Patience Is A Virtue At This Point In The Cycle

The S&P 500 Index was able to hold together a bit of a rally today; however, the rally occurred on lower volume.

• The close today remains below the 50-day moving average.
• The stochastic indicator is in short term over bought territory.
• The market advance since August 16th has occurred on declining volume.

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Ten years from now it is likely this part of the market cycle will be barely visible on a long term market chart. On the other hand, many times the amount of money one makes is not based on the price at which an investment is sold, rather the price paid for the investment. Investors that purchased real estate last year are finding this out today.

Given the somewhat poor technical picture of the market, this doesn't mean there aren't some attractively valued stocks in the market right now. The point is one should be selective when making their investment decisions and only committing dollars that can remain in the market for the long term.

One issue that could negatively impact market sentiment is the liquidity events occurring in the asset backed commercial paper market. Asset backed commercial paper rates have spiked to levels over 6%. The liquidity concerns could cause the equity market to retest its recent low just above 1,400. This could be the event that causes the Fed to lower the Fed Funds rate and set off an equity market rally.

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Source: Federal Reserve

Bullish Investor Sentiment Declines as of 8.29.2007

The American Association of Individual Investors reported bullish investor sentiment declined for the period ending August 29, 2007. The level of bullishness equaled 40.30% versus the prior week's level of 41.28%. Those investors that were neither bullish or bearish (neutral) also declined. This resulted in an increase in bearishness to 46.27% versus last week's 43.12%. Consequently, the bull/bear spread widened to -6% from last week's -2%.

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Data Source: American Association of Individual Investors

Altria Group Increases Dividend 8.7%

Altria Group (MO) announced it was increasing the company's quarterly dividend by 8.7%. The new quarterly dividend will equal 75 cents per share versus 69 cents per share in the same quarter last year.

Additionally, MO's board of directors announced the company would spin off its international business, Phillip Morris International, Inc., to MO shareholders. The details of the spin off will be determined at the company's next board meeting on January 30, 2008.

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Equity Markets Historically Weak In September

Historically, in a given year, the equity market incurs its weakest performance in the month of September. Many factors seem to be converging this September that may result in history repeating itself.

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Source: Chart of the Day

As detailed in the S&P 500 chart below, the index is not on the firmest technical footing.

Over the next 90 days more than half of the $1.1 trillion market value of commercial paper comes due. In a minority of cases, some company's that invested excess cash in commercial paper vehicles are having difficulty redeeming their investments.

In the Canadian market, the uranium company Cameco (NYSE ticker: CCJ) has C$13 million invested in asset-backed commercial paper held in two trusts: C$7.5 million in Apsley Trust, managed by Metcalf & Mansfield and C$5.5 million in Planet Trust, managed by Coventree Capital. Both matured on August 17, 2007, but neither counterparty has paid Cameco...The company has more than 20% of its 'portfolio' invested in these short term notes.

The other cloud forming over the market is the repricing of subprime mortgage debt.

Source: wikinvest: Subprime Lending

Today, the 1-year ARM rates inexplicably gapped higher. The rate jumped to 6.51% versus the prior week's 5.84%. If these shorter term mortgage rates remain elevated, it will likely place additional stress on subprime borrowers when their loan rate resets. All of this is having an impact on home sale/home construction market:

All the news is not bad though. Economically, the U.S. economy continues to grow at a non inflationary rate.

• The factory utilization rate is at a high level, but not at a level that would concern the Fed from an inflation perspective as noted in the charts below.

• GDP came in at 3.4% in the second quarter and the unemployment rate remains below 4%.

In a market environment such as this, higher quality 'dividend growth' equities can serves as a port in the potential storm.

Source:
Someone Else's Liability: Miners Caught Short In Treasury Game
CommodityOnline
August 23, 2007
http://www.commodityonline.com/newnews.php?id=2415

U.S.Economic Data: Weekly Chart Presentation
Federal Reserve Bank of Dallas
http://www.dallasfed.org/data/usdata.html#usshow

Dividend Aristocrats All Red Today: 8.28.2007

All of the Standard & Poor's Dividend Aristocrats generated a negative return today. At the end of the day, on a dollar weighted basis, the Aristocrats did outperform the S&P 500 Index and the Nasdaq Index. The Dow Jones Industrial Average reported a return of a negative -.40%; thus, slightly beating the Aristocrat's portfolio return of a negative -.60%.

