Bud's Poem Page

30 April to 9 May 2005 Vacation Comment

Thoughts

That’s right folks. We are heading out for a full week’s vacation with no comments posted on the website until Monday May 9th. We can use the time off and we are sure the markets will survive without us.
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We know the markets are at an inflection point and next week is a big news week with the FED expected to raise rates on Tuesday, retail sales on Thursday and the Employment report on Friday.

But, we are as fully invested as we want to be for now. The Model has less that 10% cash and many accounts are 15% or less cash. We own stocks that we think offer good value and have been purchased at attractive prices in relation to where they sold in the last three years.

Today we added shares of EL, NCC, EK, TLB HAIN, BSX, and ABS to increase or add to accounts that didn’t own these stocks.

The last two hours of Friday’s trading were as topsy turvy as the whole week. Crude oil fell $2.05 to close below $50 at $49.72.  This set off a rally in stocks that had the DJIA up 110 points at 2pm. But then, not able to stand prosperity, stocks retreated entering the final hour of trading as the war between the bulls and bears and month end mark-ups flared.

The bulls managed to carry the day while the bears won the month and the year so far. At the bell the DJIA was up 120 points at 10190. The S&P 500 gained 14 points to 1157 and the NAZZ closed 18 points higher at 1921. Breadth was 2/1 positive on the NYSE and slightly so on the NAZZ. The Treasury ten-year ended the week and month at 4.20% and the five-year was 3.90%. There were almost 400 new lows today.

We have no idea what the Fed will do next week although we presume they will raise rates to 3% and keep the same language. There are folks predicting the end of Western civilization if the Fed doesn’t suggest it is going to wait and watch after this next raise. We would be delighted if the Fed used such language but we aren’t holding our breadth. At Alan Greenspan’s age he is happy to wake up in good health in the morning and everything else is secondary so the words he plays with when he talks are just his way of ‘funnin’ the public.

There are folks comparing the present markets to 2002 and the collapse. We don’t think so, but that’s what makes a market and so we are reviewing all the stocks we own for your reading education and edification. We may not have purchased them at this year’s lows but we are very comfortable with the stocks and the prices at which we own them. We expect these stocks to lead us back to the Promised Land. We promise.
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Albertson’s is a large grocery chain that is Albertson’s out west and Jewel/Osco in other parts of the country along with other local names. The lowest price it sold at in the break of 2002 was $19 and we own at $19.75. Between 2002 and now the shares sold as high as $27 and at current levels the stock yields 3.7% with the share price at 15 times depressed earnings.

Boston Scientific is about double where it sold in 2002 and at half the price it sold earlier this year. BSX is the leader in coated stents for heart patients but is losing share slowly to Johnson and Johnson. JNJ bought into the coated stent business and we are guessing that another large drug company might want to do the same. If not the shares are currently priced at 12 times this years earnings.

Bristol Myers Squibb is yielding 4.3% and selling at 20 times depressed earnings. Nothing is going right for them and that is why the shares are priced at these levels. In 2002 the lowest BMY sold was $40 per share versus the current $25.

Brocade Communications is a speculative tech stock that will survive and will eventually get back to our cost price in the next big rally whenever that occurs. At its low in 2002 BRCD sold at $14 and since then the lowest it has sold is $3.75. The company is profitable and is selling at 10 times this year’s earnings projections. Their specialty is memory and we are guessing that the blowup of IBM affected the share price of BRCD since IBM is a large customer for BRCD. The company is in good shape financially with $350 million of convertible debt at 2% interest due in 2007 as its only debt. The company has net cash of about $200 million.

Eastman Kodak is slowly making the transition to digital as are we all. In 2002 its low price was $24.59 and we own at $27 and lower. We own for a trade having purchased on the sell off from $32 at the last earnings report. The shares are priced at 11 times this year’s earnings.

Estee Lauder is a high quality cosmetics company selling at 1.2 times sales and off 20% in the last two weeks. We own to trade or hold depending. Its low in 2002 was $30 and we own at $39.

Fifth Third Bank is a Cincinnati institution that is expanding through out the Midwest and into Florida. It is priced at 13 times earnings with a 3.2% yield. The lowest it sold in 2002 was $53. Banks should be beneficiaries of any slowdown in the economy if that causes the Fed to put a hold soon on interest rate increases.

Hain Celestial is in the organic and specialty food and teas business. Heinz own 20% of the stock and has said it will have to write the share price down at the end of this year or….. It is our thinking they may or….. We have profitably traded the shares for the past few years. We would like to buy more in any sell off next week on lousy earnings. In 2002 the shares sold at a low of $18 which is where they are currently trading.

JP Morgan Chase Bank One First Chicago American National Lake Shore Bank etc. is a major money center bank that has grown through and aggressive acquisition program and is currently digesting its purchase last year of Bank One. The shares yield over 4% and are priced under 12 times earnings. In 2003 JPM sold at $18 but it was a different entity then than it is now.

Lucent Technology is a low priced stock that used to be a high flyer. At it current level is selling at 1.2 sales and earns money. One problem is that institutions won’t buy stocks under $10 and reverse splitting the shares would not be wise. So the stock tends to trade between $2 and $5 since the tech bust of several years ago. LU sold at 55 pennies like British stocks do back in 2002 when the end of the world was expected.

Netflix is a speculation that provides DVD movies by mail that are ordered online. We own in small amounts in aggressive accounts. NFLX sells at one times sales and lost money in the latest quarter as it spends its cash flow to increase its customer base.

National City Corp is a Cleveland based bank that is either an acquirer or aquireree. The shares yield 4.1% and are priced at 11 times growing earnings. $28 was the low in 2002 versus a current and owned price of $33.

SBC is one of the three Baby Bells that managed to make it to adulthood. SBC owns 60% of Cingular Wireless. Shares yield over 5%. $19 was low in 2002.

Schwab is the largest discount broker. Charles reassumed the reins last year and at 67 he is no spring chicken. SCH has over $1 trillion in customer assets on the books. We expect it to be acquired again by a bank or larger financial institution. 2002 low was $8 and we own above $10 having traded for profit from the $8 level last year.

Talbot’s is the women’s retailer that is 50% owned by a Japanese company. The Japanese company has been selling shares back to TLB as the company buys in stock. That suggests that for a price….. TLB tends to trade to the mid $20s when it misses a season or two and then run to the $40s when it is hot. In 2002 the shares trade to $21 for a brief period.

Time Warner is the old time media cable conglomerate. We like the unappreciated value of AOL and have owned off and on for the past few years. TWX traded at $10 in 2002.

Verizon seems to be the strongest of the grown up Bells and is trading $10 lower that it’s high this year with a 4% plus yield. VZ traded at $28 in 2002 and we would be happy to see it there again so we could buy more shares.

Wild Oats is a trading favorite of ours. Earnings come next week and will be bad but the acquisition of 10% of OATS and maybe more by now by a Californian who has sold two grocery chains in the past ten years has peeked our and others interest. We’ll buy more on any sell off next week.

And there you have it. All the stocks we own except for NFLX are old favorites that we have followed for years. We are comfortable owning them and will be happy to add to most in any sell off. We think they represent fair value in this market and expect to make good money owning them over the next few years.

If you are nervous next week with no posts just turn off the TV and don’t read the newspapers. We’ll be back in a flash. Meanwhile let the games continue.
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29 April 2005 Daily Comment

Thoughts

Microsoft reports after the close tonight and no one is listening. In the late 1990s MSFT was the stock of earnings season. That no longer is true. And as markets change so must investment methods.

We sold our TLAB yesterday because we are trying to wean ourselves from large positions in tech stocks. From 2000 to 2004 we made our living trading the tech area by getting out before stocks dropped and then buying near year end to catch the flip higher after year end. That may work in the future but it was a game everyone played at the end of 2004 and so there were only losses in early 2005. We learned our lesson.

Our current portfolio has been performing a bit better than the major measures both on the upside and downside. But if the markets tank from here so will our stocks. And if the markets rise we would expect our stocks to do likewise.

We continue to wait for the pre-summer rally and are adding big cap issues that we think represent value. Two on tap for today are Estee Lauder and Newell both of which disappointed with earnings last night. How they trade today will be indications if the ‘sell the good and bad news’ trading action of the past few weeks may have run its course. Bristol Myers also announced less than expected revenues and earnings but drug stocks seem to be in a different world right now with no one interested in either buying or selling them.

Overnight Thursday Asia was slightly higher and Europe is mixed. Oil is off 32 pennies and U.S. futures are indicating a lower opening for Thursday in the states.

Preview First Quarter GDP was plus 3.1%, chain weighted price index 3.3%, deflator (inflation) 3.2%. Personal Consumption was up 3.5%. Jobless claims were 320,000 so we are back over 300,000 and that is sad for folks losing jobs. Treasuries are a bps better on the news and stock futures are off a bit more.

Thursday’s Markets

11:41am and the major measures have been down all day even though oil is off another $1.26 to $50.35. Treasuries are lower in yield by about 3 bps and breadth is 2/1 negative.

