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          Sunni/Shiite/Iraq/Iran
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Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Toll free phone numbers:
Bud: 312-925-5248
Kathy: 630-323-8422

30 April 2008

Thoughts

GDP for the first quarter of 2008 was announced at up 0.6%. that number implies no classic recession ( 2 quarters of negative GDP growth in a row). The anemic growth doesn’t suggest economic nirvana. And there will be three more revisions before the final number of the first quarter becomes history.

GDP px +2.6%, PCE core prices +2.2% (vs 2.5% in Q4); 0.3pt due to Fed pay raise
GDP Compnts:         Q2        Q3     Q4 Final     Q1 Prelim
Real GDP          +3.8%     +4.9%      +0.6%         +0.6%
Final Sales       +3.6%     +4.0%      +2.4%         -0.2%
PCE               +1.4%     +2.8%      +2.3%         +1.0%
Res Fix Invest   -11.8%    -20.5%     -25.2%        -26.7%
Nonres FixInvest +11.0%     +9.3%      +6.0%         -2.5%
Net Exports    add 1.32    add 1.38   add 1.02     add 0.22
Chg Pvt Invty  add 0.22    add 0.89   cut 1.79     add 0.81
*****

GM announced a $3.25 billion loss for the first quarter and the shares are trading $1 higher as the markets open. The loss equaled $5.74 per share, in the first quarter of 2008, as revenue was down slightly on business in North America.

In the comparable quarter a year ago, the Detroit automaker (NYSE: GM) posted net income of $62 billion, or 11 cents per share.

GM's total revenue for the first quarter of 2008 was $42.7 billion, down slightly from $43.4 billion in the year-ago quarter primarily due to lower North America automotive and financial services and insurance revenues. Automotive revenues outside of North America were up over 20 percent, with strong growth in China, Brazil, Russia and India.

Minus charges, GM posted an adjusted net loss of $350 million, or 62 cents per share in the period, compared to an adjusted net loss from continuing operations of $10 million, or 1 cent per share, in the first quarter of 2007. The net loss for the quarter from operations was about half of what analysts were expecting.
*****

Time Warner is going to spin off its cable division.
*****

Asian markets were lower overnight except China which gained another 4% and has now jumped 10% in the last few days after being down 50% since last October.

Gold is down another $7 this morning and Oil has a $116 handle. Treasuries are flat.
*****

This plan seems to be a good start.

From the WSJ:

Federal Deposit Insurance Corp. Chairman Sheila Bair is finalizing a legislative proposal that would allow the Treasury Department to make direct loans for close to one million homeowners in the latest government initiative to stabilize the slumping mortgage market.

The plan would authorize the new government loans so that borrowers could pay down up to 20% of the principal they owed on their mortgage, according to a confidential draft of the plan obtained by The Wall Street Journal. That would mean that if a homeowner owed $100,000 on a mortgage, the government could loan up to $20,000 to pay down the principal. "This approach is scalable, administratively simple, and will avoid unnecessary foreclosures to help stabilize mortgage and housing prices," the draft said.

Ms. Bair, a White House appointee, has raised concerns that existing efforts to stem mortgage foreclosures are not effective enough. One difference between her plan and another measure advancing through Congress is that the FDIC proposal would not provide insurance for refinanced loans. Instead, it would offer smaller loans to make existing loans more affordable. According to the draft, borrowers would still be required to pay their mortgage and the new government loan, but they would not have to make any payments on the Treasury loan for the first five years. During that time, investors in the loans would pay interest to Treasury, and after five years homeowners would begin repaying the Treasury loan at fixed Treasury rates. For loans to qualify, mortgage investors would "pay Treasury's financing costs and agree to concessions on the underlying mortgage to achieve an affordable payment."

To modify one million loans, the FDIC estimated it would require a $50 billion public debt offering. Treasury would recoup the costs because it would have the first priority to recover funds if homes are sold, refinanced, or if the borrower goes into default.
*****

Investors Intelligence had 40% bulls and 32% bears in the latest week.
*****

We repurchased Motorola today at 30 pennies more than we sold it four weeks ago. Since then Icahn has been given two board seats and we think he will stir things up now that he is on the board. We have room to add more at lower prices. The improvement in the portfolios over the last month gives us more comfort in owing a speculative value stock like MOT.
*****

Stocks are running up (DJIA up 100 points at 10am) ahead of the interest rate decision of the Fed at 1:15pm. That is worrisome.
*****

European bourse indexes closed mostly higher. Mexico was fractionally higher and Brazil gained over 1%.
*****

We re-purchased Fifth Third in measured amounts in accounts. We have been in and out of the shares without making any money over the last few years but not losing much either as the share price dropped from $50 to $20. FITB announced earnings last week and also sold $750 million in ten-year notes with a 6.25% interest rate and $350 million in preferred shares with an 8.875% dividend. The fact that FITB raised its dividend recently suggests that the FDIC is complacent about their balance sheet. We have room to buy more.
*****

The Fed dropped the Fed Funds rate to 2% and the Discount rate to 2.25%. The statement said:

     The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.

     Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

     Although readings on core inflation have improved somewhat, energy and other commodity prices have increased and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.

     The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

     Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.

     In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta and San Francisco.
*****

Gold finished at $865 and Oil was $114.85. Treasuries rallied with the two-year at 2.29% and the ten-year at 3.78%.
*****

The DJIA reversed its gain160 point gain in the last hour and closed lower on the day. We liked it up 160 points better.

At the bell the DJIA was down 20 points at 12815. The S&P 500 topped 1400 in the contra hour but closed down 6 points at 1385. The NAZZ dropped 12 points to 2412.

Breadth ended 5/4 positive on the NYSE and the reverse on the NAZZ and volume was light.

There were 55 new highs and 65 new lows on the NYSE.

The bears won the day while the bulls won the month.
*****

 

29 April 2008

Thoughts

While we were away Gold dropped to $888, Treasuries backed up in yield with the two-year rising to 2.30% this morning and the ten-year yield rising to 3.80%. Oil touched $120 last Friday and is now at $118 as the day begins. The major stock market measures moved slightly higher in our absence and futures are suggesting a flat opening for today.
*****

Mars Candy is buying Wrigley for $22 billion with Warren Buffet buying a minority position. Mars and Buffet are paying 32 times earnings for WWY. What was that we heard about Buffet buying low?
*****

Kirk Kerkorian is taking a 5% position in Ford. He owns 100 million shares now and is tendering for 20 million at $8.50. He could have purchased the 20 million on the open market and then declared his ownership. And he probably could have purchased the shares cheaper than the $8.50 he is going to pay. Our guess is that he wants the publicity but paying $5 million for the privilege seems a bit steep. Kerkorian has owned Chrysler on which he made good money, GM which he lost money and now Ford.
*****

While we were away we added Microsoft and Yahoo to our larger accounts. MSFT is bidding for Yahoo and we think the takeover would be good for both. If MSFT acquires YHOO we will make money on the YHOO and may suffer a short term downdraft on MSFT. If MSFT abandons the bid YHOO will drop to the low $20s but MSFT will rebound to the mid $30s. At least that is our scenario. Our hope is that the folks at YHOO realize the deal is good for both companies.

We added shares of both stocks to more accounts today and reduced the Yahoo position in a few accounts at a scratch to bring the investments in line.

We also bought Starbucks at $15.75 in small amounts in our larger accounts. The shares dropped $3 in price when we were away on negative earnings and sales news. The shares are currently at 17 times earnings and we view the present price as an opportunity to being accumulating shares.