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Kentucky Versus Davis Supreme Court Case Hearing Nears

The U.S. Supreme Court has agreed to hear the case of Commonwealth of Kentucky v. Davis in its next session. A recent issue of Businessweek contained an article, Shaky Times For Munis, discussing potential fallout from the decision in the case. If a ruling goes against (uphold the lower court ruling) the Commonwealth of Kentucky, single state municipal bond funds will likely become obsolete. The impact on the price of municipal bonds will depend on how each state decides to treat taxation of in state and out of state municipal bonds.

"States will have the unenviable choice of either making all bonds tax exempt or all taxable, said Jay Abrams," chief municipal credit analyst at FMSbonds, a muni bond brokerage. "States will either have to relinquish the income they derive from out-of-state bonds or begin taxing state residents on the interest they earn from in-state-issued bonds."

As noted in the article, high tax state muni bond holders could be especially hard hit. The article notes:

A New York City investor in the highest federal and state tax brackets earning 4% on an in-state bond or bond fund is earning the equivalent of 7% on a taxable bond.

If the lower court ruling is upheld, the states will need to decide if they tax in state municipal bonds like out of state bonds are currently taxed. In the above example of the New York investor, that 4% now tax free rate would not look too good if it ultimately becomes subject to state taxation.

Related posts and links from this blog:

• Kentucky v. Davis: A Review of the Supreme Court Briefs
• Municipal Bond Investors: No Smooth Sailing Ahead
• High Court on Trash Flow
  

Source:
Shaky Times For Munis
BusinessWeek Magazine
September 3, 2007
http://www.businessweek.com/magazine/content/07_36/b4048074.htm

Coachmen Industries: No Growth In This Dividend

When evaluating dividend paying stocks, the historical growth rate is as important as the fact the company pays a dividend. For Coachmen (COA) the dividend remained at 6 cents a share from the 3rd quarter of 2002 up through the 2nd quarter of 2006. The company then cut the dividend to 3 cents a share beginning with the 3rd quarter 2006 payment.

Today, Coachman announced it was suspending its dividend payments. An investor would have been wise to look at exiting the stock with the first announced cut as noted in the chart below.

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Stocks With Yields Of 5% or Higher In The S&P 500 Index

Sixteen stocks in the S&P 500 Index carry dividend yields of 5% or more. Some of these higher yielding stocks listed below have higher yields because they are REITs or REIT like companies that payout most of their income each year. Examples would be Developers Diversified Realty (DDR) and American Capital Strategies (ACAS).

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Source: indexArb

Dividends Do Matter

With the increase in market volatility over the last month, and mostly on the downside, dividend payers, on average, lost half as much as the non payers according to Standard and Poor's. S&P notes:

The dividend, to some extent, acts like an anchor, slowing the stock movement down since there is an actual cash payment. That means swings in these stocks prices, during both good times and bad, aren’t as dramatic as their non-dividend paying peers.

Standard & Poor's analysis looked at the payers versus the non payers going back to 1979 and they found:

• Payers did 2.24% better per year compounded than the non-payers.

• Translated from an initial investment of $10,000, non-payers would now be worth $262,237 vs. a worth of $451,458 for the payers, a difference of 72%.

• The difference between the payers and non payers is 2.24%, which is the dividend yield.

Source:
Payers Pay ($)
Standard & Poor's The Outlook
By: Howard Silverblatt and Beth Piskora
August 29, 2007
http://sandp.ecnext.com/coms2/page_outlook

Baby Boomers Inflate Real Estate Bubble?

Has the baby boomer generation contributed to the real estate bubble? You can be the judge in the charts below. It does appear single family home prices have broken an uptrend that has been in place since the early 1990's.

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Source: Chart of the Day

The U.S. Census Bureau published a report on population trends that contains a number of graphs detailing the shift in the baby boomers as they have aged.

If the boomers have contributed to real estate price inflation, it is important to answer the question of where will their impact be felt in the next decade or two.