We were blindsided by a switch from buy to sell on BRCD by Mother Merrill and the share price dropped 50 cents which is major for a $5 stock now on sale at $4.50. We were confused on Wednesday when about mid day BRCD dropped from $5.40 to $5 in about ten minutes. Now we know why. Last week Smith Barney cut BRCD from buy to hold and that is when the stock dropped from $6 to $5. Again the shares were down before we could act. We presume the two downgrades mean that the May 15 earnings report is going to be unpleasant but the 50% drop in price in a week suggests to us that we add a few shares in larger accounts and stand pat in smaller accounts.

Mother Merrill placed a buy on Veeco last week before earnings this week and that did no current good as the shares have dropped form $15 to $13 in this last week. And the earnings report was punk. So maybe Mother knows no more than we do and is merely cleaning shop is NAZZ tech stocks because the pain is so great.

But in keeping with our reduce tech mantra we are selling our Micron for a 10% or less loss to hold BRCD with a 50% loss. We are buying additional shares of BRCD in some larger accounts spending half the dollars raised in the MU sale to do this so that even in buying we are in effect lowering our tech exposure. BRCD is in networking and MU makes DRAM chips so we are changing the exposure but memory is an area of growth while DRAM are commodities where demand ebbs and flows. We do like Micron but discipline is discipline and we would rather suffer with BRCD than MU at this time.

We also added a chunk of Estee Lauder at $39 down $2.50 on the day. We bought last year when EL dropped on earnings and made a few dollars on the trade. We are buying in more accounts this year. EL is a quality holding and we are intrigued that ‘Estee’ the person behind the name died last year. The company is run by her sons but... Unilever are you listening?

We own good stocks at attractive prices. EL is down because sales are only going to be up 7% this year rather than 9% and earnings will only approach $1.90 (instead of $1.95) which will be up 15% from last year. That’s good enough for us to get our feet wet with the stock that is down 18% in the last month.
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1:39pm and crude oil is now higher on the day and the Major measures are heading lower. The DJIA is down 107 points and the NAZZ is off 20 points. The S&P 500 has drooped 10 points to 1146 though it remains for now above the 1140 support level.

3:02pm and we’ve installed a teeter totter in the office to be able to ride out the market’s up/down action.

At the bell the DJIA was down 128 points at 10070. The S&P 500 lost 13 points to 1143 and the NAZZ dropped 26 points to 1904. Oil closed higher at $51.77 after touching $50 early in the session. A ship sank or collided in the Houston Ship Canal and that is the reason given for the mid day reversal in the price of oil which then supposedly exacerbated the sell off in stocks. Treasuries rose with the ten-year down 10 basis points on the day to end at 4.15%.

We have been able to acquire excellent stocks in this sell off and have greatly improved the quality of our portfolios. By eliminating tech we are giving up the potential for large gains but we are also removing a serious thorn to our performance over the last four months. The current correction and selling is offering us the opportunity to buy quality stocks on sale and we plan on continuing to do so. Our strategy will work.

And tomorrow is today and it is the last trading day of the month and it should be interesting. So let the games begin.
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28 April 2005 Daily Comment

Thoughts

Housing is hot and Consumer Confidence is waning. The Fed will have to keep raising rates to slow housing down and since oil is high the consumer is not shopping. That is why the markets are in a funk according to the gurus. We don’t disagree but as always easy answers obfuscate the dynamics of markets with a million bits of information all of which are being individually interpreted by millions of traders and investors.

The last few months we have been moving in fits and starts to stocks that offer value at present prices. We have returned to the value approach because the trading and technical approaches are not working for us. The value approach has not immediately done well either but the element of time when in investing in value is more open ended.

We have returned to an early 1980s investing approach that worked then and we think will work now. As we have reminded continually since our January give back of November/December gains; 6% of ort 9% loss in value this year in the Model Portfolio and many accounts is basically a give back of the 8% gain made between November 1 and December 31 of 2004.

Excluding that drop-which was painful and disconcerting-leaves us with a 3% give back with our new/old approach. That give back is well within the bounds of the normal give and take of the markets.

We have worked hard to reduce our tech exposure and will continue to do so. We do have a few left and that’s because while tech is certainly not in favor there are a few issues that we have followed and owned over the years that we thought offered a 50% or better return potential over the next year when we purchased them. Now with 20% drops in price for two of the remaining holdings the return potential is hopefully even better. The majority of issues we own are all big cap names purchased at prices well below their 12 month highs. When the markets recover we believe these issues will provide a return that will recover the lost dollars of January plus provide a decent year over year return.
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Investor’s Intelligence reports that bulls have dropped to 44% from 48% in the latest week while bears have edged up to 29% from 26%.
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Asia was lower overnight with Japan and Hong Kong both down fractionally. Oil is up a few pennies in early morning trading and treasuries are a few bps higher on the regurgitation of the housing numbers of yesterday when it was announced that new home sales were up 12% in March.

For us, the deals and inventive financing being used to make some of those house sales are the worry. Those deals and inventive financing will be stories of woe in a few years and all will wonder how it could have happened under the vigilant eye of the FED. Interest only and no money down work well for rich folks but they can be real downers for ordinary home buyers who don’t have the room in their budgets to increase payments when the banker comes calling. Hope is good for getting to heaven but it stinks when paying housing bills.
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Durable Goods orders were down 2.8 % in March so the tightening argument gets weaker. DG is a volatile number but Treasuries have rallied on the data with the ten-year dropping 7 bps in yield.
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Verizon announced super revenue growth and earnings were 3 pennies ahead of estimates.
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Wednesday’s Markets

10:02am and stocks opened lower on the Durable Goods number but have stopped retreating because the oil inventory number was greater than expected for the seventh out of eight weeks. Breadth remains 2/1 negative but the DJIA has rallied back from down 90 points to down 35 points. Crude oil is down $1.15 and $53.10 for now.
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12:02pm and oil inventories are at their highest levels since May of 2002. Oil is now down $1.70 at $52.50.

The major measures are in positive territory with the NAZZ just barely, and breadth has improved but is still negative on the NAZZ and slightly to the plus side on the NYSE.
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12:55pm and we used the jump in the major measures to eliminate a couple of more tech stocks. We sold TLAB at $7.77 for 45 pennies per share profit after it backed off at resistance yesterday. And we sold Seibel in our large trading accounts for a positive scratch ahead of tonight’s earnings. That gets us down to Brocade, Lucent and Micron as our remaining tech stocks. We are going to hold them for now since we think all can be exited at a profit however small within the next year and in BRCD and LU that would be a 30% plus return.
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1:56pm and the major measures held their ground during the contra hour so the last hour of trading should be interesting. We bought a few shares of Sara Lee in smaller accounts. SLE has a 3.7% yield.
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In order to solve the energy crisis President Bush is going to build refineries on military bases and he has offered to have the first three nuclear reactors built near his ranch, and Tom Delay’s and Bill Frist’s homes in Sugarland Texas and Tennessee. That‘s know as the nuclear option.
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Crude oil ended at $51.61 down $2.59. Treasuries are holding their gains above the bet levels of the day as the five year auction was a little sloppy.
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3:02pm and the DJIA gained 48 points to end at 10199. The S&P 500 rose 5 points to 1156 and the NAZZ limped 3 points higher to 1930. Breadth was positive on the NYSE and negative on the NAZZ at the bell.

And today is tomorrow so let the games begin.
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27 April 2005 Daily Comment

Thoughts

Monday’s markets lacked volume on the upside as have all the rallies of the last two weeks including the 200 points DJIA move last week. It would be good to see a rally with over 2 billion in NYSE volume as the stepping off point for a sustainable move higher. But the S&P 500 is back to the 1163 level and after a dip this morning we presume traders will see if they can cross that threshold and set off bear buy stops.

Veeco’s earnings and sales were punk and so we would expect a $1 giveback today. Management is muted going forward and we will use any rally after the inevitable pullback to light our load. VECO second quarter also predicts a loss. They have enough cash to survive but … are there other places for the funds? Probably. We bought when we thought tech was going to lead higher last month.

Sara Lee missed by a penny but we think the ‘street’ will be kind. If there is a significant pullback we will be adding stock.

The present market is a waiting game. Waiting to see which way the inevitable breakout goes. Till then it is watch and trade around the corners selling disappointments and buying promise.
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Tuesday’s Markets

9:50am and stocks opened lower in moderate trading. Asia was mixed to higher overnight and Europe is higher. Treasuries are down a few bps and oil is off a bit. Breadth is positive after being 2/1 negative in the early going.

We are selling the balance of our CCMP for a scratch profit to $1 per share loss ahead of tomorrow’s earnings. We are also selling VECO for a $1 to $1.50 per share loss because it is only off 50 cents this morning. We weren’t impressed by the earnings report and are redeploying the money to an equal number of shares of Time Warner since we want to increase our position in TWX. With the CCMP money from yesterday and today we are buying Sara Lee down $1 per shares today at $20.88 on its earnings statement. We want to lessen our risk profile and improve quality by selling tech while not giving up gain potential and we think these switches accomplish that aim.

