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31 August 2005 Daily Comment

Thoughts

Folks always say bottoms are made when unexpected news arises. The Gulf Coast Hurricane is certainly unexpected news and $70 oil while not unexpected is not good news. The danger is to quickly act on the news since it will take time for the full tragedy and losses of this disaster to be recognized.

After the disaster is understood the rebuilding will begin. And when it does the $30 billion in losses will certainly be spent with insurance funds and government monies. That will be a boon to the area. As crass as that sound that is the way most disasters in developed countries are resolved.
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Preliminary 2nd Quarter GDP is now estimated at 3.3% versus the first look Advanced GDP number of 3.4% last month. By having Advance, Preliminary, Actual, and Final GDP over a four month period traders have a lot of numbers with which to play.
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The White House says it will release oil from the Special Petroleum reserve. That gave a boost to stocks and a drop under $70 to the price of oil until folks released that unless the refineries are working the oil won’t do much good.

Our thought is that the refinery damage is going to be less than expected. That is only a guess and not from on site information. But we presume that folks that make $50 million a year to run oil companies and plan for emergencies will have taken more care planning than the politicians in Washington who cut the funding for the New Orleans levees by $1 billion to save money and will now spend many billions repairing their shortsightedness.
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It should be noted that this calamity from a dollar and lives affected standpoints is worse than 9/11. But the upside is that unlike 9/11 where most of the promised Federal moneys never materialized there will be oodles of Federal moneys available. And the money will be spent.
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As we just told a client, everyone is always looking for the event that changes the markets dynamics for the next trend. We think the hurricane was such an event. The hurricane is bad news but it is not an act of terrorism. While some of the talking heads are suggesting that everyone throughout the country will be depressed we beg to differ. Everyone throughout the country is glad it didn’t happen to them and will go on about their lives.
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Business activity in the Midwest as measured by the Chicago Purchasing Mangers Index contracted for the first time in more than two years. The National Association of Purchasing Management-Chicago business barometer fell to 49.2 from 63.5 in July.  Economists had forecast the index at 61.5. A reading below 50 indicates contraction.  The employment component of the index fell to 51.7 from 56.1 in July. Prices paid rose to 62.9 from 61.3 and new orders slumped to 46.5 from 69.6. Above 50 indicates growth, less than 50 contraction. This is one index for one part of the country but its dour report is probably the reason that all Treasuries are rallying.

For about ten minutes immediately after the release of the Chicago PMI the thee-year Treasury dropped to 3.82% while the two-year treasury dropped to 3.84%. That is called inversion as we discussed yesterday.
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Wednesday’s Markets August 31, 2005

10:58am and the major measures have been up and down and now up again. Treasuries remain strong although off their best levels and oil is back under $70. Breadth is positive and new highs are over 200 while new lows are under 50.

We are buying BellSouth at $26.10 with a 4.4% yield in many accounts. We are also buying Ford at $9.80 with a 4% yield which we think is secure since the Ford family lives on the dividend. We also bought back JP Morgan at $33.74 with a 4% dividend. If the Fed stops raising rates in December as the Treasury futures markets are suggesting then the sell off in banks is overdone. And if the Fed stops raising rates dividend stocks will remain attractive. Finally we are buying a bit of Rite Aid at $4.04 for accounts in a small percentage amount. RAD is doing a good job paying down debt and the consolidation in the drug store industry may eventually make RAD attractive. We are buying. It is down 20% in the last three weeks.

We are buying in reaction to the move in Treasuries and stressing dividend yield as we said we would. We have traded all these stocks this year and will do so again.

In our aggressive/large accounts we bought Home Depot at $39.85. We will add more at lower prices in other accounts. HD is selling at 14 times earnings and that has been the place to buy in the past.
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1:20pm and stocks are meandering in positive territory. Breadth is 2/1 positive and oil is down to $68.50.
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We sold the TLAB we bought yesterday for a 10 penny profit. We spent a few dollars today and we wanted to get a little cash back in the aggressive accounts. The range on TLAB was 25 pennies today and if it does that tomorrow we will be back in it.
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3:02pm and oil closed at $68.61. The DJIA gained 68 points to 104805. The S&P 500 rose 12 points to 1220 and the NAZZ jumped 22 points to 2152. Breadth was better than 2/1 positive, new highs hit 300 and volume was brisk. Treasuries were the big gainers of the day with the two-year going out at 3.83%, the five-year at 3.87%, and the ten-year at 4.02%. The inversion in the yield curve disappeared and the slope actually steepened.

And tomorrow is tomorrow and all the casinos except those on the Gulf coast are open so let the games continue.
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30 August 2005 Daily Comment

Thoughts

And what the computer gives it can also take away. We are sorry to report that the price on the sale of the US Treasury 3.125% notes was entered at $99.8007 when it should have been $98.8007. That amounts to $1000 per bond less and turns what looked like a fantastic overnight profit in to a slight loss. It was our error. We remain delighted with the switch.
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The last time we were in New Orleans we were 12 years old. So we don’t know what it looks like today but the after the storm pictures we have seen are not pretty. It is too bad, but when a city is built below sea level in a hurricane prone area bad things are eventually bound to occur. The same goes for California and earthquakes and the outer banks on the Atlantic Ocean. Funny thing is that after the calamity everyone wants the government to help-which it does. That’s because the calamity strikes so many folks at once. Too bad politicians and folks can’t figure out that health care is the same even though it strikes individually in many communities every day? Add all the folks who are diagnosed with the same disease every day and there is a hurricane or earthquake every day in health care in the U.S.
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The NYT and WSJ have been running a story about a hedge fund named Bayou that seems to be worthless after taking in over $400 million to manage. 20 years ago we had a hedge fund but we closed it down because we realized there was no transparency for clients. By that we mean that clients didn’t see the trades we made, or the stocks we owned, or the mistakes we made, or the gains we produced. All they saw was value at the end of the month.

We realized eventually that the discipline of clients seeing our every good and bad trade would produce better results for them and us and so we closed the hedge Fund. As currently structured our clients’ assets are held by another NYSE firm under a strict clearing agreement and our only access and control over those funds is to make trades in the accounts. The clients receive confirmations on every trade so they see the good with the bad. Only the clients control the assets in the accounts and monies or stocks from the accounts can only be distributed on written client instructions or to the clients named on the accounts. That is transparency.
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Tuesday’s Markets August 30, 2005

Stocks are going to open lower again this morning as the markets digest the hurricane’s damage and a rise to over $69 in the price of oil. The rally yesterday endured some last minute selling and that is carrying over into this morning’s trade. But the last week before Labor Day often sees a rally and so we are not writing this week off for the bulls yet.
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1215 on the S&P is the immediate number to be breeched for a continuation of the rally and then 1225 becomes the number that will turn bears into bulls, al least for a short time.
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9:42am and yesterday’s rally has become today’s sell off as stocks return to their lows of Monday. Wal-Mart is making a new low today and said 125 plus stores are out of commission because of the hurricane.