Since the markets are at trading highs for the range of the last two months we are selling our two speculative low-priced stocks Qwest and RF Micro for small profits.
*****

We added shares of Evergreen Solar to accounts that own it and some other accounts.
*****

Asian markets were mostly higher in Tuesday trading and European bourse indexes closed fractionally lower on the day.
*****

Gold ended the day at $877 down $19 and Oil was down $3.11 at $115.65. The euro was worth $1.55 and it takes 103 yen to buy one dollar. Treasuries were flat with the two-year at 2.34% and the ten-year at 2.82%.
*****

We sold Schering Plough for a nice one month profit. We bought the $4 sell off at the end of February and the shares are now back to the price at which the sell-off began.
*****

CBS reported a 14 percent increase in first-quarter earnings Tuesday as higher syndication sales from "CSI" made up for not having the Super Bowl broadcast this year. CBS owns the network, 30 TV stations, the Showtime cable channel, Simon & Schuster and a major radio business, earned $244.3 million in the first three months of the year, up from $213.5 million a year ago. Profits per share rose to 36 cents, beating the 33 cents predicted by analysts polled by Thomson Financial, and also above the 28 cents a year ago. The latest figures got a lift from a lower share count due to a stock repurchase program. Revenue was essentially flat at $3.65 billion versus $3.66 billion a year ago, but still came in ahead of estimates of $3.55 billion. Separately, the company also announced it was raising its dividend from 25 cents to 27 cents per share.
*****

The action in MSFT and Yahoo today suggests traders believe a higher bid is coming.
*****

The DJIA lost 40 points to close at 12830. The S&P 500 was down 5 points to 1390 and the NAZZ gained 2 points to 2426.

Breadth was 3/2 negative and volume was light.

There were 35 new highs and 70 new lows on the NYSE.

Today was a draw between the bulls and bears. The Fed announces its interest rate news at 1:15pm tomorrow which is also the last day of the month.
*****

 

22 April 2008

We will be traveling for the next week. Our next post will be Tuesday April 30.

Thoughts

Jim Cramer has an interesting post on National City that expands on what we said yesterday:

For pure laughs, go read the National City (NCC) conference call yesterday, the one where they destroyed what was remaining of their common shareholder base with the partial takeunder by Corsair, an unknown private-equity fund that surfaced to inject $7 billion to save the bank.

We have had some remarkably poorly run banks in this go-round of subprime, including Downey Savings (DSL) (takers anyone?) Wachovia (WB) and Washington Mutual (WM) , as well as some nonbank fiascos like E*Trade (ETFC) and CIT (CIT) .

But this Nat City takes the cake. They have to be the most stupid and least rigorous lender since the S&L crisis. They have $10 billion in home equity loans that have got to be among the worst ever issued. I swear, I bet that many of these are going to turn out to be out-and-out fraud by the borrowers. Miraculously, Nat City found an even more stupid soul, Merrill's (MER) Stan O'Neal, to sell its main originator of this junk to, something that brought O'Neal down and almost brought Merrill down. Some would say that the latter is still in question. I have no idea what would have happened to NCC if they hadn't sold it before the height of the fraud, the first quarter of 2007.

Nat City is not alone. The whole of Ohio seems consumed by crummy lenders: Huntintgon Bancshares (HBAN) and Fifth Third (FITB) being the most obvious. Both need infusions, I believe; maybe Corsair's got enough juice to give them some life.

But Nat City is by far the worst, with loans to every imaginable sort of bad borrower throughout Ohio and Florida. The sheer volume of specious lending is remarkable, coupled with the moronically aggressive buyback that the company did when the stock was much, much higher. That's the subject of a lot of derision on the call, by the way. That and repeatedly unanswered questions about all of the attempts to sell itself and how they apparently broke down.

I don't know what Corsair saw in this darned thing. So far, those who have tried to do these infusions don't have much to show for them. Maybe Corsair says we are far enough along that it is time.

All I know is that everyone involved, not just the head of mortgages and risk control, should be broomed here. That hasn't happened at Washington Mutual, which is run by real knuckleheads, so I guess it won't happen here either.

But you can't believe the breadth and depth of bad lending, including condo construction loans in Florida that are just now going bad.

I think we are further along in losses than we were for these banks. My target, established about a year ago, was $400 billion in losses -- a number the Fed probably thought was ridiculous, but it was simply arrived at from the number of exotic loans taken from 2005 to 2007 of the 14 million homes that exchanged hands and then adjusting for the adjustable rates and geographic dispersion. We hit $300 billion yesterday, but if you go read the NCC you will know that the next $100 billion is already upon us.

This bank is a travesty. It reminds me of the worst of 1989, the Centrusts and the Columbias and the Gunbelts, and the defrauding that took place here must have been monumental.

At least, unlike CIT, they had the sense to find a sugar daddy. But, unlike CIT, which just priced its crummy merchandise, the cost was an almost total wipeout for the chumps who believed in these jokers.
*****

Royal Bank of Scotland is seeking $24 billion in capital to replace money lost on bad loans and to shore up capital because of acquisitions. They are the folks who raised their bid twice to buy ABN AMRO at top dollar just before the bottom fell out of banking stocks. And the folks who run royal Bank and National City and Fifth Third et al still have their jobs. As we have said capitalists apply the rigors of capitalism to employees with abandon but the CEOs and other officers are usually exempt.
*****

Asian markets were mixed small overnight and European bourses are also mixed at midday. Gold is at $915 and Oil has a $117 handle. Treasuries are higher in yield.
*****

Texas Instruments beat last night but suggested weakness in the high end chip for mobile phones and is trading lower this morning.
*****

AT&T was in line and is higher. DuPont and McDonalds beat and are lower.
*****

Tellabs had an adjusted profit of $32 million, or 8 cents a share, which excludes a pretax charge of $22.6 million. That compares with pro forma earnings of $34 million, or 8 cents a share, a year ago and beat the 4-cents-a-share target analysts were looking for, according to Thomson Financial. Total sales for the quarter were $464 million, 3% better than the year-ago level of $452 million and more than the $453.7 million analysts expected. However, Tellabs CEO Rob Pullen called the industry environment "challenging" in an accompanying statement. "Going forward, our top priority is to free up resources to innovate for customers," he said. Looking ahead, Tellabs says it expects sales in the second quarter to be in a range of $425 million to $445 million, with gross margins shrinking to 31% from the 39% level in the first quarter. Analysts had been looking for sales of $474.9 million and a gross margin in the 36% to 37% range.

TLAB is off $1 today at $5. It is priced at 65% of sales and has $3 per share in cash with no debt. The sell off is nuts.
*****

Existing-home sales fell during March after making a surprise climb in February. Home re-sales fell to a 4.93 million annual rate, a 2.0% decrease from February's Un-revised 5.03 million annual pace, the National Association of Realtors said. Sales were down 19% from the year-earlier month. The median home price was $200,700 in March, up from $195,600 in February but down from $217,400 in March 2007.
*****

Gap moved back under $18 and we rebuilt our holdings in the shares. As we have mentioned before we like their clothes this year. Retailers are under pressure today as new short positions are being initiated.
*****

Oil ended at $119.48, a new record high. Gold was $920. Treasuries were flat with the two-year at 2.20% and the ten-year at 3.73%. The euro hit $1.60 and the yen was 103 to the dollar. European bourse indexes closed large fractions lower.
*****

The markets failed at resistance. At the bell the DJIA was down 105 points at 12722. The S&P 500 lost 12 points to 1376 and the NAZZ dropped 31 points to 2376.

Breadth was 3/1 negative and volume was light.

There were 90 new highs and 110 new lows on the NYSE and the ratio was 4/1 new lows to new highs on the NAZZ.

The bears are back. Hopefully the bulls will be in control by the time we return next Tuesday.
*****

 

21 April 2008

Thoughts

Spring has truly arrived in the land of milk and honey and the full moon made its appearance especially delightful. And the big up move on Friday also helped.

The markets are still range bound and it will take a break above 1405 on the S&P 500 to suggest that the current up move is more than positive action in a confused market.

Overnight Asian stocks were higher but European bourses are lower at midday. Oil has a $117 number as the trading day begins in NYC and Gold ahs tacked on $10.

Paul Krugman has a column in the NYT today in which he gives three scenarios for the current price of oil. http://www.nytimes.com

Last week, oil hit $117.

It’s not just oil that has defied the complacency of a few years back. Food prices have also soared, as have the prices of basic metals. And the global surge in commodity prices is reviving a question we haven’t heard much since the 1970s: Will limited supplies of natural resources pose an obstacle to future world economic growth?

How you answer this question depends largely on what you believe is driving the rise in resource prices. Broadly speaking, there are three competing views.