Our sales still leave us with some tech exposure and we are waiting for Seibel earnings tomorrow to decide whether to add more of that stock. We want to concentrate on the tech stocks that we have been trading for the past few years. We just can’t work up the confidence to own Veeco and Cabot Micro and we won’t trade them again.
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New home sales rose 12% in March to a new record. No money down and interest only loans are big helps.
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12:25pm and stocks are back to almost 2/1 negative. The major measures are lower on low volume selling that is more an absence of buyers. Oil remains lower but is back above $54 again.
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3:02pm and the S&P 500 hit 1164 about mid day, blinked and said “not today”. It then sold off and the markets did likewise. At the bell breadth was 2/1 negative and the DJIA closed down 91 points at 10151. The S&P 500 lost 10 points to end at 1152 and the NAZZ dropped 23 points to 1927. Oil finished at $54.20 down 37 pennies and Treasuries were lower by 1 to 8 bps short to long respectively. Europe also closed lower. The only slight positive today was that volume was low. The low volume yesterday was a negative when the major measures rose.

And today is tomorrow so let the games begin.
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26 April 2005 Daily Comment

Thoughts

We have been traveling and returned Monday at noon to find the major measures higher. The action is the reverse of Friday. Traders can’t seem to make up their minds.

On Tuesday Veeco and Sara Lee report earnings before the opening. We are a bit worried about Veeco not because we don’t like the stock but because we have no idea what the markets will consider good news. We take some heart from the Mother Merrill upgrade a week ago since we presume the analyst is doing his/her homework.

Sara Lee is also a conundrum because the company is again restructuring. But this time the restructuring is occurring with a new CEO so we think the ‘street’ will be inclined to give a little more room for write downs.
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Monday’s Markets

1:12pm and stocks were up out of the gate and remain higher on the day. Breadth is 2/1 positive, oil is lower by 56 pennies at $54.85 and Treasuries are unched. Even with the up market is seems like a ho-hum day.
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This afternoon we sold our QQQQ and SPDR Tech holdings for a few pennies profit each to have funds available to buy individual stocks over the next few days in our larger accounts. We also sold a few more shares of CCMP at $29.99 in smaller accounts for a scratch.
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3:02pm and at the bell the DJIA was up 85 points at 10242. The S&P 500 gained 10 points to 1162 and the NAZZ rose 17 points to 1849. Breadth was 2/1 positive and volume was light which is why we raised a bit of cash in our larger accounts. The bulls need better volume on these up days to make believers of the naysayer.

And tomorrow is today so let the games begin.
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25 April 2005 Week-end Comment

Thoughts

After Thursday’s market action anything can happen today. This whole week has been a conundrum and it probably isn’t going to get any easier. It has been our thought the stock markets are in a bottoming process and that is why we have been getting more fully invested over the last few weeks. When the bottoming process will end and how great the rally off the bottom will be is beyond our thinking at the present.

That’s because the process of buying for individual accounts based on their risk/reward profile consumes most of our thinking. Our projection of a bottom to the correction occurring at some point soon is mainly a gut feeling gained through 35 years of watching markets.

Overnight Asia was higher and Europe is trading higher this morning. U.S. Futures are lower as they should be after yesterday’s run and oil is again over $54 a barrel. Treasuries have recovered a bit of yesterday’ losses.

We would like to pick up more Time Warner even if Time Magazine did chose to have the witch Ann Coulter on its cover. After all Time has also had Hitler and Stalin on the cover too.

Eastman Kodak had less than stellar results today and is off a couple of dollars. We haven’t traded that stock in a while because we wanted to see how their move to digital photography would go. They seem to be making the transition. The stock has been range bound between $24 and $32 for a few years and we think now may be the time for at least a trade if the shares move a bit lower.

So let the games begin.
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Friday’s Markets

Mother Merrill upped National City from under perform to neutral based on valuation. Thank you Mother.
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Maytag reported lower quarterly earnings and lowered its outlook going forward. The stock price is down $1.25 per share. Sometimes trading out of stocks before earnings does work. We are going to avoid the stock unless we see single digits.
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This Friday morning traders are calling for larger volume when the markets are moving higher. Traders also want today to be a follow through day to yesterday’s upside movement in order to feel confident that at least an interim low is in place. Finally, it would be nice if the S&P 500 would blow through the 1163 level on the upside.
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Thursday’s rally was ascribed to the no stagflation comments of Greenspan.
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Google had blowout numbers Thursday night and jumped 23 points. Remember that $23 on a $200 stocks is like 23 pennies on a $2 stock.

Minyanville.com is reporting that Google now has a larger market cap than all the U.S. auto stocks and their suppliers combined. Times do change.
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Warren ‘the oracle’ Buffett has taken a position in Budweiser. This Bud is for Warren.
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At noon the major measures are lower having been lower all day. Volume is light. The NAZZ is getting the worst of it down almost 1% or 18 points with breadth on the NAZZ almost 2/1 negative.

The DJIA is off 25 points and oil is back to $55 as the big boys and girls have fun at the expense of the autoing public.

We bought a chunk of Eastman Kodak at $27 down $3.40 from the close and also added some QQQQ to larger accounts at $35.30. And we bought a few more share of Netflix at $11.10 but we are not going to make it a major item in portfolios.
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Yesterday we bemoaned the fact that we sold MOT ahead of earnings and the earnings were good and the stock rose $1. Today we are happy that we sold Maytag ahead of earnings and since the share price has dropped $4 today as MYG disappointed.
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There was a sell off in contra hour and the DJIA is down 90 points as we enter the final hour of trading. This weekend is Passover and it is a Friday in spring although our weather in the land of milk and honey is dismal. We are hoping that the failure to continue the rally can be ascribed to those two items plus the fact that oil is up over $55 AND North Korea is reported to be ready to test a nuclear weapon. Hope they don’t blow their country up doing it. We think the Friday before Passover and traders leaving early theory are the most acceptable.
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The oil shortage is so much baloney. As we have said, the rise in the price of oil is the same garbage that happened in 2001 when electricity was being manipulated. We have a five year high in gasoline and oil supplies yet the price doesn’t come down.

“Traders said a gasoline-making unit at a ConocoPhillips' COP refinery in Louisiana would be down for another week after failing to restart following maintenance, adding to a spate of problems in Texas, Louisiana and Kansas. Gasoline inventories in the world's biggest consumer are 5 percent higher than a year ago, but showed a surprisingly large drop last week, a time when supplies should be building ahead of the peak usage summer season that starts at the end of May. Crude stockpiles fell last week; their first decline after a nine-week climb put them at the top end of their five-year range.”

Where are the gas lines and closed gas stations? Where? Where is FERC?
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At the bell the DJIA was off 61 points at 10157. The S&P 500 lost 8 points to 1152 and the NAZZ dropped 30 points to 1932. Easy come easy go. Breadth at the close was 2/1 negative and Treasuries were firmer on the stock decline certainly not on the rise in the price of oil. The action is the last hour was the result of a few of the big boys and girls having fun with program trading in a thin market.

And tomorrow is today and it is Saturday so enjoy the weekend. The next post will be April 26.

 

22 April 2005 Jody’s Birthday Comment

Thoughts

We wish a Happy Birthday to our brother and tech guru on number 52 and counting. He is the person responsible for presenting this wonderful informational website every day and for that we are very thankful. We are also thankful that he is our brother.

We want to thank all the clients who are praying for us and their portfolios and expressing their confidence in our leadership. It is accepted with thanks although we think the Holy Spirit is busier with more important jobs. Although praying for us may be the reason the Holy Spirit missed that conclave over in Rome and the Conservative guy won.

Sometimes we can be too smart for our own and client’s good. Motorola announced great numbers last night and the stock is going to open about a point above where we sold it several days ago to avoid the earnings news. Last quarter the news was a negative and rather than waiting we projected bad news again.

Wednesday all news was bad news even though most of the earnings news was good news. This Thursday morning the stock futures are saying that the earnings news is good news that is being treated as good news. The main question is for how long the good news from Qualcom and Schering Plough and Nokia and Motorola in Ingersol Rand will be perceived as good news.

On Wednesday the bears found the Fed Beige Book release as a good hook to turn stocks down as market participants read it and saw rising inflation and falling sales and thus the dreaded stagflation word reared its ugly head and ate the market gains.

Having restructured accounts to our liking we are accepting of the market action and view the continued sell off as a continuing buying opportunity.

For example SBC, JPM, NCC, VZ, BMY and BLS all yield over 4% and the bank stocks in the group are at 10 times earnings or less and the telephone stocks are at 13 times earnings or less.

Yesterday TLAB announced stellar results and the share price closed up 10% on a day when the major measured fell over 1%. Time Warner and Schwab did drop in price but that drop is giving us the opportunity to buy great value at lower prices.

TWX owns AOL and as we have been saying the ‘street’ gives no value to AOL in the total valuation of AOL. Yet Yahoo sells for over $40 billion. Yahoo depends on advertising and sales deals and so does AOL. But AOL also automatically debits over 15 million credit cards from $10 to $20 each month. That is an advantage that AOL has that the marketplace doesn’t want to recognize. A $10 billion market cap on AOL is not unreasonable although we are the only folks propounding such and idea.

As we have said before, stocks go up and down and if you buy them when they are down and sell them when they are up you make money. That simple operation has worked for us and clients for 35 years and the rules have not changed.

JPM traded at $45 last year and are buying at $34. SBC traded at $28 last year and $40 in 2002 and we own at $22. TLAB traded at $12 in 03 and we own at $7. Veeco traded at $28 last year and we own at $15. CCMP was $40 last month and we own at $30. Before last year and all through the sell of the 2000 to 2003 period CCMP never traded below $40. Verison was $42 late last year and we won at $34.