Breadth is over 2/1 negative, new highs are well over 100 and new lows have receded so that is one positive. Oil is approaching $70. All is lost. Just kidding.

It will be interesting to see whether the bulls can stem the tide by interrupting their last vacation week.

The up one day, down the next pattern seems to be reasserting itself and our rally is getting lost in the shuffle. But the day is young and the sun is shining so there may yet be hope for our trading positions.
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We added Cisco at $17.58 and Verizon at $32.35 to some of our smaller accounts this morning.
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10:51am and $70 oil means DJIA down 100 points at least for today. Breadth is back to only 2/1 negative and many stocks seem to be finding buying support at down 100 on the DJIA. The S&P 500 is back to 1203 where it found support on Friday and that is an important level for it to stay above.
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1:07pm and the release of the most recent Fed minutes has had no effect on the markets. The rally attempts are failing and in the contra hour the major measures are moving lower. Oil topped $70 then backed off and is now moving back toward that number. Breadth remains 2/1 negative and volume is light.
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We sold part of our oversized trading position in CSCO in our aggressive/large accounts for a 30 pennies loss and replaced it with an equal amount of TLAB which is off more than the CSCO in the same time period. We wanted the CSCO position to be more in line with the rest of our positions in those aggressive/large trading accounts. We did nothing in the accounts that own only CSCO and VZ.
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3:02pm and Treasuries rallied into the close with the two year ending at 3.95%, the five-year at 3.97% and the ten-year at 4.10%. We don’t know why treasuries rallied unless it was related to the stock sell off. Oil ended at $69.85. Volume was good for a summer Wednesday. Breadth ended over 2/1 negative but new highs beat out new lows 2/1 and new lows were under 100. The DJIA closed down 50 points at 10414. The S&P 500 went out at 1208 down 4 points and the NAZZ dropped 8 points to 2129.

And tomorrow is tomorrow and the casinos are open except on the Gulf coast so let the games continue.
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29 August 2005 Daily Comment

Thoughts

Hopefully the hurricane will not be as bad as the forecasters predict. But it is going to do damage and as we sit her in bright sunshine and cool temperatures having missed a tornado last week by 15 miles we feel lucky and also hope for the best of a bad situation for the folks in New Orleans and surrounding area.
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This morning we sold our 3.125% Treasury notes due in 18 months that we purchased week ago for a slight loss. With the proceeds we bought 4% Treasury notes at a slightly better 4.02% yield than the 4% yield at which we sold the 18 month notes. Our purpose was to lock in the 4% coupon for two years. When we bought the 3.125% notes the 4% coupon wasn’t available.

Our guess is that the 4% coupon on the two year will attract buyers who don’t need the risk of the longer maturities they have been buying to obtain a 4% yield. Over the weekend Greenspan in his obtuse manner indicated that he thought longer dated notes should have higher yields.

We think he would like to stop raising rates before he leaves office in January and also that the rise in oil prices which hit $70 this morning on the hurricane news will act to slow the housing boom better than the persistent but relatively small discount rate increases.
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The yield curve has flattened and is about to invert. Inversion refers to the fact that in a normal yield curve shorter maturity notes will have a lower yield than longer maturity notes. When inversion occurs, notes at the shorter end have higher yields than longer dated notes.

 The inversions may occur in the shortest maturity as occurred in the early 1980s when C/Ds yielded 20 % while 30 year Treasuries yielded 14%.

This time, perceived wisdom is that the inversion will occur in the three to five year range. Inversion usually suggests recession. It is different this time according to the bull gurus. Not so say the bears.
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We read this morning that years ending in 5 have never been down in the modern market era with the average gain being about 9%. And markets always rally in January.
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Monday’s Markets August 29, 2005

Asia was lower with Japan off 1% and Europe is mixed with France on holiday just like President Bush.

Oil hit $70 over night and is still at $69.25 up over $3. Futures are indicating a down opening.

With our 4% Note purchases we have spent a good deal of cash so any buying is going to have to be selective. In any kind of market collapse the Treasury notes will be a source of cash but we will hold them for that occurrence which may come sooner than later. We will be surprised if we hold the notes to maturity.
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9:38am and stocks opened lower and then rallied after 9am to move the major measures to the positive side. But breadth is 2/1 negative and new highs are non existent. Oil remains higher by $3 and Treasuries are firm but below their best levels of the day. We are buying to trade some big caps (GE, F, SBC, BLS, JPM, HAIN and SYMC and all have good dividend yields except HAIN and SYMC) in our large/aggressive accounts including the Model Portfolio but doing nothing in most accounts. SYMC is Symantec which has the popular Norton Internet Software Security system.

We still think there is a rally hiding somewhere in this mire but we don’t want to bet the ranch or farm and are trading in only a few large/aggressive accounts because the risk remains and the trading is summer doldrums illiquid.
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The media is having a field day with the destruction in New Orleans. The world is ending, the economy is tanking, oil will be $100 a barrel and how will the world cope?

The reality is a little less dire.

By the by, the hurricane is going to do much more physical but not psychological damage than 9/11. That’s because the politicians seeking re-election find the need with the media cooperating to keep pushing 9/11.

The reality is a little less dire.

 In our memory, the nuclear standoff between Russia and the U. S. in the 1950s, and 60s, and 70s, and 80s, had the potential to destroy the world as we know it.

The threats of rogue nuclear devices don’t have the potential to destroy the world even though they could do one heck of a lot of damage. So in the scheme of things, the hurricane in New Orleans fills up the media quotient for the week for engendering fear and calamity but on a larger scale means next to nothing.

And rebuilding homes and infrastructure is an economic positive. Funding for rebuilding will come from the insurance companies which have already reserved the money and the government which will just print more money.
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11:11am and the major measures remain slightly higher as breadth moves towards neutral. New lows exceed new highs for the first time in a long while and volume is light.
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Heating oil and gasoline and natural gas are rising in price today supposedly because of the hurricane. The driving season and thus the need for increased gasoline supplies is over this week-end and the refineries have already begun turning out heating oil. Moreover natural gas for this year should already have been hedged by suppliers and moved to underground storage facilities. And so the 15% jump in price today is the result of speculators pulling the one armed bandit. The casino continues.
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12:30pm and breadth is now positive as the major measures are at their best levels of the day with the DJIA up 47 points.

There is talk of tapping the Strategic Petroleum Reserves although it is just rumor at this time. The spike in crude to $70 overnight reminds of the spike in crude the night Gulf War I began. That was the high for over 15 years.
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In all the talk about Hurricane Katrina costing insurers $25 billion and that is would be a record we hear no qualifier like ‘inflation adjusted’. If it is ‘inflation adjusted’ when it comes to oil prices, why not with hurricane insurance payouts?