The first is that it’s mainly speculation — that investors, looking for high returns at a time of low interest rates, have piled into commodity futures, driving up prices. On this view, someday soon the bubble will burst and high resource prices will go the way of Pets.com.

The second view is that soaring resource prices do, in fact, have a basis in fundamentals — especially rapidly growing demand from newly meat-eating, car-driving Chinese — but that given time we’ll drill more wells, plant more acres, and increased supply will push prices right back down again.

The third view is that the era of cheap resources is over for good — that we’re running out of oil, running out of land to expand food production and generally running out of planet to exploit.

I find myself somewhere between the second and third views.

We are more inclined to the first view that speculation is the reason for the price rise. We think it is the same as the electricity finagling that occurred in 2002 and eventually led to the collapse of Enron. Krugman suggests that George Soros holds our view and we like that company. But Krugman says that Soros thinks the speculation is in the early innings.
*****

National City is not going to be acquired. Instead it is expected to receive a $7 billion cash infusion and sell 10% of its shares to an investor group at $5 per share. Those are the same shares that the company itself repurchased last year at $38 power share. And management keeps its job with this arrangement. What a mess.
*****

The WSJ reported on Saturday that: The sharp decline in Chinese stocks is approaching a milestone: With a 4% drop Friday, the market has fallen by nearly half since its peak last fall. The decline has wiped out nearly $2.5 trillion of wealth and is testing the government's apparent resolve to let the market find equilibrium on its own.

The plunge has slashed the savings of millions of Chinese investors who jumped into the market as it rose six-fold in two years. It is crimping expansion in the country's nascent financial sector and may put a squeeze in corporate coffers. But so far, it has not slowed the world's fastest-growing major economy.

The benchmark Shanghai Composite Index has lost 49% since topping out, along with other global markets, last October. The slide was triggered by the global economic slowdown combined with the lofty valuations of Chinese stocks. It accelerated recently as investors became convinced the government would not intervene to stop the fall. The index finished Friday at 3094.67, down 4%.

While Chinese shares have been among the hardest-hit anywhere, some other emerging markets have also had a tough time, falling 6% so far this year after rising an average of 32% a year over the past five years. The other big loser is India, which was the other big winner over the past few years. The Mumbai Sensex Index (India) is down 19% so far this year.

Arjun Divecha, an emerging-markets specialist who manages about $20 billion for GMO LLC, says that until recently, investors bought pricey stocks in both markets because these economies were seen as the fastest-growing. "But with U.S. and global growth expectations slowing, it's the markets that were bid up the most that are getting hurt the most now," he said.

So much for the wonder of the emerging markets being immune to happenings in the U.S.
*****

Bank of America's net fell 77% to $1.21 billion, or 23 cents a share, in the first quarter, compared with $5.26 billion or $1.16 a share, a year earlier amid higher provisions for credit losses and at least $1.91 billion in write-downs. Net revenue fell 6.3% to $17 Billion.The Company had $1.31 billion in trading-related losses, which includes write-downs of $1.47 billion on collateralized-debt obligations and $439 million on leveraged loans, compared with year-earlier trading income of $1.66 billion. It increased its provision for credit losses to $6.01 billion from $1.24 billion amid rising credit costs in the home-equity, small-business and homebuilder portfolios.
*****

The Bank of England launched a 50-billion-pound ($100-million) plan to allow banks to swap temporarily their mortgage-backed and other securities for U.K. Treasury bills, to ease the current credit crunch. The central bank said that the swaps will last for one year, but be renewable for up to three years and that the risk of losses on the securities will remain with the banks. It said the swaps will be available only for assets in existence at the end of 2007.
*****

Stocks opened lower on Monday morning and after an hour of trading the DJIA were down 90 points. The first few hours of trading after option expiration often experience stocks moving in the opposite direction of the previous close as positions are squared. The afternoon trading will give an indication if the up move last week was a wonder or the beginning of something more.
*****

Oil ended at $117.47 up 78 pennies and Gold gained $5 to $922. Treasuries were flat and a euro would buy $1.59 while it takes 103 yen to buy a dollar. European bourse indexes were lower by 1% and more while Mexico and Brazil gained fractionally.
*****

The DJIA lost 30 points to close at 12820. The S&P 500 gave up 2 points to 1388 and the NAZZ gained 4 points to 2408.

Breadth was 3/2 negative and volume was light.

There were 120 new highs and 70 new lows on the NYSE and new highs were 60 and new lows 100 on the NAZZ.

The bulls won the day by holding most of Friday’s gains and the last hour actually saw improvement in market measures.
*****

 

18 April 2008

Thoughts

Citigroup reported its second straight quarterly loss on at least $15 billion of write downs and increased loan losses as customers fell behind on home, car and credit-card payments.

The first-quarter net loss of $5.11 billion, or $1.02 a share, compared with earnings of $5.01 billion, or $1.01, a year earlier, New York-based Citigroup said in a statement. While the loss was worse than the $4.75 billion predicted by analysts in a Bloomberg survey, revenue exceeded their estimates. The shares climbed 6 percent to $25.46 in early New York trading.

Google well exceeded expectations and traded $70 per share higher overnight. The Google news coupled with good news from Honeywell and Caterpillar plus the announcement that Citi would cut expenses by 10% (read 9000 layoffs) have the markets in a good mood this morning.
*****

Today is a Triple Witch day as options and futures expire. Asia was mostly lower overnight with China down another 4%. That Shanghai market has been doing a real tank lately but the talking heads haven’t been mentioning that fact. European bourse indexes are 1% and higher at midday and Gold is down $3 while Oil is off over $1 with a $113 handle. Treasuries are giving more ground with the short end of the curve moving higher in yield this morning. the reality of no imminent interest rate cuts is in traders’ minds. Moreover the reversal of all the buying that pushed short rates lower when extreme risk was perceived the marketplace is now being reversed.
*****

The NYT has a story on the high price of Organic foods: http://www.nytimes.com Folks will complain about the high price of organic milk at $7 a gallon but think nothing of paying $3 for a gallon of Cherry Coke which has absolutely no food value, or that the price of a loaf of organic bread is $4 when they will buy a bag of Cheetos for $2. To each he/his own.
*****

Wal-Mart is now the largest seller of Organic foods. Wal-Mart selling organic foods. There has been talk of Wal-Mart importing organic fresh produce from China. We have found talk but no proof of that. But we do know we stopped eating canned oysters because they are produced in China as is most of the frozen shrimp available. Organic produce from China isn't turning up at supermarkets stateside just yet. Organic Fresh vegetables are not yet shipped to the U.S. because vegetables and fruits don't travel well, so most of China's organic produce is shipped to closer markets such as Japan, Hong Kong, and Taiwan. But organic soybeans, rice, and other grains, along with frozen vegetables and fruit concentrate from China are all making their way into processed organic foods that wind up on store shelves in the U.S. food brokers say. U.S. government agencies don't collect data on the value or country of origin of organic food imports.

Organic food from China is like workers rights at Wal-Mart.
*****

The bank stocks are on fire this morning as the future markups in the debt instruments that are currently being marked down is the thought in traders’ minds. Don’t ask if that is reasonable- it is the reality this morning. Of course next week the losses currently being experienced could take over traders’ minds again.

We of course are ruing our inability to hold bank stocks. But we comfort ourselves with the fact that our quick exits at much higher prices in the last year have saved us a lot of moiety even though our trades have not been profitable.
*****

Art Cashin on CNBC observed that the elimination of the uptick rule on short selling may be the reason for the massive up moves that the markets have been seeing lately. That is because the shorts can cover and then go short again without having to worry about getting their trades completed. Since he is on the floor we assume he knows. And it makes sense to us.