We are not overpaying for these stocks. We have readjusted portfolios to own stocks that give us a good opportunity to recoup our paper losses over time. As we walked the farm last night with the dogs we were thinking of a walk on our 60th birthday in October 2003. We were comfortable with our portfolio positions then and with the value of our accounts. And our assets are worth more now than then. Our farm is worth more as are many of our clients’ real estate holdings. And so are our portfolios. The ebb and flow of the value of accounts is sometimes tough to take, especially the ebb, but then the flow returns and all is well.

None of our clients are in any danger of losing their nest eggs and we all will eventually wonder what the worry was about after we reach a new plateau of value.
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Thursday’s Markets

Adelphia has accepted the Time Warner/Comcast bid of $12.8 billion in cash and a part of the new cable company. TWX and CMCSA will also exchange some properties in the deal. That is good news for TWX.

As the deal is structured: Time Warner and Comcast will pay $12.7 billion in cash and 16% of the stock in Time Warner's cable subsidiary, Time Warner Cable Inc, which will become a publicly traded company at the time the deal closes, the companies said. The stock part of the deal is valued at nearly $5 billion, but some creditors have questioned whether the shares would really be worth that amount once the unit starts trading.

The deal beat out a last-minute bid by Cablevision Systems Corp., a New York-area cable-TV company. The joint bid from Time Warner and Comcast had been favored to win.

Comcast will redeem its 21% interest in Time Warner Cable and pay about $1.5 billion in cash, getting 1.8 million cable subscribers in exchange. Time Warner will get 3.5 million subscribers from Adelphia.
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Initial jobless claims finally broke down through the 300,000 barrier at an opportune time for the markets. Last week’s claims were 296,000 versus a guru guess of around 330,000. One pundit says this will bolster the bear case of inflation. To that we say hogwash. If fewer folks are losing their jobs it is good for the economy. Period.
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Markets Open:

Zooming out of the gate the DJIA is up 100 points and the NAZZ is up 20 points recovering all of yesterday’ loss. Breadth is 3/1 positive and oil is down 80 pennies but still over $53. Treasuries are a few bps (basis points) higher in yield.
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Prudential downgraded JPM yesterday. The downgrade was on the wire at about 2pm which means that the large Prudential customers were able to sell the morning rally in the stock. The downgrade has placed pressure on the stock but we obviously disagree with the downgrade.
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Greenspan is testifying about something this morning and it is live on CNBC. “The Federal Budget is out of control. Need new discretionary spending caps. U.S may have promised more than can deliver to baby boomers.” So may Alan. He’s the fellow who was worried about the large surplus back in 2001.
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We are buying a few shares of Netflix for aggressive accounts ahead of tonight’s earnings with room for more if the shares sell off. Netflix started the movie DVD by mail business with internet ordering. Now Blockbuster and Wal-Mart are joining the business and Wal-Mart is going to try and take it over with a price war. Our feeling is that a lot of the folks who use Netflix (3 million plus and growing) are folks who aren’t going to Wal-Mart for a few dollars per month difference.

Netflix is priced at one times sales and has $3 a share in cash in the company. It earns about 30 pennies per share per year right now. Its inventory never wears out. We are buying at $11.60 down from $36 when the other companies announced their entry and the rice war forced NFLX to withdraw a price increase.
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It’s after noon and the DJIA is up 150 points. Traders are going to need some Prozac after the last week. 4 out of 6 down 100 days mixed in with 3 up 100 days makes interesting trading. Breadth remains 2/1 positive and volume is strong which is a positive on an up day like this. Schwab sold down to $9.80 and we bought a few shares to add to accounts. We also repurchased Sara Lee in larger accounts.
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Stocks closed on the positive side with the DJIA up 206 points at 10218. The S&P 500 gained 22 points to 1160 and the NAZZ was up 48 points to 1962. Breadth was over 2/1 positive at the bell and volume was good. Treasuries tanked with the ten-year down 9 bps and oil was higher.

And today is tomorrow and it is Friday so let the games begin.

 

21 April 2005 Daily Comments

Thoughts

One up day does not a rally make but with yesterday’s tentative positive action and Wednesday’s good earnings news from Intel, Altria, UTX, Yahoo and JPM we would guess that stocks are in the second look period for potential bulls.

We have been able to restructure the portfolios to our liking with more big cap stock by emphasizing banks and the telephone stocks. We are also emphasizing dividends and slow recovery of the portfolios. We have a few tech stocks left in which we have confidence. It has been a difficult passage from there to here in the last few months. First we had to extricate ourselves from losing position which is never a pleasant task and then we had to wait for some of the larger names to come off a bit before we purchased them.

We are thinking of adding Talbot’s under $27 and we will also buy more Boston Scientific but in manageable quantities.
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Wednesday’ Markets

12:25pm and stocks opened higher on the good earnings news and in the face of a 0.6% CPI increase. But when Treasuries moved lower and oil inventories were reported lower the major measures gave up the ghost and moved to the downside. Oil jumped on the news but now is about unchanged.

Breadth is over 2/1 negative and volume is moderate. For now the rally is over and a retest of the downside is in the works.

We have added shares of NCC, BSX and TLB to accounts. We are sticking with our view that the sell off remains a buying opportunity in the big caps names we own. And our tech holdings have surprised on the upside with TLAB reporting a good increase in revenues today and Lucent doing the same yesterday.

As stocks tanked in the afternoon right after the Fed Beige Book was released and said that there is price pressure and the economy is not doing as well as expected. Treasuries closed unchanged. At the bell the DJIA was down 116 points at 10013. The S&P 500 dropped 15 points to 1137 and the NAZZ lost 19 points to 1913.

Breadth was over 2/1 negative and volume was higher than it was when we gained on Monday and Tuesday. All in all it was a win for the bears.

The S&P 500 close under 1140 was a negative and means there is more work on the downside.

And our early morning comment about the bulls returning sure proved wrong.

Bottoms are not easily made or called. We own good stocks at good prices. Down markets are scary. We do not like to lose money anymore than our clients. This is a new experience for us and them since we the last time we experienced a year in which we have been down over 3% at any time since 1990 when we finished the year down 10%. The only comfort we can offer right now is that in 1991 our Model Portfolio was up 34%. Past performance is not an indication of future performance.

And tomorrow is today so let the games begin.
*****

 

20 April 2005 Daily Comments

Thoughts

In Tuesday’s early morning earnings’ fest Lucent, Coke, Texas Instruments and EMC all reported in line or better and that has placed a bid in the market. Asian markets were higher with Japan up a bit over 1% (they dropped 3% on Monday). Europe’s markets and U.S. futures are higher. So that sets up the up early; fade; and then what happens type of trading day.

National City earnings were 5 pennies better although the headline writers are saying that earnings were lower on a quarterly comparison basis. That brings to mind the fact that IBM lost $12 billion in market capitalization in one day and $25 billion in the previous week on a 25 penny earnings miss. So as you pass by those pennies in the streets think if you had picked up 25 in the last year and given them to Big Blue its shareholders would be $35 billion richer today.

In the last week we have learned of a wonderful client and his wife who were in a terrible auto crash. Luckily and hopefully both are doing OK. A business acquaintance died tragically, several clients are not well physically and the Cubbies have been playing like the Cubbies. We mention these events plus wars, and murder and rape and pillage around the world to place in perspective the ‘trouble’ we have been having lately in the markets.

On a positive note the markets are catching up with our lousy performance and on the negative side it is not because we are doing better but because the major measures and many mutual funds are doing worse. So we are all losing money together. Misery loves company.

The sell off has allowed us to focus again on quality issues. We found our self straying back into the ever enticing tech land minefields that have given us trouble for the past four months. Since some of them will eventually work we are not abandoning tech totally but we are not doubling down on losers and we are using the SPDR Tech Trust to limit risk which also limits upside but allow us to participate in the area of the economy that we think has the very goood long term potential.

Keep the faith, we are. We didn’t get to this point in our life and career by consistently losing money. We have suffered through these setbacks and always recovered nicely. We will do so again but it may take time. Luckily time is free and most of us have plenty of it.
*****

Tuesday’s Markets

PPI (the Producer Price Index) was up 0.7 % in March. Housing Starts were down 17.6% in March.

The major measures have been higher all day. At 1pm breadth is 2/1 positive. Volume is a little light. With the contra hour upon us a pullback now might set up a firm close. If there is not pullback then the close might be weak ahead of tonight’s Intel earnings and tomorrow’s JP Morgan and others.

Today we added JP Morgan, National City, Verizon, SBC, Bristol Myers and Micron to accounts. This is in keeping with our theme of going with mainly blue chips with an emphasis on dividends. Micron is the only outlier in the group and it is a pure chip play.

We also purchased very small beginning positions in Boston Scientific and Talbot’s. BSX is the leading coated stent producer but JNJ is breathing down their necks. BSX huge sales growth has slowed as it has 60% of the coated stent market and JNJ has 40% and is climbing. BSX is down form $8 to $29 and is the dog house as JNJ is taking share. We think this opens up takeover possibilities. We are only making a 1% of portfolios bet. The same goes for TLB. Their earnings this quarter are already announced as lower but we like it at this price (15 times earnings and lower).