Treasuries are back to even as stocks rise.
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From Reuters: It pays to be young at heart at Knott's Berry Farm! Grab the grandkids and come enjoy a day of fun at Knott's Berry Farm where seniors age 62 and over get in for the kid's price of only $14.95!

As we remember when we were kids the admission price was $2. Maybe $14.95 is the ‘inflation adjusted’ price from 1956.
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3:02pm and the major measures held their gains as the DJIA closed up 73 points at 10470. The S&P 500 rose 8 points to 1212 and the NAZZ tacked on 18 points the end at 2138. Breadth was 5/4 positive and new highs bested new lows although new lows exceeded 100 for the first time in a long while. Treasuries closed flat and Oil ended at $67.38.

And tomorrow is tomorrow and the casino will be open for business so let the games continue.
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24 August 2005 Daily Comment

We need to make a trip to Chicago on Thursday returning Friday and so there will be no posts after today until Monday night August 29. We don’t think much will happen and at least now we all have a few stocks to watch.
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Thoughts

Asian markets, except for Japan, were lower overnight and Europe is also lower. Oil is higher by 50 pennies with a $66 handle because of storms in the Atlantic and the release today of supply figures which are expected to be down. U.S. futures are lower.

Verizon was upped by Wachovia to market perform saying the stock seems cheap. We agree.

July durable goods orders were down 4.9% and ex-transportation is down 3.4%.

Treasuries are unchanged on the short end to firmer on the long end. We are going to switch our 6 month Treasury 1.875% coupon notes to 18 month maturity notes with a 3.125% coupon since we want to lock in more current income. The price paid will be less than what we realize selling the shorter maturity bonds and the yield to maturity will be about 20 bps greater at 3.94%.

From the website http://www.lemleyletter.com/lemley_about.html:

Bond Market Strategy

Lemley Yarling Management Co. takes the same approach to investing in bonds that we use in the stock market, i.e., buying low and selling high. When purchasing fixed income securities we usually buy U.S. Treasury securities. That's because U.S. Treasuries are of the highest quality - with no credit risk. The only two factors that affect the prices of U.S. Treasury bonds are maturity and coupon rate. In the bond market, we "buy low" by extending maturities (selling two year notes to buy five to ten year maturity notes) when we believe interest rates are relatively high (bond prices are low). When we perceive interest rates to be relatively low (bond prices are high), we "sell high" the five to ten year notes have risen in price and reinvest in shorter-term securities. This is because the longer the maturity of any bond or bond fund, the greater the price volatility. Therefore, when interest rates change, longer-term bonds are going to rise or fall in price to a greater degree than short-term bonds.


.....defensive

And so, when we believe interest rates are low, we maintain a defensive position by only owning short-term, less than five year average maturity, U.S. Treasury securities. Unfortunately, most investors, when interest rates are low, reach for a small degree of extra current income by buying long-term bonds. Or worse, they buy high yield bonds, GNMA's, or high yield mutual funds. These "high yield" funds not only purchase speculative bonds, but the maturity on the bonds these funds own is usually fifteen years to thirty years. When interest rates rise and we are buying seven year U.S. Treasuries, those short-sighted, current yield-oriented investors, who purchased long maturity corporate bonds or high yield mutual funds when interest rates were low, have big losses in their bond portfolios and are locked into a low current yield based on prices paid. Fixed income investors, like stock investors, must consider both current yield and capital gains as part of a sound, prudent investment strategy.
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Wednesday’s markets August 24, 2005

One market maven we follow and whose work we like said that the contrarian take on the high price of oil is that that high price is a function of strong demand which means that the economy is humming. We take the opposite view and believe that the high price of oil is a function of hedge fund trading assisted by selective oil company refining and delivery disruption. Even if today’s oil inventory report indicates a drop in oil reserves it is a fact that for the past few months oil reserves have been at a six year high. During that six years oil traded in the $30 and lower range.

We believe that the price rise is being artificially created the same as the rise in electricity prices in the 2001 period and that the FERC has no interest in regulating the best contributors to the party in power.

And we think the rise in the price of oil is going to force the Fed to quit tightening earlier than the markets have forecast and that is the reason we made the Treasury switch this morning.
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9:39am and new home sales were ‘better than’ (why not with no money down and the builders paying the closing costs) and oil inventories were up not down and that has given some legs to stocks. The major measures are higher and breadth is positive.

We are bidding on Verizon as a dividend play to go with our end of tightening theory VZ is down from a high of $45 in the last 12 months to $33.25.

By the way, the end of tightening also fits in with our lousy economy theory.
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11:47am and besides buying VZ at $33.15 with a dividend yield of 4.8% we also repurchased our trading position in Cisco at $17.72.

Treasuries are a few bps higher in yield with the two-year back to 4% and the ten-year at 4.19%. Breadth is 3/2 positive and new highs are now over 150. Oil is up 49 pennies at $66.20.
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1:27pm and the major measures are now lower as oil surges to up $1.64 to $67.35 on the lighter than expected gasoline inventories. Duh! It’s the end of the summer driving season. Whatever hedge fund driven markets do what hedge fund driven markets do and we are here to watch with you.

Breadth remains positive and volume light and since it is the contra hour this sell down may be the pause that refreshes the bulls.
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3:02pm and the DJIA closed down 80 points at 10440 as oil jumped $1.75 to $67.45. The S&P 500 dropped through a couple of support levels and ended down 8 points at 1210 and the NAZZ after being up over 15 points ended 6 points lower at 2130. Breadth reversed and closed negative and volume was light. Treasuries firmed as stocks dropped with the two-year finishing at 3.99% and the ten-year at 4.18%.

The reason given for the sharp sell off in the last hour is that the NY Fed has called a meeting for September 15 to discuss Derivative Trading with 15 of the largest trading firms. Talk of another Long Term Capital blow-up sparks the sell off. That is stupid. If there was a crisis we don’t think they would be waiting three weeks to have the meeting but in a thin market any rumor will do.

And the games will continue as we journey to Chicago.

Next post August 29, 2005.
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23 August 2005 Daily Comment

Thoughts

Our vacation/business trip to Traverse City, Michigan was very enjoyable.

Tuesday’s Markets August 23, 2005

9:36am and stocks opened lower and are off a bit in slow trading. It is going to be difficult to work up much commentary for the next two weeks since until September it would seem that any trend will be but a day or two long.

We remain in cash and looking but inactive.
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12:40pm and existing home sales were down 2% and that helped push stocks lower. Currently the DJIA is down 50 points in boring trading. Oil is up a few pennies and Treasury yields are down a few bps.
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3:02pm and the major measures tried but couldn’t make it to the plus side today. At the bell the DJIA was down 50 points at 10520. The S&P 500 was off 4 points at 1217 and the NAZZ was down 4 points at 2137. Breadth was 5/4 negative but new highs expanded to 135 after being in the 50 range while we were on holiday. Treasuries gained in price with the ten year ending at 4.18%, the five-year at 4.04% and the two-year at 3.98%. Oil finished up 6 pennies at $65.71.

