in the region where it matters very little (if at all) to either the economy or the financial markets, politicians often march to the beat of a different drum. There are still many who favor higher taxes, but those that do are finding it a hard sell given these new budget realities. So instead of banging on the deficit drum, some are trying to focus attention on the future, monster deficits that are likely to be generated by social security and medicare. The problem with that approach is that those deficits are so far out on the horizon that they are pretty intangible to most folks. Others are focusing on the alleged widening gap between rich and poor (I say alleged because credible people like Alan Reynolds claim it does not even exist), or on saving the planet from the excesses of human consumption.

Budget opportunists might argue that since conditions have rarely been so good, now is the time we are most able to afford higher taxes. After all, unemployment is low, inflation is relatively low, credit spreads are relatively low, financial market volatility is relatively low, the stock market is rising, household net worth has soared to $53 trillion from its $41 trillion peak before the stock market bubble burst, and the global economy has never been so strong.

Let's stipulate, for the sake of argument, that by next year the electorate generates enthusiasm for a presidential candidate that proposes tax hikes on the rich and profitable, in the spirit of Hillary Clinton's recent declaration: "I want to take those [oil company] profits, and I want to put them into a strategic energy fund … ." In other words, higher taxes are OK because some parts of the economy are doing too well, while others aren't. What impact would this likely have on the overall economy, considering that the new president probably couldn't pass any major tax-hike legislation until the middle of 2009 or later?

As Art Laffer has taught us, higher taxes, especially on those that are the most productive, would probably be bad for the economy ("tax something more and you'll get less of it"). However, Art also reminds us that the prospect of a future tax hike would likely have the perverse effect of boosting the economy in the short run. That's because as people anticipate that taxes will be raised significantly at some future date, they are likely to do everything possible to accelerate and realize income and gains before the tax hike takes effect. It is only after the tax hike takes effect that economic growth would be likely to fall off. Thus we might see the stock market decline in 2008, in anticipation of the weakness to come in 2009 or 2010, even as the economy was to all appearances quite healthy. The bond market might also have some difficulties around that time, since a stronger economy would increase the Fed's concern over the risk of higher inflation.

Some things to ponder and worry about, since otherwise the only obvious negative out there is the ongoing housing market correction which, so far, the economy has been able to digest relatively easily.

Patty Griffin

My computer's hard drive runs over with all the music I have been listening to of late. What astounds me is the phenomenal excellence of each musician. Oh sure, there are duds, especially when you listen to as many CDs as I do, but more often than not, I am taken aback by the sheer quality, as well as quantity, of excellent music.

Consider, for example, Patty Griffin. Her new CD hit the stores only last week. AMG reviews it especially favorably; below is a snippet...

"... the tragically haunting, Trapeze, with backing vocals by Emmylou Harris. Griffin's song is lyrically her own, but there is a trace of Bruce Springsteen's country-ish phrasing in her delivery. As Harris' duet vocal joins on the second verse, the tale strips itself of time and place and becomes a folk song, a tale told too often but never in this way as the refrain lays out a proverb for the ages:

Some people don't care if they live or they die
Some people want to know what it feels like to fly
They gather their courage and they give it a try
And fall under the wheels of time going by.

The song builds to a stirring climax and the final word, "Hallelujah," resonates long after the track concludes.

Care to listen to Trapeze, and share the excitement? Download below...



Even better than one song would be to purchase the entire CD. And then share your comments...
-- David M Gordon / The Deipnosophist

Colgate-Palmolive/CL

The ECONOMIST chimes in on a favored opportunity, Colgate-Palmolive/CL. This article qualifies pretty much as a left-handed compliment. You already have the bullish appraisal by me.
-- David M Gordon / The Deipnosophist
=================================
Still fresh?

Feb 1st 2007
From The Economist print edition

Colgate's days of rapid growth may now be behind it

FEW chief executives nowadays manage to dominate a company for as long as Reuben Mark has, let alone leave at a time of their own choosing and with an intact reputation. Mr Mark, who confirmed on January 30th that he will step down as boss of Colgate-Palmolive this year (probably at the annual meeting in May, say analysts) has headed the consumer-products giant for 23 of his 68 years and worked there for more than 40. During his tenure total shareholder returns have exceeded 4,000%, almost three times those of the American stockmarket. This week Colgate announced record profits of $1.65 billion (£897m), up 12% over 2005, on sales of $12.2 billion—and promised further double-digit growth for 2007.