• What type of stocks will they prefer in retirement?
• Will the demand for assisted living facilities increase?
• What will be the impact on government programs and taxes?

There are many more issues to be considered; however, understanding the shift in the baby boomer population will likely be critical in determining future investments. I wrote a recent post, Baby Boomers Might Impact The Equity Markets, that addresses some of these issues as well.

Source:
Age and Sex Distribution in 2005 (pdf)
U.S. Census Bureau
July 1, 2005
http://www.census.gov/population/pop-profile/dynamic/AgeSex.pdf

Bullish Investor Sentiment Declines Again

The level of bullish investor sentiment as reported by the American Association of Individual Investors declined further as of August 22, 2007. The bullishness level declined to 41.28% versus last week's level of 42.22%. However, the spread between bullishness and bearishness improved to a -2% versus last week's -3%. The spread narrowed as more investors moved to a neutral view on the market versus last week, 15.60% versus 12.22%. As noted in the graph below, the 8-period average continues to move higher since June 14, 2007

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Data Source: American Association of Individual Investors

Warren Buffett and Bridge

John Hussman of the Hussman Funds wrote a market comment late last year that explains, from Ben Graham's perspective, why Warren Buffett plays bridge. Ben Graham explains that playing bridge is like investing in that one must follow a discipline when investing or playing the card game bridge. An excerpt from the market comment:

Why bridge? Though Graham wasn't talking about Buffett at the time, he offers a clue:

"I recall to those of you who are bridge players the emphasis that bridge experts place on playing a hand right rather than on playing it successfully. Because, as you know, if you play it right you are going to make money and if you play it wrong you lose money – in the long run. There is a beautiful little story about the man who was the weaker bridge player of the husband-and-wife team. It seems he bid a grand slam, and at the end he said very triumphantly to his wife 'I saw you making faces at me all the time, but you notice I not only bid this grand slam but I made it. What can you say about that?' And his wife replied very dourly, 'If you had played it right you would have lost it.'"

It seems to me (and it has certainly been my experience) that it takes an enormous amount of restraint to focus on playing every investment hand "right," according to an established discipline, allowing the law of averages to work in your favor, rather than trying to win every hand. I would guess that this is exactly what appeals to Warren Buffett's temperament. Over the long-term, good investing requires it.

Source:
Why Warren Buffett Plays Bridge
Hussman Funds
By: John P. Hussman, Ph.D.
November 27, 2006
http://www.hussmanfunds.com/wmc/wmc061127.htm

Wachovia Increases Dividend 14.3%

Wachovia (WB) announced it was increasing its quarterly dividend 14.3%. The new quarterly dividend increases to 64 cents per share versus 56 cents per share in the same quarter last year. Analyst estimates have WB's earnings growing from $4.91 in 2007 to $5.34 in 2008. This represents an 8.75% earnings growth rate.

It should be noted WB acquired Golden West Financial on October 1, 2006. Additionally, on March 31, 2007, WB announced the planned acquisition of A.G. Edwards (AGE).

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Picking Great Growth Stocks

As readers of my blog know, I favor higher quality dividend paying stocks. However, there are strong companies with strong cash rich balance sheets that warrant investment consideration. Ken Kobrick, formally of Wellington Management and State Street Research & Management, highlights four factors an investor needs to evaluate in selecting growth stocks. He terms these factors BSAM:

Business Model: How the company plans to grow, be profitable and protect itself from competitors.

Assumptions: The key assumptions the company makes about their markets upon which they then develop the business model.

Strategy: This is simply the plan the company develops to implement the business model.

Management: These are the actual people who create the great business models, assumptions, execution and all the rest. Great management is also needed, over time, to adjust business models for competitive situations.

At the end of this post is a link to the longer article comparing eBay to Google.

Source:
The Secrets of Picking Great Growth Stocks
AAII Commentary
By: Fred Kobrick
2007
http://www.aaii.com/includes/DisplayArticle.cfm?Article_Id=3172&digit=330

Bernanke's Policy Shift: Book Smart vs. Street Smart

The Fed's statement after the August 7th meeting indicated the primary concern was inflation's potential impact on the economy. In the week's leading up to the August 17th discount rate reduction, the Fed made a number of statements indicating the subprime issue was" contained". This was an indication the Fed felt the subprime problems would not impact the rest of the market and economy. On August 17th they essentially tore up the prior statement and conceded the subprime situation could have a longer term impact on future economic growth.