That thought makes it important that this move on top of Wednesday’s up move holds for the bulls to make their case.
*****

At noon Google is up $95 per share. Even on a $500 stock that is verrrrrrrrrrrrry impressive. There are some shorts holding their shorts.
*****

Evergreen Solar makes produces solar cells for solar panels. We have been trading it in our own accounts and today ESLR reported sales and earnings that were OK but was less than enthusiastic going forward. ESLR is a true anchovy and when the shares dropped a dollar in early trading we purchased a small amount in our large/aggressive accounts.
*****

So far today the rally is great. Good volume, good breadth, new highs stepping out. But the bulls are only half way there and the bears may have a final hour trap set. With the major measures all up 2% and the S&P 500 at 1393 it is possible that the S&P will reach up and close at 1415 resistance. The question of the afternoon is do traders want to b long over the weekend.
*****

Gold ended at $921 down $21.  Oil was up $1.89 at $116.75. Treasuries ended flat on the short end with two-year at 2.17% and better on the long end with the ten-year at 3.51%. It takes 102 yen to buy a dollar and $1.55 to buy one euro.
*****

European indexes closed higher across the continent.
*****

The DJIA gained 230 points to 12850. The S&P 500 was up 25 points to 1390 and the NAZZ jumped 60 points to 2402.

Breadth was 3/1 positive and volume was moderate.

There were 125 new highs and 65 new lows on the NYSE and 80 new highs and 75 new lows on the NAZZ. The NAZZ crossed for the first time this month.

The bulls own the day and the week and are winning the month. But the bears still have the year well in hand.
*****

 

17 April 2008

Thoughts

CNBC had a graphic on its screen this morning saying that the four week moving average of jobless claims was down 750 jobs to 376,000 in the latest week. That graphic demonstrated the ridiculousness of these statistics. 750 jobs in an economy of 135,000,000 jobs is not a measurable statistic.
*****

Asia was lower overnight except China which was down 2%. European indexes are mixed at midday and Gold is at $951 with Oil touching $115. Treasuries are under pressure again today from the inflationary numbers of yesterday.
*****

IBM beat, Nokia didn’t, Pfizer was a few pennies short and Mother Merrill announced less than expected holdings in subprime but took another $8 billion write-off and said she will fire another 5000 folks. Ah capitalism, the folks who followed orders pay for the mistaken instructions of the leaders.
*****

European indexes closed lower across the continent.
*****

We sold the balance of our SPDR Bank ETF this morning for $1 per share loss.

We also sold half our Talbot’s when it drooped down another $1.25 today. We think the credit line brouhaha is just that but… We are keeping the other half because we are stubborn and think we will recover our loss on the half sold when the story plays out in the next few weeks. Credit stories can move stock prices down more than we have the courage to endure. The other three retailers we own have no long term debt and good cash positions.
*****

Ford has a current equity valuation of $17 billion including dilution with $168 billion in debt. GM has an equity valuation of $12 billion with a net of $25 billion in debt.
*****

Oil closed at $114.78. Gold was $942 and Treasuries lost ground with the two-year at 2.12% and the ten-year at 3.75%. It takes $1.58 to buy a euro and 102 yen will purchase a dollar.
*****

The major measures backed and filled most of the day and closed flat. The DJIA gained 1 point to end at 12620. The S&P 500 rose 1 point to 1366 and the NAZZ lost 9 to 2340.

Breadth was 5/4 negative and volume was light.

There were 120 new highs and 80 new lows on the NYSE and 50 new highs and 105 new lows on the NAZZ.

The bulls won the day.

 

16 April 2008

Thoughts

JPMorgan profit fell 50 percent in the first quarter after the bank took a provision of $5.1 billion to strengthen its reserves by $2.5 billion and account for $2.6 billion in losses in its loan portfolio. And the markets are happy with the results. How times have changed.
*****

Intel's net profit for the three months ended March 29 was $1.44 billion, or 25 cents per share. That's 12 percent lower than a year earlier, when Intel earned $1.64 billion, or 28 cents per share. But it was in line with the average estimate of analysts polled by Thomson Financial.

Intel's sales of $9.67 billion -- a 9 percent improvement over last year -- came in slightly higher than Wall Street's estimate of $9.63 billion. And the markets were happy with the results and the guidance and the share price rallied in after hours trading. How times have changed.
*****

Asian markets were mixed overnight with Japan up over 1% and China down over 1%. European markets are mostly higher at midday. Gold is up $6 at $930 and Oil is up another $1 with a $114 handle. A dollar rise a day keeps the sheiks happy. Treasuries are flat.
*****

CPI was up 0.3% and core 0.2%. Year over year CPI was up 4% and core was up 2.4%.
*****

Investors Intelligence has 37% bulls and 38% bears in its latest week. That is the same as the week before.
*****

The DJIA opened 100 points higher on the JPM and INTC news. Specialists were delighted to short stocks to eager buyers and now are covering their shorts as the markets come in a bit. The bulls need to hold these gains to stem the selloff.
*****

On this morning’s rally we are selling Fairpoint for a scratch and selling the SPDR Bank ETF for a $1 loss in many accounts. The accounts in which we are selling can use a bit more cash and we wish to raise cash on this rally and selling the KBE accomplishes the cash raising while not sacrificing a great percentage return potential.
*****

I like to pay taxes. With them I buy civilization.
- Oliver Wendell Holmes, Jr.
*****

We bought shares of Talbot’s in our larger accounts at $9.25 down from the $12.40 where we sold two weeks ago and the $12.85 close of last night.

Talbot’s is down 31% after the retailer disclosed in a regulatory filing that two banks had cancelled lines of credit. Lazard Capital Markets says the cancellation of lines by Bank of America Inc. and HSBC is more a “perception problem” than reality. They note that the firm had $127 million in credit lines at the end of the third quarter (which probably fell in the fourth quarter) but added that the company’s planned inventory reduction makes it less dependent on these lines of credit. Bank of America cancelled a $130 million line of credit, while HSBC dumped its $135 million line of credit. (The latter line is being reduced, in excruciatingly slow fashion, every month until it runs out in August.) Analysts at D.A. Davidson & Co. downgraded shares today, estimating the company’s remaining borrowing facilities at around $125 million. But it will have to pay $35 million in yearly debt interest and $28 million for the dividend. The retailer had $35.9 million in cash on hand at the end of February. Oppenheimer & Co. analysts estimate available credit at about $78 million — $60 million of the dwindling HSBC line and Mizuho & Co.’s new $18 million line. They note that the retailer borrowed $143.2 million at the end of 1Q07 and $102.5 million in 1Q06. “Clearly, TLB will need to find a new form of financing. But with two major banks walking away it won’t be easy and financing will not be cheap,” they write. “In our view, TLB best case scenario is that it will find other LOCs, but at a much higher cost.”
*****

European indexes closed higher by over 1% as did Mexico and Brazil. Oil ended at$114.90 up $1.10 and Gold gained $8 to $932. Treasuries lost ground on statements by Fed member Yellen and the inflationary CPI data. The two-year finished at 1.98% and the ten-year at 3.69%. The euro was $1.59 and the yen 102 to the dollar.
*****

Late in the day we sold VZ for a scratch (we were down $1.25 a share right after buying it last week) as programs carried the DJIA to up 250 points. It’s an anchovy and the markets are as ebullient today as they were morose yesterday.
*****

The DJIA gained 254 points to close on its high for the day at 12620. The S&P 500 gained 30 points to 1365 and the NAZZ jumped 65 points to 2350.

Breadth was 4/1 positive on the NYSE and volume was better than on the selloff days but still only moderate.

There were 130 new highs and 80 new lows on eh NYSE and almost the reverse of those numbers on the NAZZ.

The bulls caught the bears short and napping.
*****

 

15 April 2008

Tax Day 2008 Thoughts

State Street Bank beat estimates on its earnings as did Johnson & Johnson and those news events have rescued stocks for the opening after futures traded lower in Europe overnight. Northern Trust, US Bank and Commerce Bank also beat estimates.