The higher the note on which Mr Mark departs, however, the tougher the job will be for his successor, Colgate's 54-year-old president and chief operating officer, Ian Cook. The impact of a big restructuring programme (a rare event at Colgate) which helped to lift profits last year, and should add some $300m to the bottom line in 2007, will fade thereafter. Rapid expansion in Latin America, which accounts for nearly a third of profits and where sales are growing by 14% a year, may slow as the region's economies cool. Some analysts expect Colgate's earnings growth to drop to the mid-single digits from 2008.

It is hard to see what could rev it up again. The legacy of Mr Mark's disciplined and highly focused style is a culture that is conservative—some would say overly conservative. Colgate's last big innovation, its range of “Total” toothpastes to fight tooth decay, was introduced in the 1990s. It was late to the newer craze for whitening strips, which was spotted first by Crest, its arch-rival, owned by Procter & Gamble (P&G). Colgate's copycat product—a paint-on whitener—was a flop. And most of Colgate's recent new products, though slickly promoted by celebrities such as Brooke Shields, are brand extensions: toothpastes flavoured with mint or cinnamon, or enriched with vitamin C.

“Colgate is not strong on big innovation,” says Jason Gere, an analyst at AG Edwards in New York. “The business is in great shape now, but my biggest question is about future growth.” By contrast, P&G has gambled on entire new product categories and has created billion-dollar hits such as its Swiffer anti-static mops.

In addition to its relative lack of innovation, Colgate has also eschewed big acquisitions. Mr Mark reportedly once dreamt of a merger with Gillette, a company snapped up by P&G in 2005. Last year Pfizer's consumer-health division, including Listerine mouthwash—a brand Mr Mark said he would love to own—was bought by Johnson & Johnson. Either multi-billion dollar deal would have been risky. But by passing them up, Colgate has closed off potential routes to long-term growth and allowed two of its larger rivals to become even more threatening.

Once P&G combines the clout of its own Crest brand with Gillette's Oral-B franchise, Colgate could find its core earnings from toothpaste being squeezed. And Colgate's heavy reliance on a few categories (it is in about one-fifth as many product markets as P&G) in a relatively small number of regions (in some Latin American countries its market share in toothpaste approaches 80%) makes it vulnerable to a price war or a determined marketing push by a rival.

Today such risks look theoretical, and Colgate's healthy near-term growth and fat share-price are very real. Yet corporate fortunes can change rapidly and it is worth asking how quickly a culture as conservative as Colgate's would adapt. Mr Cook is a reserved, rather unflamboyant British marketing manager, making Mr Mark look feisty by comparison. Like Mr Mark he is also a company lifer, having been at Colgate for over three decades. Not only has he risen under Mr Mark, he will also have his former boss remaining as chairman, at least for a while—which falls short of best practice in corporate governance. The rest of the board of eight non-executive directors has an average age of more than 66 (three are over 70) and six have each served for more than 10 years—which under British standards would throw their independence into doubt.

Investors rarely question a company's corporate governance when all is going well, but they swiftly turn into critics if things change. Mr Cook is inheriting a strong, efficient company, but maintaining Colgate's growth will be no easy task.

Splinter skills

It seems -- well, in fact, has becomes obvious -- that most investors now stumble about in a stupor with re to Google/GOOG. "What is wrong with the stock?" they wonder. "That last quarter was a blowout, beyond expectations, and yet the stock goes down!"

Fortunately, 'those investors' does not include this site's readers; amply warned that the shares were headed for $450 - $425. (The stock is down ~$10 to ~$471.50 as I write this post.)

And while the stock does its thing, the company does its specialty. Note, for example, this insight from Henry Blodget, "...the peak quarters for CAPEX appear to be behind us... should lead to a major acceleration in FCF growth for 2007." And then there is this speculation by Robert Cringely, "I think Google is building for a future they see but most of the rest of us don't... Google intends to take over most of the functions of existing fixed networks in our lives, notably telephone and cable television."

Only the fullness of time will prove correct Cringely's and Blodget's speculations; meanwhile, the company continues to accrete value -- despite the omni-present oscillations of its stock.