A recent Bloomberg article noted:

"It was a rookie mistake,'' said Kenneth Thomas, a finance professor at the University of Pennsylvania's Wharton School in Philadelphia. The Fed "underestimated liquidity needs'' of investors and the fallout from the housing recession, he said, adding, "This demonstrates the difference between book-smart and street-smart." (emphasis added)

Many current Fed member's experiences are grounded in their academic backgrounds. The market does not always follow a particular model. Common sense and real world experience can go a long way in developing successful investment portfolios as well.

Source:
Bernanke's "Rookie" Mistake Forces Fed To Shift Focus To Market
Bloomberg.com
By: Craig Torres
August 20, 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=amXgP4xSCOWU&refer=home

The Subprime Storm And What It May Mean For The Future Direction Of The Equity Markets

A recent commentary article by Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, provides a good synopsis of the subprime issue and how this event has spread into other parts of the market. Interestingly, the article notes that the widening of high yield spreads and the spike in the VIX historically have been followed by higher stock prices. The high yield spikes have been less consistent indicators of future stock price performance versus the increased VIX.

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Source:
Inside the Subprime Storm
Charles Schwab
By: Liz Ann Sonders, Chief Investment Strategist
August 16, 2007
http://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/recent_commentary/
inside_the_subprime_storm.html?cmsid=P-2009292&lvl1=research_strategies&lvl2=market_insight&refid=P-1923864&refpid=P-994220

Bullishness Declines And Spread Turns Negative

In the American Association of Individual Investors sentiment survey released today, bullish sentiment declined 3.5 percentage points to 42.22%. The spread between bullishness and bearishness turned negative for the first time since June 14, 2007.

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Source: American Association of Individual Investors

Wikinvest

A new site similar to wikipedia has recently been established. The site is conveniently known as Wikinvest. The site is relatively new, however, the content appears to be growing fairly rapidly. The research and background information on companies and concepts seems more in depth than some of the traditional financial sites. The site, www.wikinvest.com, is worth checking out.

Fastest Growing Dividend Payers and High Yielding ETFs

Following is information on some of the faster growing dividend paying stocks and highyielding ETFs. Just because a company has a fast growing dividend doesn't necessarily mean the stock or company is a worthwhile investment. Many analyst had a buy rating (see the article "How Analyst Missed a Meltdown" on American Home Mortgage up until the company announced its financial difficulties. Investors should perform their own research before making any investment decisions.

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Stocks With Fastest Growing Dividend

Dividend Yielding ETFs


Source: Wall Street Journal

Dow Industrial Average At An Inflection Point

I am a firm believer that fundamentals of a stock or the market will be the determining factor in future performance. On the other hand, because enough market participants follow and trade on technical aspects of the market one must evaluate this type of data. Below is a chart of the Dow Jones Industrial Average with the Fibonacci Retracement lines overlaid on the chart.

• the 50% retracement stands at 12,985. Today the Dow closed at 13,028. This 50% retracement level may act as support for the market, all else being equal.

• the 38.2% retracement line is at Dow 12,741.

• a full retracement puts the Dow at 11,939.

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The ten year Dow chart does remain in an uptrend as noted in the trend line analysis below. However, this shorter term trend is near breaking support at the same level as the 50% Fibonacci Retracement line.

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A Graphical Look At Foreclosures In A Few Select Regions Of California

I suppose a picture is worth a thousand words.

• Green is Notice of Default (3 months late)
• Blue is Notice of Trustee Sale (scheduled for auction)
• Red is REO (Real Estate Owned by Bank)

(click on maps for larger image)

I was tipped off to these graphics by The Big Picture website.

Sources:
California Housing Forecast
http://www.californiahousingforecast.com/

Foreclosure Radar
http://www.foreclosureradar.com/

Dividend Achievers Performance: August 13, 2007

Following is the dollar weighted performance of the Dividend Achievers as of August 13, 2007. The performance was essentially flat at -.08%. The Achievers did outperform the NASDAQ Index but slightly underperformed the Dow and S&P 500 Indices. The bottom five holdings from a performance perspective feel into the financial and materials sectors.