Crude Oil ended the day up $1.18 at $52.15.

We have to leave a little early but at 2:25pm as we do the major measures look to close higher with the DJIA now up 60 points and the NAZZ up 20 points and the S&P 500 up 7 points at 1153. To get the bulls excited the S&P 500 has to get through 1163 on the upside since that was downside resistance last week. It may need some more time and more sideways or down movement. But an up day is nice for a change.

And today is tomorrow so let the games begin.
*****

 

19 April 2005 Daily Comments

Thoughts

Europe and Asia caught the U.S. flu and traders in those countries knocked their averages down 2% to 3%. The Nikkei is under 11,000 again. A long time ago, 1989 it traded at 40,000.

The drop on Friday made the upper fold of the NYT this morning and also most of the week-end newscasts so the markets are back in the spotlight. Whether this fact is positive remains to be seen. Three down 100 point days in a row has the DJIA down 6.4% for the year and the S&P 500 down 5.9% with the NAZZ off 12%. And so the major measures are catching up with our lousy performance. We don’t like to be leading the pack in this category but we do think the drop in share prices is providing an opportunity for us to pick up good quality stocks at fair prices and that is what we are going to do today if the markets cooperate and sell off a bit more.

There comes a point as Don used to say where it is getting too late to sell and it is time to buy. We are going to buy good quality names by adding to positions we already hold in SBC, VZ, JPM, NCC, HAIN, and TWX.

We are going to try and reduce our tech positions today because those stocks really are not working. We would rather just hold the SPDR Tech position and add to it but not today.
*****

Monday’s Markets

Stocks opened higher for about ten minutes then selling came in but the buying returned. Tribune was downgraded and given what has happened to NYT since we sold on a downgrade we have decided to eliminate that holding. There are other fish to fry in this down market.

With the rally in the markets this morning we are passing on buying stocks. We did add some Time Warner to accounts and also bought a few shares so Seibel for a few aggressive accounts to get our feet wet again in the stock. There have been so many software deals lately that it just seems that SEBL has to go even with the big inside ownership. Or at least SEBL may trade like it is going to go every Friday afternoon and give us the chance for more trading profits.
*****

At 10:30am and breadth is back in positive territory. There are supposedly a lot of bearish folks out there but everyone on CNBC is bullish because the bears are out there.

Whatever, we are looking at stocks that offer value at present prices. We don’t think the economy is going off a cliff and so we are going to pick at these if prices move lower. Since we already own most of them we aren’t going to cry if we miss buying a bit more because the markets take off to the upside.
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10:43am and now the sell off begins anew. The bulls, if there are any beside us, just don’t want to buy and so the bears are getting braver.

An individual who had $100,000 invested in the S&P 500 on 12/31/99 would today have $82,000 including dividends.
*****

We sold Motorola ahead of Wednesday’s earnings. We also sold or reduced our holding in VECO in smaller accounts. We also sold Unisys which blindsided us with their loss on April 14. All three were 15% losses.
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The DJIA closed down 16 points at 10071. The DJIA was down because MMM dropped $4.96. The S&P 500 gained 3 points to 1145 and the NAZZ was up 4 points to 1912. Oil closed above $50 but down 12 pennies on the day. Treasuries were down about 3 bps across the board.

And tomorrow is today so let the games begin.
*****

 

16-18 April 2005 Week End Comments

Thoughts

Well, do we circle the wagons or dive in head first to the mess that is the current stock market. This morning GE reported earnings per share that were 1 thin penny above estimates and we weren’t surprised. Citigroup reported ‘less than’ earnings but announced a $15 billion buyback of stock. CNBC is going nuts a pplauding GE and castigating IBM as a has been. The tone of the talking heads is one of confusion because they don’t know how to play the market story. They have plenty of company.

Without a doubt the markets are at an inflection point and are either going to rally from this level or go down another 3%. Our hope is that they move lower to get the sellers satiated and find a base from which to begin the work of rebuilding hope and profit.

The action in the bonds on Thursday suggests a slowdown without inflation since all maturities rallied strongly on the lousy stock action. The Feds ‘overheating’ words of Thursday were thrown overboard and the bond folks decided that safety as opposed to gain was the place to be. The dollar also rallied on the sell off.

We are as confused as the next person about the economy but we do see value in the stocks we own. The real conundrum is what to own to take advantage of the eventual move up without exposing ours portfolios to more downside than we are willing to endure. That is always the dilemma at times like these.

We have been here before and survived and we presume the wisdom or luck we have gained over the years will pull us through again this time.
*****

Asia was lower overnight with Japan off 1.5% and Hong Kong down almost 1%. Europe is also lower boy more than 1% as all traders await the US markets and the initial selling wave.
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Oil is back under $51 at $50.55 down 66 pennies. We need it to break $50 to the downside. With bonds rallying and the dollar rallying and gold and stocks lower maybe some of the hedgies are having to liquidate either or all of the various positions they own to mitigate wrong calls by their wonderful computers.
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The main problem on a day to day basis is that a lot of the selling in stocks is to offset losses in other trading vehicles rather than as a result of sell decisions based on fundamentals. Such selling then affects the psyche of the weaker holders who head for the hills. And the lesson of the last five years has been to take your lumps and get out at what seems to be the low because a lower low has occurred.

We believe that trading tactic no longer applies because the bear market is over. We think we are in the midst of a nasty correction in a normal bull market. Our belief is that the stocks we own are not overpriced but even we are not immune to the pain such a correction can cause.
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Friday’s Markets

Stocks opened down and traded down all day. At 1:15pm the DJIA was off 100 points and the NAZZ was off 25 points. The S&P 500 was down 10 points at 1153. It was not a pretty picture.

On day like today it is a good idea not to bet the farm but we did buy the SPDR Technology Trust in size in larger accounts. 7% of the trust is IBM and 12% is MSFT with 6% Intel and 5% Cisco. So the trust allows us to participate in IBM’s collapse today (down 7 points to day and 15 points in the last 10 days) while also buying other depressed big cap tech stocks. We have traded this trust which goes by the symbol XLK before.

Most of the gurus are death on tech and banks right now but we are playing tech and the banks as two areas that the big boys and girls will come back to eventually if not sooner.

We also sold a few shares of Cabot Micro in some accounts to lighten our position and we will do the same with VECO if a rally or even dead cat bounce enables us to do so. By the by, Mother Merrill increased her rating on VECO to buy a few days ago.
*****

At the close the DJIA was down 198 points.  The S&P 500 dropped 20 points to 1153 and the NAZZ gave up 40 points to 1907. Breadth was 3/1 negative again today and down volume exceeded up volume by 8/1.

The major measures closed on their lows for the day. It is our feeling that this is more a 1990 type of sell off but it sure was ugly today and we can’t offer much hope for Monday. This is a process that will have to be worked through.

And tomorrow is today and it is Saturday. Relax; we are doing enough worrying for everyone.
*****

 

15 April 2005 Special Comment

Right after the close on Thursday IBM reported earnings. They were not scheduled to report until Monday. The “street” did not like the earnings because they were light in the final month as IBM said companies delayed closing deals. The ‘street” also did not like the fact that IBM reported when it wasn’t expected.

The one guess we saw for the early report was that IBM was afraid the report had leaked. The action of the stock the last few days suggests someone knew.

The early reporting set off calamity in the S&P futures pit because IBM dropped over $5 on the news. The OEX expired tonight and IBM is a large part of that trading instrument. A $5 drop in IBM also affects the S&P futures which expire at the opening tomorrow. IBM also affects the Dow futures and many other tech indexes.

Thus the early release set off wailing and gnashing of teeth and big losses. And several other tech stocks reported ‘less than’ results tonight and are also being trashed.

All this mess is setting up a huge down opening on today and it may create talk of the Friday before the Monday Crashes in 1989 and 1987. Be forewarned.

At times like these it is best to step aside and let the fast boys and girls have there fun and inflict their pain. Good stocks survive and we have good stocks.

It may be ugly in the morning so keep the children in.

 

Peace.

 

15 April 2005 Daily Comment

Thoughts

A client asked about the vagaries of day to day share price movements and compared that action to the relative stability of real estate investing and we sent him the following reply.

We were thinking last night that your scientific back ground is a great hindrance. Unlike science the actions of the markets are almost totally psychological on a day to day basis. Less that 1% of outstanding shares of most companies usually trade in a day and that determines the value for the other 99% of holders.

Thus the day to day price movements only make sense as a measure of value if the prices are averaged over time like a year or two. But folks no longer have the "real estate" mentality when it comes to stocks. In real estate you buy and hold and assume that the value of your property is worth more every day.

Yet there are downturns in real estate: in Florida in the 1930s, Texas in the 1980s and California witnessed a value turn down in the 1990s. And if you were living on your sales in those times or were highly leveraged you had a tough time meeting living expenses because real estate values did go down 25% or more and on a leveraged basis that means you had all your equity wiped out. But in real estate as long as you make your interest payments you survive. I doubt that your personality could survive negative equity. Donald Trump flourishes on negative equity.

Over time real estate values rise as does the value of good quality stocks that are able to adapt and change. That is why Index investing is the ‘rage’ because the indexes contain stocks that are leaders that can't all fail at once and the ones that do fail are replaced just as the individual properties in a portfolio of real estate holdings don’t all do as well each as the other in the same time frame.