It is ever thus.
-- David M Gordon / The Deipnosophist

Kid Turns 70... And Nobody Cares

The excellent essay (below) re aging and intelligence and even life itself is among the best I have ever read. It even is quite thrilling in its warm and wise and melancholy way; inspiring to courage. I believe that you, too, will enjoy it for its many qualities -- despite its length.
David M Gordon / The Deipnosophist

The WEEKLY STANDARD
Kid Turns 70… And nobody cares
by Joseph Epstein

Seventy. Odd thing to happen to a five-year-old boy who, only the other day, sang "Any Bonds Today," whose mother's friends said he would be a heartbreaker for sure (he wasn't), who was popular but otherwise undistinguished in high school, who went on to the University of Chicago but long ago forgot the dates of the rule of the Thirty Tyrants in Athens and the eight reasons for the Renaissance, who has married twice and written several books, who somewhere along the way became the grandfather of three, life is but a dream, sha-boom sha-boom, 70, me, go on, whaddya, kiddin' me?

A funny age to turn, 70, and despite misgivings I have gone ahead and done it, yet with more complex thoughts than any previous birthday has brought. Birthdays have never been particularly grand events for me; my own neither please nor alarm me. I note them chiefly with gratitude for having got through another year. I have never been in any way part of the cult of youth, delighted to be taken for younger than I am, or proud that I can do lots of physical things that men my age are no longer supposed to be able to do: 26 chin-ups with gila monsters biting both my ankles. I have always thought I looked--and, as mothers used to instruct, always tried to act--my age. But now, with 70 having arrived, I notice that for the first time I am beginning to fudge, to hedge, to fib slightly, about my age. In conversation, in public appearances, I described myself as "in my late 60s," hoping, I suppose, to be taken for 67. To admit to 70 is to put oneself into a different category: to seem uncomfortably close to, not to put too fine a point on it, Old Age.

At 70 middle age is definitely--and definitively--done. A wonderful per iod, middle age, so nondescript and im precise, extending perhaps from one's late 30s to one's late 60s, it allows a person to think him- or herself simultaneously still youthful, though no longer a kid. Forty-eight, 57, 61, those middle-aged numbers suggest miles to go before one sleeps, miles filled with potential accomplishments, happy turnabouts in one's destiny, midlife crises (if one's tastes run to such extravaganzas), surprises of all kinds.

Many ski lifts at Vail and Aspen, I have been told, no longer allow senior-citizen discounts at 60, now that so many people continue skiing well into their 60s. With increased longevity, it's now thought a touch disappointing if a person dies before 85. Sixty, the style sections of the newspapers inform us, is the new 40. Perhaps. But 70--70, to ring a change on the punchline of the joke about the difference between a virgin and a German Jew--70 remains 70. One can look young for 70, one can be fit for 70, but in the end there one is, 70.

W.H. Auden, who pegged out at 66, said that while praying we ought quickly to get over the begging part and get on to the gratitude part. "Let all your thinks," he wrote, "be thanks." One can either look upon life as a gift or as a burden, and I myself happen to be a gift man. I didn't ask to be born, true enough; but really, how disappointing not to have been. I had the additional good luck of arriving in 1937, in what was soon to become the most interesting country in the world and to have lived through a time of largely unrelieved prosperity in which my particular generation danced between the raindrops of wars: a child during World War II, too young for Korea, too old for Vietnam, but old enough for the draft, which sent me for 22 months (useful as they now in retrospect seem) off to Missouri, Texas, and Arkansas. My thinks really are chiefly thanks.

As for my decay, what the French call my décomposition géneralé, it proceeds roughly on schedule, yet for the moment at a less than alarming rate. I have had a heart bypass operation. Five or so years ago, I was found to have auto-immune hepatitis, which caused me no pain, and which side-effectless drugs have long since put in remission. I am paunchless, have a respectable if not abundant amount of hair atop my head (most of it now gray, some of it turning white), retain most of my teeth (with the aid of expensive dentistry). I have so far steered clear of heart attack, dodged the altogether too various menacing cancers whirling about, and missed the wretched roll of the dice known as aneurysms. (Pause while I touch wood.) My memory for unimportant things has begun to fade, with results that thus far have been no more than mildly inconvenient. (I set aside 10 minutes or so a day to find my glasses and fountain pen.)

I have not yet acquired one of those funny walks--variants of the prostate shuffle, as I think of them--common to men in their late 60s and 70s. I am, though, due for cataract surgery. I'm beginning to find it difficult to hear women with high-pitched voices, especially in restaurants and other noisy places. And I take a sufficient number of pills--anti-this and supplement-that--to have made it necessary to acquire one of those plastic by-the-day-of-the-week pill sorters.