Asian markets were up slightly overnight and European bourse indexes are mixed at midday. Gold is up $7 to $932 and Oil has a $112 tag as the trading day commences. Treasuries have a bid.
*****

The Producer Price Index was up 1.1% in March, ex food and energy PPI was up 0.2%. Treasuries have backed off on that news. Core PPI was up 2.75 year over year which is much higher than the Fed is comfortable.
*****

The SPDR Bank ETFs that we purchased last week have not acted the way we thought they would in this sell off in bank stocks. They have been more volatile than we expected. In hindsight we ascribe the action to the fact that hedge funds and other traders are using them as rapid trading vehicles. We are going to lessen our exposure by selling the Regional Bank ETF for a $2.50 per share loss. We don’t like taking this loss but since the ETFs are not performing as we envisioned we are biting the bullet.
*****

As we mentioned above State Street Bank reported better than earnings and the shares rose $4 to $79 in early trading. Then in the conference call State Street said that it has portfolio problems and that sent the share price down by $10 to $69 and affected all the other banking stocks and in a spillover the markets in general as the DJIA moved from up 70 points to flat after one hour of trading.
*****

The State Street saga continues as the share price (and the DJIA) has now recovered to $74. The volatility in this supposedly staid issue demonstrates the impact of hedge fund trading to the day to day actions of the markets. Some hedge funds obviously began shorting the shares during the conference call and that set off a wave of me too trading that culminated in the $10 drop. Then some other big boys and girls joined the fray on the long side and the shares rebounded to unchanged on the day on 4 times the normal daily volume in the first two hours of treading.
*****

Crocs is down from $75 8 months ago in September 2007 when most analysts had a buy on the shares to $10 today on reduced earnings and sales guidance. Most analysts now have gone to sell. Thanks a lot.
*****

Since the S&P 500 can’t recapture the 1340 level today and because the Markets are not behaving as we thought they would when we made our final purchases last week we used the contra hour rally to raise a bit more cash in our larger accounts by selling Deutsch Telekom and The Gap. We like both but we feel more cash in accounts is a good idea.
*****

European bourse indexes closed higher across the continent on Tuesday. Oil ended at a new high of $113.75 and Gold gained $2 to $930. Treasuries were lower on inflation news with the two-year at 1.83% and the ten-year at 3.60%. The yen was 101 to the dollar and one euro equaled $1.57.
*****

Entering the final hour of trading State Street is back under $70 on much lower volume. The major measures are back to a bit above even on the day.
*****

The DJIA gained 60 points in the last hour to end at 12365. The S&P 500 rose 7 points to 1335 and the NAZZ recovered 10 pins to 2286.

Breadth was 5/4 positive and volume was light.

There were 85 new lows and 60 new highs on the NYSE.

Today no one won.
*****

 

14 April 2008

Thoughts

Stocks are going to open lower today as Wachovia announced a loss for the quarter on $3 billion in write-down and loan loss reserving. WB also raised $7 billion in capital by selling $3.5 billion of common and $3.5 billion of 7.5% convertible preferred stock.

Asian markets were lower overnight with Hong Kong and Japan both off 3% and Shanghai down 5%. For those of us feeling bad about the give up of gains in our accounts it may be noted that Shanghai is down 50% since last October. Of course it was up 300% in the preceding two years. But in the what have you done for us lately market the China markets have some real losers.

Gold is down $8 in the early going. Oil has a $110 handle and Treasuries are flat.
*****

Retail sales for March were up 0.2% and ex autos sales were up 0.1% which beats last month’s down number and were better than expected. Unfortunately the gain was aided mightily by a rise in the price of gasoline.
*****

Blockbuster has bid $6 per share for Circuit City.
*****

The drop in GE on Friday helped initiate the sell off that was probably ripe to occur anyway. GE derives a good chunk of its earnings from its finance arm.  But the miss was only 7% and earnings will be higher for the year.

We have been trading GE for the past year and have traded versus holding it because we expected the street to eventually recognize that earnings are finance related.. We were surprised that the share price had not been slammed earlier and are still amazed that until last Friday the analysts had not lowered their ratings or at least acknowledged the potential for trouble. But Wall Street is populated by lemmings and the emperor’s subjects who are unable to think for themselves.

And so GE met reality last Friday. We took a position because finally the myth of ever-growing earnings was broken and the drop in the share price created a trading opportunity. There may be more on the downside but we do think that the earnings number was a kitchen sink number and that next quarter the surprise will be to the upside.
*****

European stock indexes closed fractionally lower on Monday.
*****

Oil settled at $111.76 up $1.65 and Gold was up $1 at $927. The yen was 100 to the dollar and the euro equaled $1.56. Treasuries were flat on the day.
*****

The DJIA closed down 13 points at 12313. The S&P 500 lost 4 points to end at 1329 and the NAZZ dropped 15 to 2275.

Breadth was 3/2 negative and volume was light.

There were 90 new lows and 50 new highs on the NYSE.

The bears won the day.
*****

 

11 April 2008

Thoughts

GE missed this morning and turned Europe lower as well as futures in the U.S. The shares are off $4 in pre-market trading. GE blamed its Finance business. The good thing about the miss is that for the first time since the Welch era began GE probably is releasing real numbers. The accountants finally demanded the markdowns in the finance unit. And we would guess that as long as they were going to take a hit in the marketplace that GE added a few items for future positive earnings surprises. The folks on CNBC, which is owned by GE, are falling all over themselves to ascribe the miss to the economy and not their great CEO Immelt. The shortfall was only 8% and left earnings flat.  In the Welch era businesses were sold to smooth earnings and Immelt, the successor CEO, has continued to do that. In fact GE tried to sell a business during the quarter which probably would have saved earnings but the sale fell through.

It is not the end of the world. The crisis the economy is not going to end overnight. The bottoming process in stocks -which will precede the turn up in the economy by six to nine months- is occurring.
*****

Asian markets closed before the GE news and most were up 1% to 2%. European bourse indexes are lower at midday. Gold is down $3 and Oil has a $110 handle. Treasuries are flat.
*****

The University of Michigan Confidence Reading was 63 which is the lowest reading since March of 1982. Reality strikes. These measures are good for traders and talking heads and meaningless.
*****

We bought GE in accounts at $32.75 which is a 3.8% yield. We also added Gap to accounts that were not part of yesterday’s purchase.
*****

1340 on the S&P 500 is support and the also the trend line on the 20 dma and 50 dma. At noon stocks are currently bouncing off that level and have been touching it for the last hour. Bulls want it to hold, bears want to break it.
*****

European shares ended lower after earnings from U.S. industrial bellwether General Electric raised concerns for the health of Continental rivals like Siemens and Philips Electronics. Most indexes were down over 1%.
*****

Analysis of GE earnings from realmoney.com:

General Electric reported first-quarter 2008 EPS of 44 cents on revenue of $42.2 billion. This is a dramatic miss on both the top line and the bottom line. The miss was primarily driven from the financial services business. According to management, a large asset sale fell through when the purchaser could not obtain financing. The shortfall in the quarter came toward the end of March. As GE is a conglomerate of many businesses, however, we need to investigate the results for each part. Despite the problems in financial services, GE did generate growth as orders rose 8%, revenue rose 8% and asset growth was 20%.

Infrastructure revenue rose 23%, and segment profit rose 17%. Major equipment orders rose 11%, to $12.5 billion. Aviation orders are lumpy, being up 66% in fourth quarter 2007 but declining 21% in first quarter 2008, however, the backlog is building as orders were 1.3 times shipments. Energy orders rose 59%, thermal orders rose 125%, and wind orders rose 49%. Oil and gas orders up 7% and transportation orders up 25% are both characterized as lumpy.

Health care revenue was flat, and segment profit dropped 17%. Orders rose 2%, and service backlog rose 7%. Comparisons reflect a change in the company's revenue recognition method that was implemented last year.

Industrial and appliances revenue rose 1%, and segment profit declined 16%. Again, this segment is facing a tough U.S. consumer market with growth around the globe. The U.S. appliance industry was down 10% in units. U.S. orders declined 5%, while Asia and Latin American orders rose 20%. Enterprise solutions were strong, with revenue rising 8% and segment profit soaring 15%.

NBC Universal revenue and segment profit each rose 3%. This marks the sixth consecutive quarter of positive earnings growth. Prime time is expected to finish No. 2 in the ratings. Also, there were strong DVD sales for NBC Universal-produced titles such as "Heroes," "House" and "30 Rock" (please note that "House" is broadcast on the Fox network). Local markets were challenging as ad spending declined 11%. Entertainment, information and cable were the bright spots with great results from USA, Bravo and Sci-Fi networks. NBC Universal is working hard on its cost structure.