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Investor Sentiment Essentially Unchanged However...

...the 8-period moving average continues to trend higher. The American Association of Individual Investors' sentiment indicator remained essentially unchanged for the period ending August 8, 2007. The level of bullishness was reported at 45.76% versus the prior week's bullishness level of 45.88%. The 8-period moving average of the bullishness level increased to 43.4% versus the prior week average of 42.4%. The trend in the 8-period average is one where the average is making lower highs and higher lows as noted by the trend lines on the chart below.

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Data Source: American Association of Individual Investors

Proof Buybacks Impact Earnings Per Share

Following is a review of a portion of the most recent quarterly financial results for 3M (MMM), Anheuser-Busch (BUD) and Automatic Data Processing (ADP).

As noted in the table, Anheuser-Busch reported a 2.3% increase in 2nd quarter operating earnings versus the same period a year earlier. Earnings per share growth increased 7.32%. A portion of this increase was the result of a 1.53% decline in the number of fully diluted shares outstanding at the end of June.

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3M and Automatic Data Processing also saw declines in share count. This share count reduction also enhanced Earnings Per Share for the quarter.

Looking at the absolute dollar figures is only one aspect of the evaluation of a stock. The reported financial results simply report the operating results achieved in the past. One criteria that impacts the future performance of a company's stock is how well the company operates relative to expectations. A good business isn't necessarily a good investment.

In the case of Anheuser-Busch, in the 2nd quarter 10-Q, the company indicated:

...all of the company's business segments reported improved earnings in the second quarter and Anheuser-Busch is on track to deliver accelerating earnings growth in the second half of the year.

An investor could be rewarded if they can place a dollar figure on BUD's improving performance as noted above.

The article, Earnings Drive Businesses, But Expectations Drive Stock Prices, by Brian Luster and Steven Abernathy, provides insight into the application and evaluation of a company's future expectations.

Dow Jones Industrial Average Still In An Uptrend

Although the Dow Jones Industrial Average Index (^DJI) has been going through a corrective phase, technically, the index remains in an uptrend. As noted by the green line in the chart below, it is testing support.

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Source: Chart of the Day

The Best of the Worst

Fortunately, this is not October 19, 1987 (Black Monday), when the Dow Jones Industrial average fell 508 points or nearly 23%. The nearly 400 point drop in the DJIA experienced today is only a 2.8% decline. It is important to keep the market fluctuations in perspective. Some of the headlines in 1987 could apply to today?

• "The borrowing has to stop. The market slide was a shot right between the eyes that had better wake us all up to simple fact that we can't keep romping forever on borrowed money." -Lee Iacocca, Chrysler Corp Chairman, October 20, 1987

• "The market is sending an unequivocal message to the President and the Congress to stop the political games and agree on a Federal deficit-reduction plan." -Representative Dan Rostenkowski, Democrat, October 20, 1987

• "I was scared this morning. I got wiped out on Monday. Tell your readers that you talked to a broker who is long three houses, and two of them are for sale. My boat is for sale, too." - A broker quoted in the New York Times, October 23, 1987
  

It is important to keep the type of market movements experienced today in perspective. A couple of my earlier posts might be of interest:

• Equity Market Declines: Keep in Perspective

• Psychological Bias: Keep in Perspective

Lastly, it was a good day to be anything but a financial stock. The Dow Jones U.S. financial sector declined nearly 3.5% and was the worst performing sector on the day. Following is the performance of several of the dividend focused exchange traded funds. Most of them have outperformed the major U.S. domestic indices over the last week. The ones that have not had higher exposures to the financial sector. For example, the ishare Dow Jones Select Dividend ETF (DVY), has almost 41% of its investments allocated to the financial sector.

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Hershey Foods Raises Dividend 10.2%

Ted Parrish, co-manager of the Henssler Equity Fund (HEQFX), recently conducted an interview with Chuck Jaffe of MarketWatch. In the interview Parrish noted:

"...looking for stocks that combine big, solid dividends with slow growth rates will achieve returns of 10% to 12% annually, regardless of the market's day-to-day volatility."