Suddenly, I find myself worrying in a way I never used to do about things out of the routine in my life: having to traverse major freeways and tollways to get to a speaking or social engagement. I take fewer chances, both as a driver and once intrepid jaywalker. I find myself sometimes stumbling over small bumps in the sidewalk, and in recent years have taken a couple of falls, where once I would do an entrechat and a simple pirouette--a Nureyev of the pavement--and move along smartly. I walk more slowly up and down stairs, gripping the railing going downstairs. I have, in sum, become more cautious, begun to feel, physically, more fragile, a bit vulnerable.

Sleep has become erratic. Someone not long ago asked me if I watched Charlie Rose, to which I replied that I am usually getting up for the first time when Charlie Rose goes on the air. I fall off to sleep readily enough, but two or three hours later I usually wake, often to invent impressively labyrinthine anxieties for myself to dwell upon for an hour or two before falling back into aesthetically unsatisfying dreams until six or so in the morning. Very little distinction in this, I have discovered by talking to contemporaries, especially men, who all seem to sleep poorly. But this little Iliad of woes is pretty much par for the course, if such a cliché metaphor may be permitted from a nongolfer. That I have arrived at 70 without ever having golfed is one of the facts of my biography to date of which I am most proud.

"Bodily decrepitude," says Yeats, "is wisdom." I seem to have accrued more of the former than the latter. Of wisdom generally, I haven't all that much to declare. I find myself more impressed by the mysteries of life and more certain that most of the interesting questions it poses have no persuasive answers, or at least none likely to arrive before I depart the planet. I haven't even settled the question of whether I believe in God. I try to act as if God exists--that is, the prospects of guilt and shame and the moral endorphins that good conduct brings still motivate me to act as decently as I'm able. I suffer, then, some of the fear of religion without any of the enjoyment of the hope it brings. I don't, meanwhile, have a clue about why there is suffering in the world, whether there is an afterlife, or how to explain acts of truly grand altruism or unprofitable evil. You live and you learn, the proverb has it; but in my case, You live and you yearn seems closer to it.

But then, I must report that at 70 even my yearnings are well down. I have no interest in acquiring power of any kind and fame beyond such as I now pathetically possess holds little interest for me. My writing has won no big prizes, nor do I expect it ever to do so. ("Tell them," the normally gentle and genteel 90-year-old William Maxwell said to Alec Wilkinson and another friend on the day before his death, "their f--ing honors mean nothing to me.") I am ready to settle for being known as a good writer by thoughtful people.

I would like to have enough money so that I don't have to worry, or even think, about money, but it begins to look as if I shan't achieve this, either. Rousseau spoke of feeling himself "delivered from the anxiety of hope, certain of gradually losing the anxiety of desire . . . " I've not yet lost all my desire, and suspect that to do so probably is a sign of resigning from life. Although I'm not keen on the idea of oblivion, which seems the most likely of the prospects that await, I like to think that I have become a bit less fearful of death. One of the most efficient ways to decrease this fear, I've found, is to welcome death, at least a little, and this growing older can cause one to do--or at least it has me, sometimes.

Seventy poses the problem of how to live out one's days. To reach 70 and not recognize that one is no longer living (as if one ever were) on an unlimited temporal budget is beyond allowable stupidity. The first unanswerable question at 70 is how many days, roughly, are left in what one does best to think of as one's reprieve. Unless one is under the sentence of a terminal cancer or another wasting disease, no one can know, of course; but I like the notion of the French philosopher Alain that, no matter what age one is, one should look forward to living for another decade, but no more. My mother lived to 82 and my father to 91, so I'm playing, I suppose, with decent genetic cards. Yet I do not count on them. A year or so ago, my dentist told me that I would have to spend a few thousand dollars to replace some dental work, and I told him that I would get back to him on this once I had the results of a forthcoming physical. If I had been found to have cancer, I thought, at least I could let the dentistry, even the flossing, go. Turning 70 one has such thoughts.

At 70 one encounters the standard physical diminutions. I am less than certain how old I actually look, but in a checkout line, I can now say to a young woman, "You have beautiful eyes," without her thinking I'm hitting on her. If my dashing youthful looks are gone, my intellectual and cultural stamina are also beginning to deplete. I have lost most of my interest in travel, and feel, as did Philip Larkin, that I should very much like to visit China, but only on the condition that I could return home that night.