But we really would suggest a longer term attitude on your part. The space shot took ten years to plan and execute. The same holds true for stock. In 23 years our Model Portfolio has had two down years -- this year and down 10% in 1990 and a lot of years of under performance. But the Model began at $50,000 on 12/20/93 and is now $525,000. Had the Model been leveraged like real estate with 20% down that would be $10,000 to $525,000.

One final thought we have is that you should only own stocks that you want to buy lower. Traders don’t have that attitude but longer term investors and traders like us do. Then if stocks do move lower you are happy to be able to pick them up at even lower bargain prices

Peace.
*****

Jobless claims were down 10,000 in the latest week to 334,000. That at least is the right direction.
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Friday is a triple witching day as some options and other stuff expire. Also GE reports earnings on Friday.
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Thursday’s Markets

Well folks these markets are giving us grey hair. At 12:45pm the DJIA is down an even 100 points. Breadth remains 2/1 negative and we are selling some of our trading positions because we think raising cash when a market fails to continue to rally as it should have yesterday (Wednesday) is the prudent course of action.

Today we sold our remaining BMY for a $1.50 profit plus the recent 30 cents dividend, ABS for a  75 cents profit plus the 18 cents dividend and NWL, GPS, NXTL and SLE for a positive scratch. We lost a bit on the remaining MYG we held in larger accounts and we sold a few shares of ANN including the 500 in the Model Portfolio for a $1 per share loss. These were all trading positions.

We are taking this action because all these companies have yet to report earnings and the markets are not treating earnings kindly. Lousy earnings cause the stocks to get slammed and good earnings encourage yawns.

It has been good luck for us to raise cash as that usually has precipitated a rally and we own enough stocks that we will participate in any rally while we now are back to a good cash position in accounts.

FITB reported earnings today and the shares dropped $2. We like this company and it fits our theme and so we added shares to accounts at $41.25. On a net basis we raised cash today but we are not abandoning the markets we are just keeping (adding to) our longer term holdings and selling our trading positions.

At the bell the DJIA was off  125 points at 10258. The NAZZ dropped 28 points to 1946 and the S&P 500 closed at the line in the sand at 1163. Breadth was 3/1 negative treasuries rallied and oil gained 91 pennies to $51.13.

And tomorrow is today and it will surely be interesting.
*****

 

14 April 2005 Daily Comment

Thoughts

Tuesday’s rally was a welcome respite from the down days of the past week. Wednesday will be a good test of the bull case.

Investors’ Intelligence still has 29% bears while bulls have shrunk to 46% from 47%. One guru we follow would rather that the S&P had reached the 1160 level before the rally and so believes this rally needs to top 1190 in quick order or it will revisit the 1160 level.

The Japanese markets have been having tough times the last three days and didn’t rally last night after our markets did. Europe is higher this morning but U.S. futures are lower. Lower is better since it suggests euphoria is not present after the run yesterday.

Retail sales were up 0.3%, ex autos up 0.1%. These numbers are softer than expected by about 0.5%. What does it all mean? The ten-year is 3 bps lower on the news and the five-year is at 4.00%.

Harley Davidson warned going forward and the share price is down $6 in early trading.
*****

Wednesday’s Markets

Stocks opened lower and at 1pm the DJIA have given back all of yesterday’s gain. Breadth is over 2/1 negative. With crude oil down $1.61 to $50.25 it would seem that the markets are falling to their own drummer. We didn’t want euphoria but the sell off is more than we wished for. Treasuries are unchanged.

We bought a few more share of Cabot Micro at $29.80 for accounts.
*****

IBM is trading at $84.50 which is well under the $88 level that has been support for a while.
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With the way the markets acted today we decided to raise more cash. Both SGP and MYG have moved up over 10% in the last few days and we are ahead on the SGP and ahead in most accounts on the MYG and we sold all our SGP and most of the MYG except leaving some shares in larger trading accounts. SGP doesn’t pay a dividend and Maytag while near its low has a ton of debt and pension payments and is the diciest of the non tech stocks we own.
*****

At the bell the DJIA was off 104 points at 10403. The S&P 500 lost 14 points to end at 1173 and the NAZZ dropped 31 points to 1975. Breadth was over 2/1 negative. On the positive side oil lost $1.64 to $50.22.

The drop today may be setting up a capitulation bottom but raising cash here seems prudent.

And tomorrow is today so let the games begin.
*****

 

13 April 2005 Daily Comment

Thoughts

And we get e-mail:

I know you don't want to handle friends' money- BUT- would you just give me a little FRIENDLY advice?  I have about $100,000 in my annuity, 30% in fixed, earning a guaranteed 4%.  The guy who handles my account suggests we keep it at this percentage.  We are wondering if we shouldn't flip flop it right now to 70% fixed, or at least adjust to a larger % in fixed.  What do you think?  What % of your fund is in cash?  My new statement shows that I just lost $2000.  I am worried that this will keep going down.  It cost $40 to fill my tank today.   This cannot be good for the economy.  I'm sure it cost you a bundle to drive back to the farm. 

Regards

And we respond:

Actually our accounts dropped by more in the first quarter and our Model was down 8%. But then even with that 8% drop, over the last five years our Model (our money) is up 50%.

We think the fellow is telling you that you can’t make money without risking money.

Fixed income rates are going higher and we would think that within a year you should be able to get 6% on the fixed income money. My only question about the fixed income portion is there is any risk to principal. If so you should make sure you are invested in a short term fund or in an investment that doesn’t tie your funds up for years at 4%.

You should be in a short maturity fund averaging no more than three years maturity with the fixed income.

The $2,000 drop – for the first quarter- on $72,000 (if 30% or $30,000 is in fixed income) is minus 2.7% which is a bit less than the S&P dropped in that period.

We think the markets are going to have a rally here; sell off later in the summer; and then move higher into year end. But that is the normal pattern and life is anything but normal now.

Gas is high, home prices are high (and no one is complaining about that), and folks continue to lose jobs but folks are getting jobs, building continues, corporations have a lot of cash and the markets are always a mixture of positive and negative news.

Your retirement is still a few years off and so we would hold for now. We don’t think the stock markets are over valued like they were in 2000 and so we don’t expect any huge drop.

Interestingly, your dilemma is the dilemma that all will face under Bush's Social Security Destruction plan.

Keep the same mix you now have. If the world ends it won’t matter.

Hope this helps
*****

Tuesday’s Markets

Stocks opened lower and at noon they remain lower with the DJIA off 80 points nd the S&P 500 at 1172. 1163 on the S&P 500 is the line in the sand.. Breadth is over 2/1 negative. Even crude oil is down over $1 and $52.05 which may be one reason that stocks aren’t lower. Treasuries are firm and the Budget Deficit for March as well as the minutes of the last Fed meeting will be released at 1pm which will give traders something to munch on for the rest of the day. Supposedly this morning’s sell off was occasioned by a record $61 billion trade deficit for February.

We added a few shares of Verizon to accounts that didn’t own it and we are also picking up a few shares of Cabot Micro under $30 and Wild Oats under $9.60 for accounts that don’t own them.
*****

The Fed minutes rallied the markets. The dollar rallied; Treasuries rallied; and the major stocks measures moved higher. Oil is lower. Beats us, but since we are long stocks we will enjoy it while it lasts. It will be interesting to see if the bulls can carry this rally into the close.
*****

Stocks closed higher on the day in one of the better rallies of the last few months. Treasuries rallied and oil tanked down $1.85 to $51.86. At the bell the DJIA was up 60 points at 10507. The S&P 500 gained 7 points to close at 1187 and the NAZZ jumped 13 points to 2005 Breadth was almost 2/1 positive at the close after being more than 2/1 negative at 1pm.

We’ll find out on Wednesday whtehr the last two hours of today were for real.

And tomorrow is today so let the games begin.
*****

 

12 April 2005 Daily Comment

Monday’s Markets

We missed most of the trading day driving back to the land of milk and honey. But given the low volume and small moves in the major measures we didn’t miss much.

We sold our BellSouth holdings in many accounts that could use a bit more cash. The share price has jumped a couple of points in the last week on a few recommendations. That only got the shares back to a bit better than break even for accounts but we’ll happily take that for now and look for a lower re-entry point if the markets fail to rally.

At the bell the DJIA was down 12 points, the NAZZ was off 8 points and the S&P 500 was unchanged at 1181. Oil was down early in the day but closed higher and Treasuries were firm.

And tomorrow is today so let the games begin.
*****

 

9-11 April 2005 Weekend Comment

Thoughts

GM did not specify what spurred it to pull its advertising, but Times auto writer Dan Neil on Wednesday published a critical column about the company's brand strategy and called on GM to "dump" Chairman and Chief Executive Rick Wagoner.

"We recognize and support the news media's freedom to report and editorialize as they see fit," Akre said. "Likewise, GM and its retailers are free to spend our advertising dollars where we see fit."

And with the above comments GM pulled its advertising from the LA Times. The Tribune owns the LAT and so TRB shares are lower this morning.

We would surmise that this action by GM is another indication of the stupid management they have. It would go hand in glove with GM’s announcement yesterday that it was building a new Hummer plant in South Africa. Maybe gas is cheaper in South Africa but the world doesn’t need more Hummers and GM doesn’t need to be concentrating on them if the oil crisis and GM’s earning’s crisis is going to be solved.