One of his recommendations in the interview was Hershey (HSY). I hope HSY gets into the slow growth on the upside in the near term. The company's stock price one year ago was $52 and it closed at $47 today.

Hershey announced a 10.2% increase in the company's quarterly dividend. The new quarterly dividend increases to 29.75 cents per share versus 27 cents per share in the same quarter last year. The payout ratio on 2008 estimated earnings of $2.44 is approximately 49%. The company has an S&P Quality Ranking of B+.

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Source:

Big Dividends, Slow Growth--that's the Ticket
MarketWatch
August 3, 2007
http://www.marketwatch.com/news/story/big-dividends-slow-growth-ticket/
story.aspx?guid=%7BCC939373%2D4DA3%2D4041%2DB9F8%2DE07BDDB82A53%7D

Subprime Update From Hayman Capital Partners: Does This Get Worse Before It Gets Better?

Hayman Capital Partners recently sent a report to their clients describing the subprime debt problems. One of Hayman's funds is up 240% this year as the fund is short subprime paper.

A few excerpts from the article:

...The key reason the Subprime problem exists as it does today has to do with the wanton disassociation of risk inherent in the machine that churns out Subprime loans. Unlike the S&L crisis of the 1980s, the mortgage lenders of today aren’t taking their own balance sheet risk when underwriting loans. These brokers get paid for quantity REGARDLESS of quality...

...Last week, I spent some time in the “Inland Empire” of California on a diligence trip to survey the actual damage. As many of you already know, 55% of all Subprime loans were made in California and Florida. The inland empire of California can be described as the central valley that extends from the southern part of the state all the way to the northern part of the state at least 1-hour inland from the coast. Let me start by saying it is MUCH WORSE than even I thought it could be. I met with various mortgage lenders, originators, economists, and capital markets professionals. The overriding theme that I got from them was that “Everyone committed fraud and everyone is responsible for the problem”. They told me that they believe that 90% of all Subprime loans that were made contained some kind of fraud. Either borrowers lied about their incomes or mortgage brokers fudged numbers on the applications to make them pass muster with the needed ratios in order to get loans approved. They also said that of the borrower frauds, 50% of applicants overstated their income by MORE THAN 50%!!! ...

Source:

Hayman Capital Partners
By: J. Kyle Bass, Managing Partner
July 30, 2007
http://www.savefile.com/files/2006200

Dividend Aristocrat Performance as of August 6, 2007

Only one Aristocrat generated a negative return today, Questar (STR). STR was down -.43%. As noted in the table below, the best performing large cap index on a year-to-date basis is the Dow Jones Industrial Average. Note, I have not adjusted the return figures for Altria's (MO) spinoff of Kraft (KFT).

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Kentucky vs. Davis Municipal Bond Case: A Review of the Supreme Court Briefs

Gregory L. Germain of the College of Law at Syracuse University, provides his views on the opening briefs filed with the Supreme Court in the case of the Commonwealth of Kentucky v. Davis, Case No. 06-666. Germain notes:

"Kentucky's brief...misses the mark in a couple of respects. Kentucky’s first argument, to which substantial space is devoted, is that Kentucky’s municipal bonds are not similarly situated to its sister State’s municipal bonds because of the use to which the proceeds of the bonds are to be put. Kentucky points out that the proceeds of only Kentucky’s bonds must be used to benefit Kentucky’s citizens.

I believe this argument errs by focusing on the use of the proceeds generated from bond sales rather than focusing on the applicable interstate market activity. Although all bonds, indeed all debt, indeed even all securities, could be considered competitors in a general sense, the direct market competitors of Kentucky’s federally-tax-free municipal bonds are foreign-state federally-tax-free municipal bonds. Investors view federally-tax-free debt instruments differently from taxable debt instruments because of the lack of a tax exemption. If there were no in-state subsidy for municipal bonds, investors in the market would see all federally-tax-free municipal bonds as direct competitors, and would make their investment decisions between them on the basis of relative yield and default risk. Investors would not see taxable bonds as direct substitutes because effective yields would depend on the different personal federal tax situations of each investor.

The fallacy of Kentucky’s focus on the use of bond proceeds rather than on the market is evident when it is extended to private corporate bonds..."