Another diminution I begin to notice is in the realm of tact. I have less of it. I feel readier than ever before to express my perturbation, impatience, boredom. Why, with less time remaining, hold back? "I wonder," I find myself wanting to say to a fairly large number of people, "if you haven't greatly overestimated your charm?" Perhaps, though, I do better to hold off on this until I reach 80, as I hope to be able to do; it will give me something to live for.

A younger friend in California writes to me that, in a restaurant in Bel Air, Robin Williams, Emma Thompson, and Pete Townsend (of The Who, he is courteous enough to explain) walked by his table. I write back to tell him that I would have been much more impressed if Fred Astaire, Ingrid Bergman, and Igor Stravinsky had done so. My longing to meet Robin Williams, Emma Thompson, and Pete Townsend is roughly the same, I should guess, as their longing to meet me.

I don't much mind being mildly out of it, just as I don't finally mind growing older. George Santayana, perhaps the most detached man the world has known outside of certain Trappist monasteries, claimed to prefer old age to all others. "I heartily agree that old age is, or may be as in my case, far happier than youth," he wrote to his contemporary William Lyon Phelps. "I was never more entertained or less troubled than I am now." Something to this, if one isn't filled with regret for the years that have gone before, and I am not, having had a very lucky run thus far in my life. At 70 it is natural to begin to view the world from the sidelines, a glass of wine in hand, watching younger people do the dances of ambition, competition, lust, and the rest of it.

Schopenhauer holds that the chief element in old age is disillusionment. According to this dourest of all philosophers, at 70 we have, if we are at all sentient, realized "that there is very little behind most of the things desired and most of the pleasures hoped for; and we have gradually gained an insight into the great poverty and hollowness of our whole existence. Only when we are seventy do we thoroughly understand the first verse of Ecclesiastes." And yet, even for those of us who like to think ourselves close to illusionless, happiness keeps breaking through, fresh illusions arrive to replace defunct ones, and the game goes on.

If the game is to be decently played, at 70 one must harken back as little as possible to the (inevitably golden) days of one's youth, no matter how truly golden they may seem. The temptation to do so, and with some regularity, sets in sometime in one's 60s. As a first symptom, one discovers the word "nowadays" turning up in lots of one's sentences, always with the assumption that nowadays are vastly inferior to thenadays, when one was young and the world green and beautiful. Ah, thenadays--so close to "them were the days"--when there was no crime, divorce was unheard of, people knew how to spell, everyone had good handwriting, propriety and decorum ruled, and so on and on into the long boring night of nostalgia.

Start talking about thenadays and one soon finds one's intellectual motor has shifted into full crank, with everything about nowadays dreary, third-rate, and decline-and-fallish. A big mistake. The reason old people think that the world is going to hell, Santayana says, is they believe that, without them in it, which will soon enough be the case, how good really can it be?

Seventy brings prominently to the fore the question of Big D, and I don't mean Dallas. From 70 on, one's death can no longer be viewed as a surprise; a disappointment, yes, but not a surprise. Three score and ten, after all, is the number of years of life set out in the Bible; anything beyond that is, or ought to be, considered gravy, which is likely to be high in cholesterol, so be careful. Henry James, on his deathbed, in a delirium, said of death, "So here it is at last, the distinguished thing." Wonder why? Few things are less distinguished than death, that most democratic of events and oldest of jokes that comes to each of us afresh.

At 70 one more clearly than ever before hears footsteps, as they say wide-receivers in the NFL do who are about to be smashed by oncoming pass-defenders while awaiting the arrival of a pass thrown to them in the middle of the field. The footsteps first show up in the obituary pages, which I consult with greater interest than any other section of the newspaper. Not too many days pass when someone I know, or someone whom someone else I know knows, does not show up there. Late last year the anthropologist Clifford Geertz and the novelist William Styron conked out; neither was a close friend, though as fellow members of an editorial board I spent a fair amount of time with them. Then the tennis player Ham Richardson appeared on the obit page. I was a ballboy for an exhibition he and Billy Talbert put on with two members of the Mexican Davis Cup team at the Saddle & Cycle Club in the 1950s in Chicago. I was surprised to learn that Richardson was only three years older than I. I am fairly frequently surprised to discover that the newly deceased are only a little older than I.