And tomorrow is tomorrow so let the games continue.
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17 August 2005 Daily and Vacation Comment

Thoughts

This afternoon we are heading off for a short trip to Michigan to see some friends/clients and will back on Tuesday August 23. Since we are mainly cash in accounts and want to be and given the way the markets have been acting the last few days we can use the days off.
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This morning the Producer Price Index (Wholesale Prices) was reported as up 1%. We haven’t seen that type of number for a while. The core ex food and energy was up 0.4%.

Year over year PPI was up 4.6% with core PPI up 2.8%.
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Hewlett Packard announced good results last night and the stock jumped 2 points. The results include all the usual suspect charges and adjustments that will be part of the HPQ report for the next five quarters at least.

Applied Materials had a punk report but had good news going forward and so the share price is up 50 pennies.

The market mavens are beginning to concentrate on Tech stocks since retail has blown up on them with bad news from Wal-Mart and Abercrombie and lowered guidance from Ann Taylor, Aeropostate and Federated. And the mavens are tired and probably a little jittery about continuing to recommend oil and housing stocks.
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Wednesday’s Markets August 17, 2005

10:49am and the major measures are higher with breadth flat. Oil is off $1.50 and Treasuries are a few bps higher in yield.
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Even with the major measures higher NYSE breadth is negative today. Techs are strong today and we used the strength to sell the Cisco that we bought the other day for a scratch 20 pennies profit. We sold because of the breakdown of the S&P 500 through 1225 yesterday. Most accounts are back to a cash position.
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12:42pm and with oil down $2.28 breadth is improving and the major measures are on their highs for the day with the DJIA up 61 points and the S&P 500 flirting with 1225. Treasuries continue to give ground.
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3:02pm and the major measures held their gains with the DJIA closing at 105550 up 38 points. The S&P 500 closed at 1221 up 2 points and the NAZZ rose 10 points to 2146. Oil dropped $2.83 to $63.25 and Treasuries rose in yield with the ten-year ending at 4.28%, the five year at 4.14% and the two-year at 4.05%. Volume was summer light and Breadth was positive.

And tomorrow is our holiday so let the games continue while we play.

Next post will be Tuesday August 23, 2005.
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16 August 2005 Daily Comment

Thoughts

Fidelity owns 4.5 million shares of Google and picked up those shares over a four month period when the share price ran from $186 to $286. We wonder which funds received the $186 stock and which the $286 share. Also, that spread in cost price puts the lie to the SEC concentrating on cents per share on execution. Fidelity would have executed the trades for 2 cents per share. The only problem is that it took a price rise of 50% for them to fill their need and the needs of their mutual funds. The same types of illiquidity will prevail when they go to sell.
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The CPI for July was up 0.5%, ex Food and Energy which no one needs it was up 0.1%. Year over year CPI was up 3.2%, ex Food and Energy the y/o/y gain was 2.1%. So if you don’t eat or drive a car or heat your home there is no inflation.
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Industrial Production rose 0.1% in July and Capacity Utilization was 80%.
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Tuesday’s Markets August 16, 2005

Stocks are going to open lower this morning. Overseas markets were lower and the dollar is a bit stronger. Treasuries are firmer on the economic data and oil is down 30 pennies to begin the trading day.
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According to Rick the bond man on CNBC the futures are pricing 4.25% Fed Funds by year end.
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10:36am and stocks lower with breadth 2/1 negative. Treasuries are higher with the ten-year at 4.21% and the five-year at 4.08%. Oil is up 5 pennies.
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1:35pm and in the contra hour the major measures remain lower in light trading. Oil is also lower but Treasuries have continued to rally. Bloomberg is reporting that Treasuries are rallying on tame inflation news. That’s now how we read this morning’s report but then we have been doubters for a while.

Since this is an expiration week plus one of the last week’s of summer vacation the volatility is not unexpected. But stocks seem to go down more easily than they go up.
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2:43pm and the S&P 500 has broken down through the 1225 mark quite substantially. This is a crucial level for the bull case.
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3:02pm and the DJIA lost 12 points to close at 10512. The S&P 500 dropped 15 points to 1219 and the NAZZ gave up 30 points to end at 2137. Oil ended down 19 pennies at $66.08 and Treasuries closed firm with the two-year at 4.01% the five-year at 4.09% and the ten-year at 4.22%. Breadth was over 2/1 negative at the bell and volume was light.

And tomorrow is tomorrow so let the games continue.
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15 August 2005 Daily Comment

Thoughts

The media has been fully covering the rise of buyout funds. Today the WSJ announced that Warburg Pincus had raised $8 billion. The Carlyle Group just completed a $10 billion fund and Goldman raised $8.5 billion with the Blackstone Group aiming for $11 billion.

These buyout funds take that money and borrow about 4 times the underlying equity to buy companies. They hold the companies for a few years and then try and sell them back to the public and a much higher price.

One element not commented on is that these funds are buying companies with leverage and that the funds are taking playing money out of the markets. The vast majority of money invested in many companies, especially those being bought out, is stable long term investment money. When those holders are bought out they don’t rush out and buy new stock. But the money being used to fund these buyout behemoths is fast money and when it is employed to buy companies that money does come out of circulation.

We agree that there is an increase in the amount of money seemingly available for investment because most of the buyouts are done on a highly leveraged basis but long term investors with profits in their pockets most times don’t’ feel the rush to place found money to work in a hurry.

One final though is that these buyout funds have to spend the money they raise within a certain amount of time in order to begin collecting their 2% plus yearly fees. If they don’t spend the money they must return it to investors. With a $10 billion fund the fee amounts to $200 million if the money is invested and $0 if it isn’t. Certainly that is not a hard decision to make.
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Carl Icahn and his group own 120 million shares of TWX and Icahn says he won’t sell his shares in TWX until February 2007 or the next holders meeting although his partners can sell their shares with his consent. As we have said in the past Icahn is for Icahn and no one else. We do wish we had held for the Icahn pop but we would be sellers on the pop because of Icahn’s track record.
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Delta is exploring bankruptcy filing. Delphi is not.

This morning  Treasuries are giving back a portion of their Friday pop higher in price lower in yield with the ten-year  back to 4.25% and the five-year at 4.15%. Overseas markets were mixed to yawningly higher overnight. And U.S. futures are indication a slightly higher opening.

Oil is off 50 pennies. Some traders are suggesting a spike to $70 on oil and then a rollover pull back. We don’t notice more media stories on gasoline prices. The question then becomes what happens to stocks if oil pulls back. We have seen several technicians note that they can find no day to day co-relation between the action in oil and the action in the stock marts. But on a macro basis the price of oil does have an effect and we also think the price affect underlying psychology.