The financial services environment is weak as the global commercial real estate market sales declined 60%, the leveraged loan market declined 41% and U.S. capex markets declined 7.2% in first quarter 2008. GE funding was in good shape having closed on $35 billion of long-term debt issuances in the quarter. Demand for GE commercial paper is strong, spreads have come down, and credit default swap rates are more normal. Commercial volumes were put on, with 40 basis points of higher spreads. Return on equity for this segment was 20%.

Commercial financing saw 30-day delinquencies rise 10 basis points, to 1.36%, still at historic lows. GE is on track to sell the U.S. PLCC and the rest of the Japanese businesses. The big miss came from commercial finance, where GE took $270 million of negative marks and impairments vs. plan. In addition, $100 million of real estate gains were pushed out of the quarter, and other asset sales in progress did not get completed. Some real estate sales were completed in April. Asset quality is stable. Global originations were good with assets up 27% and 19%, without forex changes.

GE Money had a tough quarter but was in line with expectations. Revenue rose 7%, while segment profits declined 19%. Asset growth was up 21% and 8%, without forex translations. Thirty-day delinquencies rose 42 basis points, to 5.64%, with North America rising 103 basis points, to 5.75%.

Overall, operating cash flow was $4.9 billion. General Electric paid $3 billion in dividends and repurchased $1 billion of stock. The company started the quarter with $6.7 billion of cash, ended the quarter with $5 billion in cash and lowered debt levels during the quarter.

Original fiscal 2008 EPS guidance of $2.42 was lowered to a range of $2.20 to $2.30. This equates to a flat to up 5% growth in earnings for the year vs. a prior expectation of 10% year-over-year growth.

Other adjustments to the 2008 guidance were as follows:

  • infrastructure up 1 cent;
  • financial services down 8 cents to 17 cents; and
  • Health care/industrial/NBC Universal all down 5 cents to 6 cents.

For the second quarter, GE expects $45 billion in revenue and EPS of 53 cents to 55 cents.
*****

Oil ended at $110.30 up 19 pennies. Gold lost $2 to $922. Treasuries were better with the two-year at 1.74% and the ten-year at 3.47%. The euro equaled $1.58 and the yen was 101 to the dollar.
*****

The DJIA closed down 250 points at 12330. The S&P 500 broke the important support level of 1340 to end down 27 points at 1333. The NAZZ dropped 60 points to 2290.

Breadth was 4/1 negative and volume was about the same as yesterday.

There were a combined total of 200 new lows and 55 new highs.

The bears are back in control for now.
*****

 

10 April 2008

Thoughts

Asian markets were lower overnight except Shanghai’s which rebounded 1% from the 5% sell off of Wednesday. European bourses are 1% and more lower at midday. The Bank of England cut its key lending rate to 5%. Gold is flat and Oil is trading at $111. Treasuries are firmer as the trading day begins.
*****

Yahoo is trying to hook up with AOL to thwart the Microsoft bid. Company executives who have made mistakes often make more mistakes to stay in power.
*****

Retail sales for March were terrible. The recession, cold weather and early Easter were the culprits. Our take is that the share prices reflect the reality. American Eagle same store also were down 12% and Chico’s were down 18%. Saks were down 2%.
*****

Schering Plough popped back to near our recent purchase price and we sold the shares we bought on the Time Warner sale. After purchase of the last tranche we realized the SGP holding was greater than we wanted. We invested the proceeds in Verizon to own for a while. We are also adding more Saks today on the sell off and we added additional shares of SPDR Regional Bank ETF which is 5% lower than our purchase of a few days ago.
*****

McCain is going to pick Condoleezza Rice as his running mate. They will win the November election and McCain’s melanoma will resurface and he will die during his first term. Rice will become the first black and first woman president. Far out and you read it here first.
*****

Cisco is higher today after Morgan Stanley said it may beat analysts' revenue estimates in its fiscal third quarter. ``Mid-quarter checks with resellers, distributors, and component suppliers suggest that end-demand held up through the end of March,'' analyst Scott Coleman wrote in a note to investors.
*****

The broad Lehman Brothers U.S. Aggregate bond index -- which tracks taxable bonds, including Treasury notes, corporates and some mortgage securities -- is up about 2.3% since the start of this year through April 4. Yet a fifth of all investment-grade U.S. taxable bond funds tracked by Morningstar Inc. are in the red for that same period. A few bond funds that placed big bets on mortgage securities have posted shockingly big drops. The Regions Morgan Keegan Select Intermediate Bond fund is down 44% since the start of the year and 72% over the past year. State Street Global Advisors Yield Plus and Schwab YieldPlus have fallen 18% and 23%, respectively, since the start of the year.
*****

In February Americans had $951.7 billion in total revolving debt, most of it on credit cards -- a seasonally adjusted annualized increase of 5.9%. Although that increase has slowed from the 7.1% pace in January, it is up 8.2% from year-ago levels.
*****

European indexes closed fractionally lower. Today it would take $1.57 to buy one euro and the dollar was worth 98 yen.

Mexico closed higher with Brazil lower. Gold lost $6 to $931 and Oil gained $2 to end at $111.10. Treasuries were weaker with the two-year at 1.80% and the ten-year at 3.53%.
*****

We bought Liz Claiborne and The Gap in our larger/trading accounts. We’ve been trading LIZ profitably the last few times after an ignominious start and we like the look that GPS has in its stores now. From their same store sales numbers of down 18% we must be among the few who do.
*****

The DJIA was up 100 points for most of the day but surrendered a good chunk in the final hour to close up 52 points at 12580. The S&P 500 rose 6 points to 1360 and the NAZZ jumped 30 points to 2350.

Breadth was 5/4 positive and volume was again light.

There were 45 new lows and 40 new highs on the NYSE and 115 new lows and 35 new highs on the NAZZ.

The bulls took the day.
*****

 

9 April 2008

Thoughts

Asian markets were mostly lower overnight with Shanghai down 5%. Shanghai is now down 50% since last October.

European bourse indexes are lower at midday and Gold is down $10 while Oil has a $108 handle in the early going. Treasuries are quiet.
*****

The Wall Street Journal reports Citigroup (C) is close to unloading about $12 billion of leveraged loans and bonds in a deal with a group of private-equity firms, according to people familiar with the matter. Citigroup originally issued the debt to help finance the leveraged-buyout boom. It hoped at the time to pass much of it on to investors. But when the credit crunch hit last summer, demand for the risky bonds and loans dried up, leaving Wall Street firms such as Citigroup holding tens of billions of dollars in unwanted debt. Under the planned deal, Citigroup will sell the loans and bonds to buyout firms including Apollo Management, TPG and Blackstone Group, people briefed on the deal said. The firms are expected to pay 90 cents o the dollar.
*****

In a speech on Tuesday, Paul A. Volcker the former Fed chief of the 1980s, remarked that the current chairman, Ben S. Bernanke reached “the very edge” of the bank’s legal authority in orchestrating last month’s bailout of the beleaguered investment bank Bear Stearns.

“Out of perceived necessity, sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank,” Mr. Volcker told members of the Economic Club of New York. His remarks came on the same day that Alan Greenspan Mr. Bernanke’s immediate predecessor as chairman, deflected criticism of his tenure in an interview with The Wall Street Journal, dismissing as “unfair” claims that his policies stoked an untenable housing bubble.

But in defending his own stewardship of the economy over 18 years, a period of generally healthy growth and low inflation, Mr. Greenspan was forced to dredge up some painful memories that have come back to haunt the Fed. “I don’t know of any time when previous chairmen were so openly discursive about the current arrangements,” said Allan H. Meltzer, an economist at Carnegie Mellon and the leading historian of Fed policy. In the past, he said, “they just didn’t discuss.” Indeed, Mr. Volcker also implicitly questioned Mr. Greenspan’s cheerleading of the “bright new financial system” that “for all its talented participants, for all its rich rewards, has failed the test of the marketplace.” In his time as chairman, Mr. Volcker insisted that the Fed speak in a single, firm voice, and he sought to quell dissent in its ranks. He faced only one open revolt on the board of governors, in 1986, which nearly led to his resignation. But it was his challenger, Preston Martin, who stepped down. Mr. Greenspan continued the autocratic tradition, gaining a reputation for opaque policy pronouncements that, like Mr. Volcker’s, required a carefully cultivated expertise to interpret. And he stood firm: in his interview Mr. Greenspan said he did not regret a single decision he made during his time as the Fed chairman. Mr. Bernanke, who took over the chairmanship in 2006 promising greater transparency for the central bank, has struggled to maintain the same level of support.