Along with footsteps, I also hear clocks. Unlike baseball, life is a game played with a clock. At 70, a relentlessly insistent ticking is going off in the background. I have decided to read, and often reread, books I've missed or those I've loved and want to reread one more time. I recently reread War and Peace, my second reading of this greatest of all novels, and I ended it in sadness, not only because I didn't wish to part from Pierre, Natasha, Nicolai, and the others left alive at the novel's end, but because I know it is unlikely I shall return for another rereading.

I've been reading Proust's Jean Santeuil, his run-up for In Search of Lost Time, which I'd like to have time to read for a third and last time. I wonder if I shall be in the game long enough to reread Don Quixote and Herodotus and Montaigne--reread them all deeply and well, as they deserve to be read but, as always with masterworks, one suspects one failed to do the first and even second time around.

Seventy ought to concentrate the mind, as Samuel Johnson said about an appointment with the gallows on the morrow, but it doesn't--at least, it hasn't concentrated my mind. My thoughts still wander about, a good part of the time forgetting my age, lost in low-grade fantasies, walking the streets daydreaming pointlessly. (Tolstoy, in Boyhood, writes: "I am convinced that should I ever live to a ripe old age and my story keeps pace with my age, I shall daydream just as boyishly and impractically as an old man of 70 as I do now.") Despite my full awareness that time is running out, I quite cheerfully waste whole days as if I shall always have an unending supply on hand. I used to say that the minutes, hours, days, weeks, months seemed to pass at the same rate as ever, and it was only the decades that flew by. But now the days and weeks seem to flash by, too. Where once I would have been greatly disconcerted to learn that the publication of some story or essay of mine has been put off for a month or two, I no longer am: the month or two will now come around in what used to seem like a week or two.

I hope this does not suggest that, as I grow older, I am attaining anything like serenity. Although my ambition has lessened, my passions have diminished, my interests narrowed, my patience is no greater and my perspective has not noticeably widened. Only my general intellectual assurance has increased. Pascal says that under an aristocracy "it is a great advantage to have a man as far on his way at 18 or 20 years as another could be at 50; these are 30 years gained without trouble." To become the intellectual equivalent of an aristocrat in a democracy requires writing 20 or so books--and I have just completed my 19th.

Still, time, as the old newsreels had it, marches on, and the question at 70 is how, with the shot clock running, best to spend it. I am fortunate in that I am under no great financial constraints, and am able to work at what pleases me. I don't have to write to live--only to feel alive. Will my writing outlive me? I am reasonably certain that it won't, but--forgive me, Herr Schopenhauer--I keep alive the illusion that a small band of odd but immensely attractive people not yet born will find something of interest in my scribbles. The illusion, quite harmless I hope, gives me--I won't say the courage, for none is needed--but the energy to persist.

The fear of turning 70 for a writer is that he will fall too far out of step with the society that he is supposed, in essays and stories, to be chronicling. I recently wrote a book on friendship, but was I disqualified, as one or two younger reviewers politely suggested, from knowing how friendship really works among the young today? I continue to read contemporary fiction, but not with the same eagerness with which I once read the fiction written by my elders and people of my own generation. In his sixties, Edmund Wilson, describing himself as "a back-number," announced his loss of interest in much of the writing of the day. A time comes when one loses not merely interest but even curiosity about the next new thing. How intensely, at 70, must I scrutinize the work of Jack Black, Sarah Silverman, Dave Eggers, and Sacha Baron Cohen?

I have never attempted to calculate the collective age of my readers. When I am out flogging a new book, or giving a talk, the audience who come to hear me are generally quite as old as I, and some a bit older. Perhaps the young do not spend much time attending such non-events. Perhaps they feel I haven't much to say to them. I do receive a fair amount of email from younger readers--in their 20s and 30s--but many of these readers have literary aspirations of their own, and write to me seeking advice.

But the feeling of being more and more out of it begins to sink in. The news of the new movie stars, comedians, hotshot bloggers, usually comes to me a little late. My pretensions as a writer of nonfiction have been toward cultural criticism. Older men and women--Henry Kissinger, Zbigniew Brzezinski, James Baker--can stay in the foreign policy game almost unto death. But how long can a writer commenting on the culture be expected really to know the culture? In fact, there can even be something a little unseemly about writers beyond a certain age claiming to share the pleasures of the young. I recall Pauline Kael, who was 18 years older than I, once comparing a movie to "your favorite rock concert," and I thought, oh, poor baby, how embarrassing to see you whoring after youth. I much like the Internet, adore email, and probably use Google seven or eight times a day. But must I also check in on YouTube, have a posting on MySpace, and spend a portion of my day text-messaging? At 70, the temptation is to relax, breathe through the mouth, and become comfortably rear-guard.