Months ago we suggested there would be no sustained rally until oil dropped under $40 per barrel. We still hold with that thesis.
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Monday’s Markets August 15, 2005

9:26am and stocks have opened lower in moderate trading. Oil is off 21 pennies and Treasuries are moving higher in yield as Friday afternoon’s fun and games in the bond pit are reversed.
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Since last Wednesday Cisco is down 10% and we have had decent luck with the stock this year. Their earnings were OK and traders were expecting more. We are going to buy back at $17.70 the stock we sold at $19.90 on July 15.

With Friday being an options expiration day, CSCO may be pinned to the $17.50 number till next week. By that we mean that often as options expiration approaches prices optionable stocks often trade around the nearest option expiration price which in this case is $17.50.
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1:04pm and entering the contra hour stocks are higher and breadth is positive. Oil is down $1.26 at $65.60 and Treasuries are higher in yield with the ten-year at 4.27%. Volume is summer light.
*****

Mother Merrill says the Housing Sector is accounting for 50% of the growth in the U.S. economy.
*****

3:02pm and the DJIA closed up 34 points at 10634. The S&P 500 gained 4 points to end at 1234 and the NAZZ rose 10 points to 2167. Treasuries gave ground with the ten-year ending at 4.28%. Breadth was positive and volume was light. Oil finished down 6 pennies at $66.61.

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

 

12 August 2005 Daily Comment

Thoughts

Paul Krugman has an interesting column in the NYT this morning. The gist of his discussion is summed up in this paragraph:

“In other words, a fuller answer to my former neighbor would be that these days, Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn't seem like a sustainable lifestyle.”

The whole article is worth the time to read. http://www.nytimes.com/2005/08/12/opinion/12krugman.html
*****

Dell disappointed on the revenue side last night and is trading 10% lower this morning. Goldman Sachs lowered its rating an others have lowered expectations. The shortfall by Dell which is the darling can do no wrong computer company for Wall Street is affecting Intel and probably MSFT later since their components power the Dell machines.
*****

A fellow on CNBC this morning said that the price of oil today at $66 a barrel and rising versus three years ago is taking and extra $700 million per day out of consumers pockets.
*****

Wal-Mart acquiring Target is the rumor of the day.
*****

Trade deficit for July was $58 billion which was greater than expected. Import prices were up 1.1% in July and 7.7% on a year over year basis, ex-oil import prices were only up 0.1%. Export Prices were up 0.1%
*****

The ten-year is under 4.30% today versus 4.40% before the auction yesterday.
*****

Today looks to start as a down day but that will give the bulls an opportunity to again show their strength. Japan was up over 1.5% last night and is up 10% since June as their GDP ahs finally begun to grow, up 1.1% in the latest quarter. That is tepid but enough to stir interest. According to some websites American (hedged funds) are playing the Japanese markets. Anything the hedge fund boys and girls think they can move they will. It is all going to end badly.
*****

Friday’s Markets August 12, 2005

9:54am and 3/1 negative breadth is leading the markets lower with the DJIA down 60 points. All is not lost for the bulls although it is a Friday and with oil over $66 any late day rally will be problematic. Treasuries are unched and the NAZZ is down 22 points as the Dell news ripples through the large cap tech stocks.
*****

11:02am and oil ticks at $67 and the DJIA ticks at down 100 points.
*****

12:05pm and breadth has gone from 3/1 positive yesterday to 3/1 negative today. The DJIA is off 105 points and the NAZZ is down almost 30 points. The S&P 500 is hanging below 1230 and the next few hours should be interesting for the few of us still watching the screens.
*****

We offer our condolences to the 1000 Dean Witter brokers who were fired yesterday because they didn’t get enough commission income out of their clients to keep John Mack- who is making $25 million per year- happy.
*****

As Dell swoons today Apple Computer is making an all time high.
*****

The rally in Treasuries continues with the ten-year moving to a 4.23% yield at the close today. The five year went out at 4.11% down from 4.22% yesterday and the two year was 4.03%. The boys and girls are having some fun on a summer Friday. Also the folks who make the rules placed position limits on the ten-year because there are fewer ten-years available for delivery than futures contracts outstanding. As always when the folks who control the game feel pain they change the rules. Just ask the Hunt brothers.
*****

3:02pm and crude oil closed up $1.36 at $66.86. The DJIA came back a bit in the last hour but still closed down 85 points at 10600. The S&P 500 lost 8 points to end at 1230 and the NAZZ dropped 17 points to 2156. Volume was light and breadth improved to 2/1 negative at the bell. Happy Wednesday, not so happy Thursday, happy Friday leaves us more happy than not for the week.

And tomorrow is Saturday so the games are suspended until Monday. Enjoy.
*****

 

11 August 2005 Daily Comment

Thoughts

Retail Sales were up 1.8% in July when 2.4% was expected. Ex autos retail sales were up 0.3% when 0.6% was expected.

The Nikkei was up 1% overnight to a new four year high at 12263. Before celebrating too much is should be remembered that the Nikkei traded at 40,000 in 1989.

Jobless claims dropped to 308,000 for the latest week. They are going in the right direction again

The S&P 500 failed at its 20 day moving average of 1232 yesterday. The 50 day moving average is 1215.

Michael Powell, “son of” and former FCC regulator, has found work with the folks he formerly regulated at an LBO firm. Congratulations.

Goldman Sachs downgrade Intel to in line from outperform.
*****

Thursday’s Markets August 11, 2005

9:02am and stocks opened lower for a few minutes but the major measures are now to the plus side even with Intel, Cisco and Microsoft and Applied Materials lower.

Breadth is flat and oil is up 5 pennies to $64.95. Treasuries are better today by a few bps.
*****

11:20am and as crude moves towards $66 per barrel stocks are heading the other way. Breadth is still positive but failing and Treasuries are firm. The big cap banks and other blue chips have joined the big cap techs in the red column as of this hour.
*****

Sullivan gets five years while Bernie got 25 years.
*****

1:24pm and in the contra hour Treasuries have caught a bid and are higher on the back of a well received auction of the ten-year.  The major measures are slightly positive and breadth remains flat. Oil keeps trying to push through $66.
*****

3:02pm and the bulls asserted themselves in the last hour of trading to power stocks higher. At the bell the DJIA was up 90 points at 10685. The S&P 500 gained 8 points to end at 1237 and the NAZZ rose 16 to 2175. Oil also gained ending at $65.80 up 90 pennies and Treasuries posted good gains with the ten-year going out at 4.34% and the five-year at 4.18%. Breadth was over 2/1 positive on the NYSE and 3/2 on the NAZZ at the close and volume was moderate.