Germain's review cites an article published in Tax Notes, Vol. 114, May 29, 2007. The article provides a review that incorporates the recent United Haulers decision and the impact on the dormant Commerce Clause.

Source:

Germain Critiques Opening Briefs in Davis
TaxProf Blog
By: Paul L. Caron
July 24, 2007
http://taxprof.typepad.com/taxprof_blog/2007/07/germain-on-the-.html

Pre-Election Year DJIA Return vs. Current Year Return

The Dow Jones Industrial Average return appears to be following prior pre-election year stock market returns as noted in the chart below. Historically the market has rallied in the last few months of these pre-election year periods.

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Source: Chart of the Day

Illinois Tool Works Increases Dividend 33%

Illinois Tool Works (ITW) announced a 33.3% increase in the company's quarterly cash dividend. The quarterly dividend increases to 28 cents per share versus 21 cents per share in the same quarter last year.

• The company's estimated payout ratio will be approximately 31% based on the next four quarters estimated earnings of $3.59.
  

• The 5-year historical dividend payout ratio is 25%.
  

• The company's S&P quality ranking is A+

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Stock Buyback Announcements Continue--Show Me The Dividend

The buyback train continues rolling down the track. If the companies committed to a dividend increase or a larger increase than reported, it could be a signal of better business prospects ahead. Following are stock buybacks announced today:

• Dover Corporation (DOV) announced it has approved a share repurchase program whereby the company will buy back approximately $500 million worth of Dover common stock. The program authorizes the repurchase of 10,000,000 shares or approximately 5% of its outstanding shares. As part of this program, the company also announced it has entered into an accelerated share repurchase agreement ("ASR") with Goldman, Sachs & Co. Under this agreement, the company will immediately repurchase 6 million shares of its common stock from Goldman, Sachs & Co. The company expects to conduct the remainder of the share repurchase program over the next 3-6 months through open market transactions. It will fund its share repurchases through cash on hand and existing credit facilities. The company also announced an 8% increase in the company's quarterly cash dividend to 20 cents per share versus 18.5 cents in the same quarter last year.
  

• Vineyard National Bancorp (VNBC) said Thursday it expanded a stock buyback program by $20 million to reassure shareholders amid a turbulent market.

• Pool Corp. (POOL) raised its share repurchase authorization to $100 million.

• AmerisourceBergen Corp. (ABC)agreed to a $250 million accelerated buyback deal with Bank of America NA.

• Hasbro Inc. (HAS) on Thursday said its board authorized the repurchase of $500 million in shares.

• Marriott International Inc. (MAR) increased its buyback program by 40 million shares, making the total repurchase program 51 million shares.

• FirstFed Financial Corp., (FED) the parent of First Federal Bank of California, said its board approved a plan to buy back an additional 1.5 million shares of common stock, about 10 percent of outstanding shares as of Aug. 1.

• Patterson-UTI Energy Inc. (PTEN) said its board has approved a stock buyback of up to $250 million.

• Invitrogen Corp., (IVGN)said it authorized a $500 million stock buyback program.

• Lufkin Industries Inc., (LUFK)said it had authorized up to $30 million in cash repurchases of common stock.
  

Another Increase In Bullish Sentiment

The American Association of Individual Investors reported that bullish sentiment rose to 45.88% versus last week's reading of 44.21%. The 8-period moving average continues to trend higher as well: 42.4% versus last week's 41.7%. The 45.88% bullish reading was the highest level for this measurement since the April 19, 2007 reading of 46.94%.

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Source: American Association of Individual Investors

Dividend Payers vs. Non Payers: July 31, 2007

Following is updated performance for the dividend paying stocks in the S&P 500 Index versus the non-dividend paying stocks. The payers are lagging the non-payers for the first seven months of the year as well as the 12-months ending July 31, 2007. Some of the larger capitalization dividend paying stocks have been underperformers for the last 12-months ending July 31, 2007: examples include Johnson & Johnson (JNJ), Citigroup (C) and Wal-Mart (WMT). Some non-dividend payers exhibiting strong performance are Google (GOOG) and Apple (AAPL)

Source: Standard & Poor's

Payers versus Non Payers Chart