By 70, too, one is likely to have lived through a fair amount of cultural change, so that traces of disorientation tend to set in. Chateaubriand (1768-1848), whose dates show that he lived through the ancien régime , the French Revolution, Napoleon, the Restoration, the Second Republic, and died just before the Revolution of 1848, wrote: "Nowadays one who lingers on in this world has witnessed not only the death of men, but also the death of ideas: principles, customs, tastes, pleasures, pains, feelings--nothing resembles what he used to know. He is of a different race from the human species in whose midst he is ending his days." In my youth one could go into a drugstore and confidently ask for a package of Luckies and nervously whisper one's request for condoms. Now things are precisely reversed.

I have, of course, lived through nothing so cataclysmic as Chateaubriand. But I was born on the far side of the rock 'n' roll curtain: some of that music (the less druggy Beatles songs) seems to me charming, but none of it for me is charged with real meaning. More important, I was born in a time when there still existed a national culture, so that the entire country grew up singing the same songs, watching the same movies, and, later, television shows. The crafty marketers had not yet divided the country and its culture into Kid Culture, Black Culture, and scores of other Ethnic Cultures. Something like the Ed Sullivan Show, which might have a comedian, an animal act, a tenor from the Met, a young popular singer, a foreign dance troupe, a magician--something, in short, for all the family--is no longer possible today.

I also grew up at a time when the goal was to be adult as soon as possible, while today--the late 1960s is the watershed moment here--the goal has become to stay as young as possible for as long as possible. The consequences of this for the culture are enormous. That people live longer only means that they feel they can remain kids longer: uncommitted to marriage, serious work, life itself. Adolescence has been stretched out, at least, into one's 30s, perhaps one's early 40s. At 70, I register with mild but genuine amazement that the movie director Christopher Guest's father played keyboard for the Righteous Brothers or that the essayist Adam Gopnik's parents, then graduate students, took him in their arms to the opening of the Guggenheim Museum. How can anyone possibly have parents playing keyboards or going to graduate school! Impossible!

I, of course, hope for an artistically prosperous old age, though the models here are less than numerous. Most composers were finished by their 60s. Not many novelists have turned out powerful books past 70. Matisse, who is a hero of culture, painted up to the end through great illness, though his greatest work was done long before. There are the models of Rembrandt and Yeats. Rembrandt, in his richly complex self-portraits, recorded his own aging with great success, and Yeats--"That is no country for old men"--made aging, if not Byzantium, his country: "An aged man is but a paltry thing, / A tattered coat upon a stick, unless / Soul clap its hands and sing, and louder sing / For every tatter in its mortal dress."

Rembrandt died at 63, Yeats at 73. I see that I had better get a move on.

Joseph Epstein is author most recently of Alexis de Tocqueville: Democracy's Guide.

Kristin Hersh

Learn to Sing Like a Star by Kristin Hersh astonishes me. Wow! This woman is extraordinarily talented -- writing the songs, playing most of the instruments, and even producing! This CD is an especially fine showcase for her many talents, which includes her poetic lyrics...

"...This place makes me feel like I'm dead haunting
It comes when you steal a Persephone pit
Swallowed with the oxygen that bruised our bones
Swallowed with the pathetic cry, 'Take me home.'"

The Pando link (below) will allow you to download the first song on her new album, IN SHOCK. If that song is not the first single release from the CD... Well, it should be.



And if you like that song, you could purchase the entire CD here.

From seemingly nowhere, Kristin becomes my new, all-consuming musical interest. Now I must immediately acquire her entire oeuvre of work, Throwing Muses included. Gifts accepted, of course! (Check my Amazon Wish List above... :-)

Thank you for sampling her song, and perhaps purchasing her CD.
-- David M Gordon / The Deipnosophist

Cotard delusion?

What can I say? The US$ trades creakily, interest rates have climbed, former leaders such as Apple/AAPL, Google/GOOG, and Under Armour/UA (to name but three) each trades lower... as 'predicted'. And yet the market proves its resilience yet again, as it hovers at all time highs for several averages and indices. Here is a snippet of this morning's commentary by Tim Villano...