And tomorrow is tomorrow so let the games continue.
*****

 

10 August 2005 Daily Comment

Thoughts

It would have been nice of Carl Icahn to begin his pseudo-assault on Time Warner a month ago so that we could have received a better price for the shares we sold. Icahn is asking for a breakup of the company but we assure you that if the shares reach over $20 Icahn will be long gone Carl.
*****

Cisco’s earnings last night were ‘better than’ but revenue forecasts for the first quarter were a little lighter than expected and the shares sold off in the late after hours. Disney had better earnings on lighter revenues but its shares are a little lower. The judge in Delaware also ruled that is was OK for the Board of Directors to give Michael Ovitz almost $200 million of the shareholders money to say goodbye to Mr. Ovitz.
*****

Investor’s Intelligence has 59% bulls, 19% bears for its latest weekly reporting period. In a contrarian way that makes us more secure in our cash position.
*****

Wednesday’s Markets August 10, 2005

8:19am and with Asian markets strong overnight and Europe higher the U.S. stock markets look to open higher. Unlike yesterday, we think the higher opening will be sold.
*****

8:49am and on 3/1 sportive breadth the major measures are higher as Cisco is off almost $1. As John Chambers, the CEO of CSCO is taking on CNBC the stock is moving lower. Oil is higher and Treasuries are continuing their modest rally of yesterday afternoon. 1234 on the S&P 500 is a big number and it is trading above that number at 1238 currently. If it closes above the rally might continue.

10:58am and stocks remain higher even in the face of the Cisco $1 per share drop. Breadth is strong and the DJIA is up 85 points with the S&P up 9 at 1242. Oil is up 33 pennies and Treasuries also are firm.
*****

1:05pm and entering the contra hour tech stocks are in the red and the DJIA has surrendered 2/3 of its morning gains. The ten-year is back to 4.40%, the NAZZ is negative, and oil is at a new high at $64.20 up $1.13.
*****

7:58pm and my sister came to visit and that is the reason for the late post. The DJIA reversed today and closed 21 points lower. The S&P 500 also closed several points lower after being 9 points higher early on and the NAZZ dropped 16 points as big cap tech stocks did a swan dive led by Cisco.

The action of today will lead to a down opening and then we’ll see if the bulls have any firepower left.

Breadth was 5/4 positive on the NYSE after being 3/1 positive in the morning and was negative on the NAZZ reversing a 3/1 positive morning reading.

Maybe $65 oil is the magic number that affects stocks because that’s where oil traded today.

We must say that cash feels pretty good right now.

And tomorrow is tomorrow so let the games continue.
*****

 

9 August 2005 Daily Comment

Thoughts

Ford is going to fire 25% of its sales and marketing staff. They are doing that in order to cut costs, obviously not to sell more cars which is the job of a sales an marketing staff.
*****

Whirlpool wants until December 2006 to close its deal to buy Maytag. That is how they sell their washing machines: buy now with no payments or interest due till December 2006.
*****

Baidu is trading at $110 after trading at $170 yesterday. Now that is volatility like the old days of 1999.
*****

We read an article that said that hedge and mutual funds are now allowed to place all their assets in exchange traded funds know as ETFs. This removes stock picking from the mix and instead allows funds to buy themes or industries without having to make a decision about an individual stock. And so, folks are now placing their money in mutual and hedge funds which in turn are placing the money in unmanaged or slightly managed ETFs.

This phenomenon is the result of the markets becoming online casinos. And it makes our job that much more difficult. It took us all year to realize that this type of trading is now the norm for even Bank Trust Departments. We may have to join them.
*****

The median home price in the Unite States is now $225,000. The median income is now $36,000. To buy a $225,000 home based on a 10% down payment, an income of $75,000 is needed. Obviously the two medians are not meeting.
*****

Unit labor costs rose 1.3% in the advance Q2 GDP report. Hourly compensation and hours worked fell. Productivity was up 2.2%. Keep on firing and outsourcing those folks.
*****

Tuesday’s Markets August 9, 2005

8:35am and stocks are higher out of the gate and crude oil trades above $64. Greenspan could use the rise in the price of crude as an excuse to not tighten although all traders say that won’t be the case. But Greenspan says the rise in oil is not inflationary and the reality is the price rise will eventually low the economy so it would seem to make sense. Also this morning’s productivity figures suggest that inflation is under control. Of course Greenspan knows that the inflation numbers are being cooked to make them more palatable and to keep down the built in cost of living increases in Social Security and other inflation retirement programs and contracts. That is why he is still on the inflation bandwagon.
*****

Cisco earnings come tonight.
*****

10:53am and stocks are building on their gains with breadth expanding. The last few months, when the markets have been strong or weak for most of the day, they have tended to close that way. The only difference today is the Fed meeting. And since everyone expects the same language and a raise, any variation may be a positive for stocks. Oil is now lower on the day and Treasuries are unchanged.
*****

Yesterday the rumor was that Delphi was going to be filing bankruptcy. Today the stock is higher because Goldman Sachs says any bankruptcy filing would harm GM and so it won’t happen even thought the company said it might have to file bankruptcy.
*****

1:05pm and pre-Fed announcement in twelve minutes the DJIA is up 75 points, the NAZZ is up 11 points and the S&P 500 is 8 points higher at 1230. Treasuries are 4.43% on the ten-year, 4.28% on the five year and 4.15% on the two year. Oil is of 64 pennies at $63.30.
*****

1:21pm and the Fed raised rates a quarter of a point and kept the measured language. So far, the markets are yawning.
*****

3:02pm and the DJIA closed up 80 points at 10616. The S&P 500 rose 8 points to 1231 and the NAZZ gained 10 points to end at 2175. Treasuries gained a bit with the ten-year at 4.39% and crude oil lost 87 pennies to $63.07. Breadth flattened out into the close.

And tomorrow is tomorrow so let the games continue.
*****

 

8 August 2005 Daily Comment

Thoughts

Whirlpool now wants to pay $20 per share for Maytag, a stock no one wanted at $10 two months ago. And Addidas is going to pay $59 for Reebok, a stock no one wanted at $10 in 2000. As stocks rise in price interest grows whether or not the underlying fundamentals justify.

Baidu, the Chinese Google, is up another $26 today.

Stocks look to open higher and then we shall see how much strength the bulls have.

Uncle Allan and his band of merry folks meet tomorrow and the markets expect another 1/4 points increase to 3.50%.
*****

Monday’s Markets August 8, 2005

9:16am and share prices are higher out of the gate with the DJIA up 40 points. Breadth is positive but crude oil is up $1.19 to $63.40 and we doubt that stocks are going to like that. Treasuries are giving more ground with the ten-year at 4.40%.
*****

Gap is up $1.15 per share on takeover talk?  Saks is up $2.25 on takeover talk? There is also Nokia/Cisco merger talk. Well it is August.
*****

11:07am and trading has taken on the aura of a lazy summer day in August. Breadth has reversed to 5/4 negative and oil is pushing higher.
*****

12:24pm and it’s a sleepy Monday. With the Fed meeting tomorrow we don’t expect much for the rest of the afternoon and so we are going out for a bike ride before it gets too hot. As we leave Oil is up $1.43 at $63.65 and breadth is negative. The major measures are mixed and the ten year is at 4.41%.