What was one column in a newspaper is now going to become a large egg on GM’s corporate image and cost them many more dollars of advertising to correct.

Actually given the Tribune’s Republican leanings it will be interesting to see how they react to big business putting the arm on them.
*****

And today we called Cingular to find out whether a Cingular phone has roaming charges in Canada. Well of course they do at 80 cents a minute (talk fast) unless you choose the North American plan for your Cingular phone rate which covers Canada and Mexico and we presume (forgot to ask) Alaska. Since our daughter Christine (Kelle) is going to Canada for a week and there wasn’t a whole lot of difference in the daytime minute package we asked to switch to the North American plan since she may be going to Alaska soon. After five minutes we were informed that we couldn’t switch because we have a TDMA phone and you need a GSM phone. We informed the lady that GSM doesn’t work in most of Wisconsin and so we had to have TDMA. So we told Kelle to talk fast like the Sprint commercial.

While we were at it we asked about combining our 2 AT&T phones with our Cingular phone bill since the two companies were now one. You know the ad where Cingular allows you to talk to 50 million folks for free. NOT.

It seems that AT&T and Cingular have separate billing systems and are not going to combine them so folks have to switch one way or the other to get the package rate. That means getting new phones and an hour wait at the phone company and then reprogramming your phones. Only in America. And the guys who run these companies are paid $20 million a year.
*****

Friday’s Markets

It’s 12:45pm and we are coming upon the contra hour and oil has been down all day but is off it lows. The major measures opened higher and are now lower and breadth is 2/1 negative. The S&P 500 failed at the 1190 resistance support number after closing slightly above that number last night and that has encouraged the bears. Treasuries are a bit lower in price higher in yield. Crude oil is off 66 pennies at $53.45 but above the session lows.

We picked up some Tribune on the sell off today at $39.10.
*****

We sold the SEBL at $8.95 that we bought on Wednesday at $8.30 that we sold last week at $9.15. The shares dropped on Wednesday on 80 million shares volume and popped up yesterday on 50 million shares. Today they are up again but volume is only 20 million shares and we think today’s buyers may be late to the party. Some shareholders are having a meeting next week to complain to management about the lousy share price. We have always voted with our feet since management seldom listens to shareholders. SEBL is an anchovy that has worked for us recently.
*****

With the markets failure to hold the 1190 level on the S&P 500 we sold KO for a 60 cents per share profit in many fully invested accounts. It never hurts to raise a little cash and we have been trading KO for five months in accounts.

At the bell the DJIA was down 85 points at 10460. The S&P 500 dropped 10 points to 1181 and the NAZZ lost 20 points to 1999. Breadth was 2/1 negative and oil lost 79 pennies to end at $53.32. Treasuries lost about 3 bps.

We will be traveling Monday and the next post will be Tuesday morning.

And tomorrow is today and it is Saturday so relax.
*****

 

8 April 2005

Thoughts

The first time claims for unemployment report this morning for last week was down 19,000 to 334,000. That is the right direction.

What the bull case needs is a jobless claims report under 300,000 the same week that oil moves back under $50. We know we have said oil needs to get under $40 but a move  under $50 right now would get the rally going. A further drop would cement the rally.
*****

The FDA told Pfizer to stop selling Bextra and to place a more severe warning on Celebrex. That has PFE down in the early going but not by much.
*****

Retail same store sales were lackluster and The Gap same store sales were down 4% versus a strong up 11% last March. When the stock only broke 50 cents a share we bought shares in aggressive accounts. We raised the money by selling our FON position at a small profit. We own NXTL in the same accounts and that gives us the FON exposure we want when the merger is completed.
*****

We are also picking up a few shares of OATS and CCMP for accounts and initiating a new holding in Unisys at $7.27.

UIS is an old warhorse that we went through hell with about 10 years ago but eventually survived by breaking even. It was a real battle and nerve tester.

The stock is trading in the $7.25 area with a 12 month low of $6.75 and high of $12 and it is priced at about 50% of sales and 15 times earnings. Wachovia upgraded it from sell to neutral on valuation this morning.
*****

We are selling Qwest for a scratch in our aggressive accounts because we want to place that money in UIS. Q and VZ have become too much of a soap opera for us and if Q wins or loses MCI we think the share price of Q moves lower before it goes much higher.
*****

What’s interesting today is that downgrades of BUD and GM that were issued today have had no effect on either stock, both of which are up.
*****

Yesterday’s Markets

At noon oil is off $1.55 at $54.30. Stocks are higher and Treasuries are flat to lower in price higher in yield. Stocks opened higher even though oil was up at the opening.

Starbucks same store sales were up 6% instead of the expected 8% so it is off a couple of bucks. Talbot’s is down $3 per share at $29 but we aren’t interested till $25 and tat is firm.
*****

At the close breadth was 2/1 positive. Oil finished at its low for the day down $1.74 at $54.09. Treasuries were off 1 bps on the two-year to five bps on the ten-year.

The DJIA closed up 60 points at 10546. The S&P 500 closed right above resistance at 1191 up 7 points and the NAZZ gained 20 points to finish at 2019.

And tomorrow is today so let the games begin.
*****

 

7 April 2005

Thoughts

The folks on CNBC have been saying the last few days what we have been saying for months-- that the high oil prices are the result of speculative buying by all the money that hedge funds have to play with and the fewer places they have to employ it profitably. Price movement is what traders need. Up or down does matter but the movement is more important. So the $1 to $3 weekly swings in the price of oil are manna to hedge fund traders.

Greenspan in his remarks yesterday in his usual obfuscatory language echoed our sentiments. While we don’t expect the imminent collapse of oil prices we do know that the movements of the last few weeks seem more dying fly than fundamentally strong.
*****

Seibel has lowered revenue guidance for the first quarter by 10%. We may get the opportunity to buy back the shares we sold last week.
*****

Budweiser missed its number and has been in the doghouse among analysts for a while. We may buy a few shares of BUD just for the name.
*****

In our readings we are observing that analysts are raising ratings on retail stocks. For example this morning Gap and JC Penney were raised. That is one reason we are buying a bit of Ann Taylor. ANN announces sales tomorrow morning and we have been gingerly buying ahead of that number which means nothing to yearly earnings but everything to the price action of the stock over the next week.
*****

MCI says it likes Verizon’s offer better than Qwest’s revised offer.
*****

Cablevison, with backing from Mother Merrill and JP Morgan has entered the bidding war for Adelphia Cable Systems versus the joint bid of Comcast/Time Warner. According to our readings the latter bid is still better by $1 billion but the bidding isn’t over.
*****

Investor’s Intelligence has bulls at 47% and Bears at 29%. Those are the lowest and highest numbers we have seen for a while.
*****

Yesterday’s Markets

8:59am and stocks opened higher as oil is lower. Asian markets closed higher overnight and Europe is in the plus column. Breadth in the early going is 2/1 positive but the rally has stalled. Treasuries are firm to better in the longer maturities.
*****

2:02pm and entering the final hour the major measures are holding in up territory after coming under selling pressure in the contra hour. Breadth remains strong at 2/1 positive.

We repurchased the Seibel at $8.30 that we sold last week at $9.12.
*****

3:02pm and the DJIA closed up 235 points at 10485. The S&P 500 gained 3 points to 1182 and the NAZZ closed unchanged at 1999. Breadth remained 2/1 positive on the NYSE but closed even on the NAZZ.  Treasuries were higher with the ten-year ending at 4.43% and the five-year at 4.08%. Oil closed lower at $55.85 down 19 pennies.

And tomorrow is today so let the games begin.
*****

 

6 April 2005

Thoughts

Monday’s markets were not discouraging to us since breadth gradually improved and the major measures held above support. Overnight Tuesday Japan was up 1% and Hong Kong was closed for holiday. Europe is trading higher; oil is lower by 50 pennies; and gold is off a bit. Treasuries are flat.

This is a glass half full/half empty stock market and in the old days of the 1970s and 1980s folks would have gone off to play golf. But there is so much fast money sloshing around the system and so many 20/30 somethings who have to trade to make a dime that everyone just sits around staring at their screens awaiting any trading event.

We are happy with our chosen stocks and will wait out the drifting since we think the sideways movement is going to resolve to the upside for a while at least.
*****

BankAmerica raised telecom equipment stocks including Ciena. This time CIEN’s share price didn’t pop 30 pennies (only to drop back down a few days later) as it had the last few times analysts raised their view of this dog. And so we bought a few shares at $1.70 for our aggressive accounts. The company can exist for a few more years and it is probably going to be acquired by someone. We just hope it isn’t Tellabs who buys it. It is strictly an anchovy.

The Bell subs were strong yesterday in a weak market and we think it is their dividend yield that is attracting buyers. Whatever the reason we are glad to see a few of our stocks rise on what was basically a negative day although the major measures did manage a gain.