Minutes released on Tuesday of the Fed’s March 18 policy meeting revealed strenuous disagreements among top central bankers, with 2 of the 10 officials present voting against the decision to lower interest rates by three-quarters of a point. While not unprecedented, it was the first dual dissent since September 2002. “It’s a club, and the members of the club tend to be supportive of a club, and particularly of the chairman,” Professor Meltzer said. “It’s not popular to dissent.” The dissenters — Richard W. Fisher of the Dallas Fed and Charles I. Plosser of the Philadelphia branch — said that a rate cut would further fuel inflation, which has grown faster than anticipated on the back of high prices for gasoline and food. Mr. Plosser argued that the Fed “could not afford to wait until there was clear evidence that inflation expectations were no longer anchored, as by then it would be too late to prevent a further increase in inflation pressures.” The dissenters also argued that the Fed’s other efforts to restore confidence among lenders — including its decision to provide cheap loans to investment banks in exchange for relatively risky collateral — were a more effective and time-sensitive approach to improving the economy. “Two voting members who explicitly see the world differently is a notable development,” said Robert Barbera, chief economist at ITG, an investment and research firm.

Ultimately, the minutes said, “most members judged that a substantial easing in the stance of monetary policy was warranted.” At the meeting, most of the members said they believed that the economy would probably contract in the first half of the year, and they said a “prolonged and severe economic downturn could not be ruled out.” The housing slump has shown few signs of recovery, central bankers said in the minutes, and they predicted home values would continue to drop. Fed officials also confirmed that the central bank found itself in an extremely difficult situation. “Members noted that appropriately calibrating the stance of policy was difficult,” the minutes said, as officials weighed the benefits of lowering interest rates against the possibility that inflation would get out of hand. Professor Meltzer concurred. “Bernanke is under tremendous pressure from the Congress, from the market, and from the president likely,” he said. “As Mr. Greenspan has discovered, even after you leave, you run into people who criticize what you did even though they may have applauded it when you did it.”
*****

Investors Intelligence had bulls and bears both up 1% with bulls at 37% and bears at 38%.
*****

From realmoney.com: If you invested $1000 in the Russell 1000 Growth on January 1, 1999, your investment is now worth a whopping $947. This is a return of -0.61% a year. Nearly a decade of ecstasy and despair, and you've made zip in large cap growth stocks. AND... this analysis is favorable, since the starting point is before the huge 1999-early 2000 run up!
*****

Citing continued production delays, Boeing cut the number of expected 787 deliveries in 2009 to about 25, down from its most recent projection of 109. BA also said the first flight will take place in the fourth quarter of 2008. At one time, the debut flight was scheduled for August 2007.

As we’ve said before, the new technology of using plastic for the plane’s body is going to be more difficult. We don’t mind riding in plastic cars but a plastic plane? We don’t ride in metal planes so…

See http://seattletimes.nwsource.com/html/boeingaerospace/2003889663_boeing180.html
*****

In keeping with our theme of improving the quality of the portfolios we sold Alcatel Lucent for a 10% profit and bought the SPDR Money Center Bank ETF (KBE).
*****

Gold ended the day up $20 at $927 in NYC. Oil was up $2.15 to $110.25. Treasuries were firmer with the two-year at 1.75% and the ten-year at 3.47%. The yen finished at 102 to the dollar and it takes $1.58 to buy a euro tonight.

European bourse indexes closed fractionally lower across the continent and Mexico and Brazil were also lower.
*****

The DJIA closed down 50 points at 12527. The S&P 500 lost12 points to 1354 and the NAZZ dropped 28 points to 2321.

Breadth was more than 2/1 negative and volume was light.

There were 55 new highs and 35 new lows on the NYSE and there were 1000 new lows and 45 new highs on the NAZZ.

The bears are getting bolder.
*****

 

8 April 2008

Thoughts

Alcoa missed last night with earnings per share 3 cents light while revenues were greater than expected. And stocks are in a funk this morning. Since it is Turnaround Tuesday the lower markets are not unexpected. Asian stocks closed mixed to lower and European bourses are off 15 and more at midday. Gold is flat and Oil is $108.70. Treasuries are flat.
*****

AMD missed and is going to fire 1800 workers.
*****

We sold our Micron and AMD holdings for a scratch loss. With the recovery in our accounts we wish to move to less speculative stocks.
*****

Washington Mutual raised $7 billion overnight and so they are out of the woods, for now. They sold $1.3 billion in common shares at $8.75 with the stock trading at $12 and the rest was in a preferred stocks issue with a big coupon.

With this calamity out of the way it seems that the markets army get back to just reacting to technical indicators for a while. Most of the technical indicators suggest a buyable pullback. How much of a pullback and when to buy are the uncertainties.
*****

We have a new computer with a new type of Word and so it is taking us a bit to get used to it. Thus our post is shorter today as we transfer data and websites from our other computer.
*****

Gold ended at $918 down $9 while Oil was $108.64 down 45 pennies. Treasuries were a few ticks better with the two-year at 1.87% and the ten-year at 3.57%.

European bourse indexes closed fractionally lower across the continent as did Mexico and Brazil. The yen was 102 to the dollar and the dollar was $1.55 to the euro.
*****

The DJIA closed down 35 points at 12575. The S&P 500 dropped 7 to 1365 and the NAZZ was off 15 points at 2350.

Breadth was 3/2 negative and volume was light

There were 40 new highs and 25 new lows on the NYSE and 35 new highs and 85 new lows on the NAZZ.

The bears are back in the game.
*****

 

7 April 2008

Thoughts

The Employment Report on Friday was negative with 60,000 jobs lost in March and a revision downward in the February numbers also. Our thoughts on this subject are that unless the number is over 300,000 plus or minus the number is noise only since any lower number is within a rounding error given that there are 150 million jobs in the U.S. economy.

The markets were tentative at first on Friday after the number but buying appeared as traders ignored the negativity.

This morning stocks are going to open higher as Washington Mutual announced that it is receiving a cash infusion of $5 billion. One by one the potential time bombs in the markets are being neutralized. But neutralizing problems does not mean that recession or lower housing prices are not a reality.

It is important to remember that pricing in stock markets is anticipatory and usually looks out six to nine months and prices accordingly. Our crystal ball is cloudy but the fact that the markets have held 1260 support on the S&P 500 which level represents a 20% pullback form the high suggests that maybe the worst of the decline is over.
*****

Asian markets were higher overnight as are European markets. Oil has a $107 handle and Gold is up at $917. Treasuries are weaker.
*****

Yahoo rejected the advances of Microsoft and MSFT has threatened a proxy battle.
*****

We are adding SPDR Regional Banks ITF to accounts. We have traded this ITF and we are now ready to own it for a while as the turmoil in the banking sector is hopefully settling down.
*****

We are also adding shares of SYMC and American Eagle to accounts.
*****

And we are instituting a position in Fairpoint Communications. FRP recently purchased the northern New England assets of Verizon in a cash and stock transaction. The stock portion was distributed to Verizon shareholders on a one share for 66 shares basis and those odd lots and small round lots are being sold indiscriminately in the marketplace. The share price on FRP has dropped 50% since the deal was announced.

FRP purchased over 1 million land lines and 400,000 DSL lines in the Verizon transaction for a total cost of $2.3 billion of which $500 million was stocks and the rest debt assumption. We think that the share price will migrate back to $12 after the unusable selling resulting from the distribution of shares runs its course.
*****

We are also selling Time Warner for a scratch -we just bought- and placing the funds realized in Schering Plough which has bounced nicely off its low of last week. we are getting pretty fully invested and so we are consolidating positions as opportunities present.
*****

The S&P 500 is at resistance now at 1380 at 1PM and there is more substantial resistance and trend line resistance at 1405. So the going will be tighter from here on out for the bulls. Tomorrow is Turnaround Tuesday and the bears may press their case by selling as folks who looked for stocks to buy over the weekend fill their shopping baskets today and the big boys and girls look to play their games tomorrow.
*****

Oil gained $2.49 to $108.85 and gold rose $14 to $927. Treasuries we lower with the two-year at 1.90% and the ten-tear at 3.57%. The yen was 102 to the dollar and the dollar was $1.57 to the euro.