Tomorrow should be slow until 1:15pm when the Fed releases its decision and statement.

So let the games continue.
*****

 

5 August 2005 Daily Comment

Thoughts

The July Employment Number was plus 207,000. Average hourly earnings rose 0.4% which was the largest gain in a year and both those numbers are bad for bonds because the Fed will continue to raise rates. Treasuries are lower in price, higher in yield on the news and the stock measures also sold off on the rise in bond prices and higher oil prices this morning. The dollar is stronger on the news since higher rates mean more attractive yields for foreign Treasury bond buyers.

A down opening could set up a pretty good rally or…
*****

We get questions:

The call/put ratio yesterday was 2.72 to 100. That means 272 calls were purchased for every 100 puts that were purchased. That is very high ratio and a contrarian indicator if those types of numbers continue

What does this mean....in English...?

We respond:

When folks buy 2 times as many calls as puts that is considered to be very bullish behavior in the markets. Unfortunately when everyone is bullish that usually marks a top in the markets because there is no one left to buy. So a high call to put ratio is a contrary indicator-that is- because so many folks are bullish is considered bearish.
*****

Friday’s Markets August 5, 2005

9:07am and stocks opened lower. The major measures rallied to almost even but now the sell off has commenced again. Breadth is 3/1 negative and Treasuries are a drag as yields head higher with the ten-year at 4.38% and the five-year at 4.19%.

Hedge fund interrelationships with stocks and bonds and currencies may be ruling the day again. On summer days with light volume, hedge fund activity has been the major mover. And because today was a ‘big number’ day with the Employment Report we would guess that some lagging funds made bets that worked and some made bets that didn’t work. Those that bet and were wrong are now scrambling to cover and reposition and that may be a good chunk of this morning’s activity.

The afternoon hours will give a better feel for how traders want to spend the weekend.
*****

More investment firms have begun to recommend Nokia after it sold off the past few weeks on a bum sales/earnings report. With Motorola on its high we would guess that some aggressive types may be taking profits in MOT and moving to NOK. After all, the analysts are saying that Nokia is willing to cut prices to gain share and since MOT is part of that share NOK wants to gain the price cutting action would logically seem to have to affect MOT. That is just our observation, no a factual statement.
*****

Harley Davidson (HDI) is one of the stocks in the SEC experiment that can be shorted on downticks. With some folks suggesting that the backlog in bikes is not as large as HDI is implying that stock might be interesting fro a trade if the shorts get interested. We see a lot of bikes in yards with for sale signs on them.
*****

Baidu.com was offered as an IPO last night at $27. It began trading today symbol BIDU and has traded as high at $150 per share. It is being called the Chinese Google.
*****

Sears Holdings (Sears/Kmart) (SHLD) fired the CEO of Lands End yesterday. She had been with the company since 1991. When Sears bought LE we said they were overpaying and if Gary Comer were ten years younger he would be repurchasing the company at one half the price he sold it. As it is Eddie Lampert the hedge fund genius who put Sears and Kmart together will probably do an IPO of the stock to the public.

3:02pm and the DJIA closed down 50 points at 10560. The S&P 500 lost 9 points to close at 1227 and the NAZZ ended down 12 points at 2180. Breadth was almost 3/1 negative all day and news highs were under 150 while new lows climbed to 70. Treasuries dropped in price as the two-year ended at 4.11%. The five-year finished at 4.23% and the ten-year at 4.39%. Crude oil gained 93 pennies to $62.31.

And tomorrow is Saturday and we will rest easily over the weekend with our all cash position.
*****

 

4 August 2005 Daily Comment

Thoughts

The Bank of England lowered its discount rate by 25 bps to 4.5%. That drop was the first lowering in two years.

Jobless claims for the latest week were down 1000 to 312,000. That is heading in the right direction.

The July Employment report comes tomorrow morning and bulls are pinning their hopes for the rally continuing on another Goldilocks number.

Proctor and Gamble borrowed $24 billion to buy back stock.

The call/put ratio yesterday was 2.72 to 100. That means 272 calls were purchased for every 100 puts that were purchased. That is very high ratio and a contrarian indicator if those types of numbers continue.
*****

Thursday’s Markets August 4, 2005

9:28am and the major measures are lower for no real reason except boredom.  Retail sales numbers were not as good as expected and oil is up about 50 pennies. Treasuries are firmer and breadth is over 2/1 negative.
*****

We sold our Eyetech holdings in aggressive accounts for a small loss. That was the last stock we owned in most accounts and if the markets are going to do what we think they will then we will be able to buy EYET, if we choose too, at a lower price later this year.
*****

Mother Merrill lowered Time Warner from buy to neutral.
*****

Sara Lee announced a loss for the quarter due to restructuring and lowered expectations going forward.
*****

Wild Oats earned 3 cents a share for the quarter versus 2 cents expectations. Same store sales were up 4%.
*****

12:03pm and we went for a bike ride and when we return the only stock on our screen that is green (up) is EYET. It’s been that kind of year for us which is why we are in six month Treasuries. The ten-year and five-year Treasuries are higher in yield and lower in price. The major measures are all lower with the DJIA down 80 points and the S&P 500 down 8 points. Breadth remains stinky and oil is up 80 pennies at $61.65.
*****

Microsoft is the new darling of the bulls and it is helping all the major measures because of the big capitalization.
*****

3:02pm and the bears win one. At the close the DJIA was down 88 points at 10610. The S&P 500 lost 10 points to end at 1235 and the NAZZ dropped 25 points to 2191. Breadth was over 2/1 negative all day. Treasuries closed higher in yield with the ten-year at 4.31% and the five-year at 4.15%. Oil gained 52 pennies to $61.38. there were 300 new highs

And tomorrow is Friday and brings the Employment Report, which is expected to say 180,000 new jobs were created in July, will rule the trading for at least the morning hours.

So let the games begin.
*****

 

3 August 2005 Daily Comment

Thoughts

It is Bulls 57% versus Bears 22% in the weekly Investors Intelligence numbers.

New highs hit almost 700 yesterday. When they get to 1000 get ready for action.

The two-year maturity Treasury at 4.03% is at a four year high in yield. That is pretty amazing. Not that it is at a four year high but that the yield is only 4% that makes it a high. Alan Greenspan constantly harped on the lack of saving in this country even as he forced interest rates lower to help the banks recover from dumb loans. The low interest rates forced savers to do other more risky things with their money and encouraged the real estate boom in prices which will end badly for many.