Albertsons is higher today because Safeway reported that its sales are going to be higher. The stock markets are assuming that ABS and other grocery markets will be the beneficiary of better sales also. Another point higher on the stock and we’ll let others do the assuming - of our shares.
*****

Challenger and Gray said that layoffs were down 20% in March versus February. That is a nice piece of news for those not laid off.
*****

Lazard started TLAB with a buy and price target of $10 and the shares are off 10 pennies. It’s that kind of market.
*****

Yesterday’s Markets

11:51am and stocks opened higher and have kept their gains all morning. Breadth is positive on the NYSE and slightly negative on the NAZZ. Oil is off 46 pennies at $56.55 and Treasuries are flat. Volume is moderate.
*****

Chairman Greenspan says that market forces may cool energy prices. Thanks Alan.
*****

3:02pm and oil closed off 96 pennies at $56.04. Treasuries were firm with the ten-year at 4.47% and the five-year at 4.13%. Breadth was positive on the NYSE and flat on the NAZZ. At the bell the DJIA was up 35 points at 10455. The S&P 500 gained 5 points to 1181 and the NAZZ rose 7 points to 1998.

And tomorrow is today so let the games begin.
*****

 

5 April 2005

Thoughts

The consolidation begins anew in the oil industry when oil prices are at all time highs. Chevron Texaco is buying Unocal.

Why do chief executives not buy companies when they are cheap instead of at all time highs? The answer is simple. CEOs and investment bankers are psychology investors who are driven by the bigger is better theory and it is much easier to buy when oil prices are at their all time highs than when oil prices are wallowing at much lower prices.

Maybe oil prices will never come down again but that idea flies in the face of history and previous oil booms. Chevron Texaco is buying Unocal’s refining capacity and paying a big price for it but the cost will be lost in the largeness of the acquiring company.

Again we ask where the gas lines are. If there is a shortage of gasoline there should be lines and intermittent shortages around the country. We haven’t yet heard of them though they may appear this summer.

Since we continue to see TV ads for Hummers and oversized SUVs on all the sports broadcasts we presume Detroit hasn’t heard of the gasoline shortage either.

Do you know that the Congress that just voted to open ANWR to drilling is the same Congress that gives Tax credits- that is credits not just deductions- to folks who buy Hummers for their business use instead of a nice Volvo wagon or Chevy blazer? If a vehicle weighs over 5000 pounds there is a tax credit available that in effect has the government paying up to 90% of the cost of the car through foregone taxes.

There shouldn’t be credits for any car but if Congress is intent on giving taxpayer money away why not give tax credits to cars that have 40mpg ratings not cars that have 12mpg ratings? We suppose that is too simple a solution.
*****

Smith Barney has added Schwab to its recommended list.
*****

“The reason worry kills more people than work is that more people worry than work.” Robert Frost, courtesy of Cody Willard on www.realmoney.com.
*****

Monday’s Markets

10:34am and stocks are lower in moderate trading. Oil is at a new high at $57.30 but Treasuries are firmer. The selling is orderly and breadth is 2/1 negative.

We added JPM at $33.67 to accounts. It was ex dividend this morning but the purchase price was lower than the dividend subtracted from Friday’s close. We also added Schwab to accounts at $10.50 and we are picking up a few shares of Ann Taylor and Cabot Micro for our larger/aggressive accounts.
*****

3:02pm and breadth moved grudgingly into positive territory on the NYSE by the close. Oil finished at $57.01 after making new highs early in the day. Treasuries softened in late day trading. At the bell the DJIA was up 17 points at 10421. The S&P 500 gained 5 points to 1182 and the NAZZ rose 7 points to 1991.

And tomorrow is today so let the games begin.
*****

 

2-4 April 2005 Weekend Comments

Thoughts

It has been an interesting morning with the employment number coming in at 110,000 jobs added when 220,000 were expected. Moreover the March data were adjusted (increased) by 167,000 to account for the month’s births/deaths model and so the employment number without that adjustment would have been negative.

On the employment news Treasuries rallied with the ten-year dropping 10 bps in yield to 4.40%. That rally lasted all of an hour and then the ten-year moved back above 4.50% and is now down in price on the day.

The major stock measures opened higher and they have moved back toward even as the bonds have given up their gains.

Hourly earnings increased 0.3% in March and the ISM index (Institute of Supply Management), which is a measure of economic activity, was basically unchanged for March versus February at an expansionary 55. At 9am the University of Michigan Consumer Sentiment Index was 92 for March versus 94 for February. We attribute that to the fact the Michigan State is in the final four.

The markets and traders obviously are conflicted about what the numbers mean. There have been some large gains for some and large losses for others. Our thoughts as all this was occurring were that the Fed said it was going to stay on a measured course of raising rates and we think they will. The flummoxed traders had been waiting all week to trade on these numbers and we think their emotions got the better of their pocketbooks.
*****

Friday’s Markets

9:48am and we are going to add a few shares of Micron Technology to accounts. Their earnings on Wednesday were better than and MU is a pure commodity chip play on a rise in economic activity in the tech area. The shares except for a year end 2002 blow out $8 low are selling at the lowest price in 10 years. And earnings are improving.
*****

10:03am and Wal-Mart broke through $50 to the downside and that is a new 25 month low. Supposedly gasoline prices are going to keep folks from driving to their friendly neighborhood behemoth. We are sad.

We added a few share of VECO at $14.95 to accounts underinvested in it and to those that didn’t own it. And we also bought Micron Technology in many accounts at $10.30.

AIG, the embattled insurance company that doesn’t know whether it overstated earnings by $1 billion or $3 billion or more is finally breaking down and its $3 share price drop has moved the DJIA down 40 points with the other major measures tagging along. We would guess that some hedge fund folks who were blindsided in the Treasury rally/ collapse this morning might be licking their wounds and selling some stocks to reliquify.
*****

Need an apartment in Manhattan? http://money.cnn.com/2005/04/01/real_estate/manhattan_apt.reut/index.htm
*****

A question from five year old princess Abigail:

Why did the spider cross the road?

To visit her website.
*****

3:02pm and stocks closed lower today as bonds traded all over the board finally closing higher on the day. The ten-year ended at 4.46% and the five-year finished at 4.14%. Oil was up $1.87 to a new high of $57.27.  At the bell the DJIA was off 100 points at 10403. The S&P 500 lost 8 points to close at 1173 and the NAZZ gave up 15 points to end at 1985. Breadth was 5/4 negative on the NYSE and 2/1 negative on the NAZZ.

And tomorrow is today and it is Saturday so enjoy. The updated Model Portfolio has been posted.
*****

 

April Fools Day 2005

Rabbit, Rabbit.

Thoughts

Elan is now trading at $3 as another case of a rare disease was found in a patient taking Tysabri. And so our instincts which looked silly for a few days saved us from a bitter pill.

CS First Boston raised Fifth Third from neutral to outperform and also raised its opinions on bank stocks in general to market weight from underweight.

Goldman Sachs is predicting a spike in oil to $105-$110 per barrel sometime in the next two years. Maybe Goldman bought oil futures yesterday when they dropped $2 to $53. No, investment firms don’t do that kind of thing. Oil is higher by $1.50 this morning to $55.30. Hopefully we will be out of stocks if that happens. And hopefully that prediction goes the way of tulip bulbs, the $100 oil predictions of the early 1980s and Goldman Sachs’ prediction that the bull market would continue through all of the year 2000.

We do continue to think that a price under $40 on oil is needed for a good sustainable bull rally. Yesterday’s up action in share prices may be quarter end window dressing. We’ll see how today goes. Overseas markets were higher overnight on the backs of the move higher on Wednesday in U.S. stocks.

Personal income was up 0.3% in February. In the latest week, jobless claims rose to 350,000. That number is going the wrong way. The big report is this morning April Fools Day when bull traders are hoping for a 200,000 but less than 300,000 rise in non farm employment.
*****

Yesterday’s Markets

11:01am and the major measures opened up a bit but quickly moved to negative. Breadth has remained positive all day and is currently 2/1 positive on the NYSE. Crude oil is now up $2 at $56.01. Thank you Goldman Sachs.

We are adding more Brocade to accounts at $5.90.

We’ve spent a good amount of cash the last few weeks as the markets have tanked and so to raise a little cash we sold the SPDR Tech units we own at a scratch of $18.55.

We bought Nextel in larger accounts at $28.45. Each share of NEXT will be exchanged for 1.3 Sprint-Nextel shares when the merger of the two phone companies takes place. The spread is about $1 per share on the arbitrage between FON and NXTL and so we though we would buy- at a 5% discount versus the shares of Sprint- the new company that will emerge.

We did buy some Sprint shares in larger accounts at $22.56.
*****

1:10pm and in the contra hour the major measures remain lower with breadth still positive. Treasuries are firm again to day with all maturities 3bps to 16 bps lower, short to long respectively.

The last three quarters’ end SEBL has popped 10% the day of, or the day after, and then over the next week moved back lower. We sold the stock today for a scratch profit because it jumped 10% in price and we will look to repurchase lower.
*****

3:02pm and at the bell breadth was 5/3 positive on the NYSE and 5/3 negative on the NAZZ. The DJIA closed at 10504 down 37 points. The S&P 500 dropped 1 point to close at 1179 and the NAZZ lost 7 points to end at 1999. Oil finished up $1.41 and $55.40. The Treasury ten-year ended at a 5.50% yield and the five-year at 4.17%.

And tomorrow is today and it is April Fools Day so kiss a fool and have good luck.
*****

 

 

 


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