The stock market defied negative intraday patterns and traded out above the mentioned (SPX 1432) level on Wednesday. In our last comment, we stated that above this stop, "something different is happening" -- which in this case proved to be a surge to new highs...

And so the continuum... continues. I noted this market move on Wednesday as it unfurled, and shared it with you real time. Certainly risk remains; as always, however, the responsibility remains to focus on specific opportunities. For example, previously recommended and held through thick and thin are...

[click on each chart to enlarge]

Hologic/HOLX (above) looks especially sweet; a big base breakout that forecasts higher highs.

Intuitive Surgical/ISRG (above), another previous recommendation, likely will bust out (up) big time today. (I write this post ~1 1/2 hours before the market opens.) Note the three tests at ~$85 (the top end of gap support) as well as the line of declining tops, which appears set to be breached today. So much elapsed time building the base has turned sentiment wholly bearish. There are many short side plays that will be unravelled as trading begins. Talk about a short squeeze! Ah well, their loss is my gain.

Some reserach comments following Intuitive Surgical's blowout quarter (via Briefing)...

Wachovia notes that ISRG reported Q4 results above consensus, and placed 50 new da Vinci Systems during the quarter, with 34 to new accounts and 16 to established accounts. Furthermore, da Vinci procedures achieved penetration rates of at least 35% in the domestic prostatectomy market and at least 2% in the domestic hysterectomy market. Gross margin rebounded to 66.6%, up 170 bps sequentially but down 70 bps yr/yr. Firm believes that repeat sales are a bullish sign. ISRG placed 16 systems at established accounts and at present has 14 accounts with 3 or more systems installed and 39 with more than 1 system installed. Firm believes that this demonstrates that hospitals with da Vinci systems have seen favorable returns on their investments. Reits Outperform...
Piper Jaffray notes that ISRG beat expectations again with strong robot sales and procedure growth, and issued 2007 guidance in-line with consensus. Firm says ISRG will not be delivering much operating leverage in 2007, as it plans to expand its operating expenses at the same rate as forecasted rev growth, and margins are shrinking due to the new H.D. system. The company is investing in a new European HQ in Switzerland which will help lower the tax rate in 2008 and beyond. Operating leverage should resume in 2008 with lower tax rates and infrastructure costs behind it. Reits Outperform and $130 tgt.

A new recommendation today is Triumph Group/TGI.

Triumph Group, through its companies, design, engineer, manufacture, repair, overhaul and distribute aircraft components, such as hydraulic, mechanical and electromechanical control systems, aircraft and engine accessories, structural components and assemblies, non-structural composite components, auxiliary power units (APUs), avionics and aircraft instruments. It serves a spectrum of the aerospace industry, including original equipment manufacturers (OEMs) of commercial, regional, business and military aircraft and components, as well as commercial regional airlines and air cargo carriers. It offers a variety of products and services to the aerospace industry through two groups of operating businesses: Aerospace Systems Group and Aftermarket Services Group.

For the nine months ended 31 December 2006, Triumph Group, Inc.'s revenues increased 26% to $691.3M. Net income increased 39% to $32.8M. Revenues reflect increased sales from Aerospace systems and higher income from Aftermarket Services segment. Net income also reflects improved operating margins.

On the monthly basis chart above, please note the 10 years high level consolidation whose trading range was $30! (From ~$20 to ~$50.) The shares finally breached the high end of that range in May 2006, rising a fast ~10% before retracing and building a powerful base atop a base (chart below)...


Only this week have the shares successfully and finally breached final resistance at ~$55. Add the previous trading range of $30 (the 10 year high level consolidation) to the recent breakout at $55, and you arrive at an intermediate term target of $85. Dorsey Wright (a subscription service that specializes in Point & Figure charting, and that has my highest recommendation) comments...

TGI is a member of the Favored Aerospace/Airlines sector; this particular group also remains on offense with respect to its bullish percent. So in all, this is a sector to look to for new long ideas. TGI is one such stock to consider, as it is trading in an overall uptrend and has recently upticked to a 3 for 5'er after its RS chart vs. the market reversed up into X's. As well, the stock just gave a triple top buy signal at 56 to move to new highs after holding twice at 52. The upside target is 84, and the weekly momentum has just turned back to positive after having been negative for six weeks. TGI is one to consider here for a trading move, and we would then set an initial stop loss point of 51, a triple bottom sell signal.

All questions and comments welcomed, as always.
-- David M Gordon / The Deipnosophist