European bourse indexes closed higher as did Mexico and Brazil.
*****

GM is too large a holding in relation to our other positions and so we are going to sell partials in our larger accounts. Most of these sales involve a scratch loss on our average price. We like the shares for the long term but discretion suggests trimming to a manageable level after the market move that has occurred.
*****

The major measures surrendered their gains for the day in the final hour of trading.

The DJIA gained 3 points at 12612.The S&P 500 was up 2 points at 1372 and the NAZZ lost 6 points to 2365.

Breadth was 5/4 positive on the NYSE and flat on the NAZZ and volume was light.

There were 85 new highs and 15 new lows on the NYSE and 56 new highs and 75 new lows on the NAZZ.

Today was a tie between the bulls and bears.
*****

 

2 April 2008

We will be traveling the next two days and the next post will be Monday April 7, 2008.

Thoughts

The last three one day wonder rallies have failed to follow through and so the question of the day is if it is different this time.

Asian markets were higher overnight with Japan and Hong Kong both up over 3%. European bourse indexes are slightly higher across the continent at midday. Gold is up $8 but still under $900 and Oil has a $101 handle. Treasuries are weaker as the trading day begins.
*****

In the latest week Investors Intelligence had bulls remain at 36% but bears declined for 41% to 36%. The low bullish number is still bullish and the bearish number can go to 20% before we will become more cautious.
*****

Uncle Ben is testifying before Congress. As most folks know we don’t have a conservative bone in our body and so we were happy to see Fed intervention to avert what would have been a terrible crisis two Mondays ago. Funny thing is that now the liberals and conservatives in Congress have joined forces for different reasons to questions Bernanke’s judgment.

They should really be questioning their own judgment for allow Uncle Alan to get away with the hogwash he fed Congress and the press for the fourteen years of his disastrous term as Fed Chairman. Greenspan and the Congress - by supporting the removal of the separation between Banks and Brokers are the folks who are responsible for the crisis. Of course Greenspan is now making millions telling corporate honchos that the tax cuts he supported and the off balance sheet accounting he encouraged are now the ruination of the economy and that the Dems had better do something about it.. His remuneration through consulting and speaking fees is on a par and as deserved as the obscene pay, golden parachutes and non-accountability of the barons of Wall Street.
*****

We are trading out of our Talbot’s position at $13.40 and placed half the funds in Chico’s at a bit more than half the price ($7.26). There was a positive article in the WSJ this morning and the shares are up $1.50 on that news. With TLB up $7 from its low a month ago we are going to the sidelines and will revisit the shares if they move lower in the next general market sell off. We have had a tough time wish the stock but at least this trade has been profitable.
*****

We sold Motorola (the potential spin off/sale of the handset business announcement created a yawn) for a scratch and switched the money to RF Micro Devices. We traded RFMD at higher prices last year and early this year.
*****

We sold Sony for a plus scratch. The percentage gain potential is greater in our other stocks and we want to raise a bit of cash today.
*****

We also increased holdings in Cisco, Intel and United Foods in many accounts.
*****

Oil jumped $3.86 to $104.84. Gold was up $12 to $900. European bourse indexes closed 1% higher and Mexico was mildly lower while Brazil was mildly higher. The yen was 102 and the euro to the dollar $1.55. Treasuries gave ground with the two-year at 1.88% and the ten-year at 3.57%.
*****

The DJIA dropped 45 points to end at 12610. The S&P 500 lost 3 to 1368 and the NAZZ was down 2 at 2362.

Breadth was flat and volume was moderate on the NYSE and continues light on the NAZZ. The light NAZZ volume suggests that much of the daily volume is Index/ETF related and created by the hedge fund boys and girls playing their games.

There were 50 new highs and 25 new lows on the NYSE and 85 new lows and 50 new highs on the NAZZ.

The bulls won the day since a modest pullback was healthy and positive after yesterday.
*****

 

1 April 2008

April Fools Day Thoughts

China began the new quarter by dropping 4%. Hong Kong and Japan were up 1% and European bourse indexes are higher at midday. U.S. futures indicate a higher opening and Oil has a $99 handle. Gold is under $900. Treasuries are weaker as the trading day begins.
*****

The S&P 500 is down 15.5% from its high on October 9, 2007. The NAZZ is down 14% this year, the S&P 500 is down 10% this year and the DJIA is down 7.8%. The Model Portfolio is down 4.7%. Past performance is not an indication of future performance.
*****

UBS, the largest Swiss bank, said on Tuesday that it would write down another $19 billion related to "U.S. real estate and related structured credit positions" and said Marcel Ospel, its chairman, would step down. UBS said the write-down would result in a first-quarter loss of about 12 billion Swiss francs, or $12 billion, and that it would seek new capital of about $15 billion, in the second time it has announced plans to raise new funds since the credit crisis began. UBS has now written off a total of $37.1 billion, including the $18.1 billion in American-housing-related losses that it wrote off in the third and fourth quarters of 2007. UBS said it had remaining exposure to the U.S. sub-prime market of about $15 billion, down from $27.6 billion on Dec. 31, while its exposure to so-called Alt-A positions declined to $16 billion from $26.6 billion. But it said its exposure to auction-rate certificates (ARS that we wrote about yesterday) had risen to $11 billion from $5.9 billion. That was because the bank had participated in unsuccessful auctions for the securities in January.
*****

The UBS write-down was announced this morning and the European markets are higher, UBS share prices is up a bit this morning (it is down 50% in price over the last 52 weeks) and the U.S. markets are higher. The action suggests that the markets are digesting the news of losses better and expecting more write-downs. The action certainly doesn’t suggest a strong move higher but at the same time is does suggest that the digesting of bad news process is going better than might have been expected.
*****

At 9am the DJIA is up 225 points and the S&P 500 is up 25 points. Is it an April fool fake or real buying? Time will tell. In the past few months the bulls have not been able to hold this kind of a move so early in the day through to the close.
*****

The March Manufacturing Index rose to 48 which is one reason for the strength today but any number under 50 indicates contraction so the cup is half full.
*****

We initiated positions in Qwest at $4.70 and RFMD at $2.83. We traded these stocks unsuccessfully last year but at level twice the current prices.
*****

Germany and London closed 2% higher with France up 3% and the rest of European bourses higher by 2% or more also. Brazil was up 3% and Mexico gained 2%.
*****

Toyota said it sold 217,730 vehicles in March, compared with 242,675 a year earlier. Toyota's passenger-car sales fell 7.3% to 129,778, while light-truck sales fell 14% to 87,952.
*****

General Motors said Tuesday its U.S. sales fell 19 percent. GM sold 282,732 vehicles in March, compared with 349,866 in the same month a year ago. When adjusted for two fewer selling days last month than a year earlier, sales fell a more modest 13 percent.
*****

Heading into the final hour the DJIA is up over 350 points at its high for the day.
*****

The euro ended at 1.55 and the yen at 102 as the dollar rallied today. Gold lost $34 to $886 and OIL dropped $1 to $100.50. Treasuries gave ground with the two-year 1.72% and the ten-year at 3.55%.
*****

The DJIA gained 390 points to close at 12755. The S&P 500 rose 48 points to 1370. The NAZZ gained 85 points to 2365.

Breadth was 6/1 positive and volume was active on the NYSE but should have been better to confirm a break out and it was down right light on the NAZZ.

New highs exceed new lows on the NYSE 30 to 20, not by much but we’ll take it. On the NAZZ new lows were 95 and new highs were 45.

Today was another 90% up volume day. That‘s four 90% up days in the last month which is very unusual.

The bulls are in the lead now, unless it was an April Fools joke by the bears.
*****

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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The factual statements herein have been taken from sources we believe to be reliable but such statements are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.