Speaking of dumb, it is also truly amazing that the banks and brokerages are paying billions to settle the Enron and WorldCom lawsuits while the CEOs of those financial institutions have continued to collect their salaries and bonuses.

Challenger, Gray, and Christmas announced 102,972 job cuts in July.

Addidas is paying big bucks to acquire Reebok so that it can better compete with Nike. Paul Fireman wins. Don was great with those stocks and when we lost him in 1994 we lost our ability to play the retailers. We don’t have the insight and imagination that he did. We miss him greatly and not because of the lost gains.
*****

Wednesday’s Markets August 3, 2005

9:32am and stocks opened a bit lower but are holding. Breadth is 2/1 negative and crude oil is up 42 pennies at $62.40. Volume is light. Treasuries are firmer.
*****

We were perusing the list of stocks that the SEC has exempted from the short sale rule. Few of them are in the DJIA and so our scenario of selling this fall being exacerbated by the short sale rule really doesn’t hold water. There is an exemption for all stocks traded after hours so that might create an interesting situation in an event driven sell off if the downturn occurred during trading hours and the event continued to unfold after hours. But even if this year is spared eventually the removal of that rule is going to undermine the markets.
*****

Gasoline inventories dropped 4 million barrels while crude inventories rose slightly. Distillate stocks also rose. Duh! No one is burning heating oil this month. All in all oil inventories remains at multi year highs as do oil prices. Ching, ching, ching go the cash registers of Big Oil. For a couple of million dollars in political donations they have reaped multi billions of dollars reward. That beats drilling for oil any day.
*****

12:45pm and the major measures are inching slowly back to positive territory. Breadth ahs improved and is now positive on the NYSE.
*****

3:02pm and the markets closed with almost 500 new highs. Breadth was negative at the bell and volume was light. The DJIA gained 11 points to 10695. The S&P 500 rose 1 point to 1245 and the NAZZ was off 1 at 2217. Oil dropped $1.06 to $60.86 and Treasuries were firmer with the ten-year at 4.30% and the five-year at 4.12%.

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

 

2 August 2005 Daily Comment

Thoughts

Personal Income was up 0.5% in June while Consumer Spending was up 0.8%. The weakness in the dollar is said to be due to the Russians adjusting their basket of currencies for exchange purposes by adding euros and subtracting dollars.

The Treasury is going to add 30 year bonds to it auction schedule. When rates were low the Treasury didn’t continue selling the 30 year which it could have done at 2.5%. Now that it will have to pay 4.7% or twice as much interest over a thirty year period, the Treasury has decided that 30 year bonds are OK to sell.

That reminds of all the takeovers in the oil patch when oil is at $62. There were takeovers when oil was $20 a barrel but they were much fewer in number.

Being a hero or heroine doesn’t work in the corporate world if the takeover doesn’t immediately provide larger corporate chieftain bonuses from meeting increased bonus targets. Of course takeovers very seldom lead to increased dividends for shareholders because why would shareholders want dividends?

We decided to buy the six month Treasury notes yesterday at a 3.65% because they increase our yield by 50% for the six months and give us the opportunity to roll into a longer maturity (16 to 24 month) at a higher coupon rate and same or lower dollar price if rates continue to rise.

We slept well last night and that is our measure of our all cash position. We await an opportunity in the fall to put some cash to work but we are in no hurry and are willing to let events play out. With earnings season having now devolved to the retailers that are already selling at tech stock multiples, the big boys and girls are going to have to change their focus to find ideas on which to speculate. Time is needed for market conditions to define the reality of where to from here.
*****

Tuesday’s Markets August 2, 2005

9:06am and stocks are strong out of the gate. The major measures are higher and breadth is running 2/1 positive. Treasuries have regained their early morning losses and are trading unchanged and crude oil is now down a few pennies.
*****

11:38am and stocks have continued to rally on good breadth and volume. It is a few days late for us and is leaving us a few dollars short but that is trader’s luck or unluck as in this instance.
*****

1:37pm and with the NAZZ well above 2200 at 2211 and the S&P 500 at 1242 up 6 points it looks like the bulls will win the day. We are off to our spring in the valley to do a little landscaping.

We’ll be back tomorrow with another post.

So let the games continue.
*****

 

1 August 2005 Daily Comment

Thoughts

Rabbit, Rabbit.

Oil is above $61 this morning as King Fahd has died in Saudi Arabia. Why that matters is beyond us since he hasn’t been in charge since a stroke in 1995. BP is also having troubles in Texas with a refinery and a fire on a North Sea oil platform.

Wal-Mart announced that same store sales for July were up 4.4% which was at the high end of there range.

The dollar is taking it on the chin versus the yen and Treasuries are lower in price with the two year at 4.03% and the ten-year at 4.29%.

AMD has lowered prices on some of its chip sets.

Friday brings employment hiring for the month of July.

And today we celebrate the prince’s eighth birthday and the princess’s fifth birthday so posts will be short.
*****

Monday’s Markets August 1, 2005

9:15am and stocks opened higher in the face of stronger oil, weaker dollar and Treasuries and the Monday summer lightness they have moved back to neutral. The ISM Mfg. Index was 56.6 in July versus 53.8 in June. The Employment Index was up to 53 versus 49.

10:30am and over the week-end we kicked ourselves for taking the trading potion in Yahoo. We were expecting for a final one day rally that would lift all ships. That didn’t happen and we are selling our trading position for a 35 pennies loss.

We are also liquidating the Time Warner holding since it is our last position in most of our accents. We see no reason to hold just one stock.

There is an auction of  two-year Treasuries at the end of August that would have a 4% coupon on it at current rates and we are going to monitoring the bond markets more closely over the next few weeks with the intention of investing about half the funds in larger accounts in two year or shorter maturity Treasuries.

We think there is going to be a significant downturn in the markets in the next few months. Folks have forgotten about the ability of hedge funds to short on downturns when the inevitable pullback occurs. If that pullback is accompanied by an unfortunate event the correction could turn into a rout with the shorting on downtick rule no longer in force.
*****

12:23pm and we are going to buy Treasury 1.875% notes due January 31, 2006. That is a six months maturity and we are buying them on a 3.65% yield to maturity. That is about 1.25% better or 52 % better than the money fund yield. It also leaves us with money for the two year at the end of the month if rates continue to rise. The January maturity gives us the option of throwing the income into next year.
*****

And with that purchase we are going to take the rest of the day off. As we leave the DJIA is down 25 points, the NAZZ is up 7 points, and the S&P 500 is unchanged. Oil is up $1.43 at $62 and Treasuries are lower in price, higher in yield with the ten-year at 4.32% and the two-year at 4.04%.

And tomorrow is tomorrow and we will be around in the morning with a post for the day.
*****

 

 

 

 

 

 

 


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