Lemley Yarling Management Co
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Soldiers Grove, Wi 54655
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31 August 2007 Daily Comments
Business and Stock Market Mavens are
all for free markets until they aren’t.
The Bush folks are concocting a
plan to rescue sub prime mortgage folks who fall behind in their mortgage
payments. On that news the market are rallying big-time since the traders who
are around today perceive a rainbow at the end of the sub prime mess tunnel.
Certainly the Bush Administration which has done such a good job with Iraq
and Katrina will be able to fashion an excellent bail out plan.
Asian markets were up overnight with
most up 2% or more. European bourses are also strong as are U.S.
stock futures. And Oil over $74 and Gold up $8 have joined the march higher.
Bernanke speaks in an hour and as
stocks rise all the good news is getting baked in. the stock markets are a
discounting mechanism and so they seem to be pricing a Fed cut to save an
economy that grew at 4% in the second quarter.
As we often say, the big boys and
girls can change the rules and then….
From Bill Fleckenstein: One final comment about the financial world:
It's populated with rich, hypocritical whiners. Wall Street, the hedge-fund
community and their lap dogs in the news media continually brag about how much
they love capitalism and free markets. But when the creative-destruction
component of capitalism rears its ugly head, they want the central planners to
bail them out immediately, before they take any pain. And the ones clamoring
the loudest are the very same folks who behaved the most irresponsibly. *****
Sounds like he was short the
markets this morning.
According to unnamed Bush spokes
folks: The main objective of the package,
one senior official said, is not to affect the stock markets but to help
low-income homeowners, many of them concentrated in certain neighborhoods in
several distressed areas of the country, such as Ohio and Michigan. *****
wasn’t about oil.
Bernanke says that the Fed isn’t
there to rescue folks from bad decisions BUT the Fed does look at the broad
economic consequences of those bad decisions and will act accordingly.
And rescue the markets from bad
decisions, maybe, if it gets bad enough.
But can they?
Bush is speaking now at . He says the economy is great and can weather
any turbulence. He likes the innovation is sub prime mortgages. (Does that mean
he likes the 100% loans with no documents?)
But he doesn’t like adjustable
rate mortgages. Folks were taken for a ride by the lenders. But the
disturbances are modest in relation to the economy.
He is going to help home owners
navigate. He’s gonaa help homeowners. Help the good
people stay in their homes.
First off he wants FHA to lower
its lending standards to let more folks get mortgages. Say what?
Next, he is gong to close the
barn door after the horses have fled.
Finally, he will find and
prosecute all the crooked mortgage lenders.
New highs have crossed over new
lows on the NAZZ today for the first time in several weeks.
With the DJIA up 150 points and
nothing for us to do we are leaving early to enjoy the great weather and make
the long weekend a tad longer. Enjoy.
The bulls won the
day, the week, and the month.
30 August 2007 Daily Comments
Stock futures suggest opening 80
points lower on the DJIA. The volatility of stock prices in the thin holiday
trading reminds of other periods of market instability. Traders are concentrating
on whether the Fed is going to cut before its September 18 meeting to rescue
the economy from recession and the markets from a more severe downturn. Given
that all the major measures are higher on the year we doubt that the Fed is
really worried about the stock markets. And it is not their job to worry about
stock markets as long as the ups and downs are relatively orderly.
But the economy is a concern for
the Fed. Bernanke gives a speech on Friday and traders are very interested in
what he will say. He does speak more plainly than Uncle Al did; but given that
tomorrow is month end and the last day of a holiday week we doubt he is going
to say anything earth shattering. That doesn’t mean that traders won’t take
what he says and massage it a bit and run with it. The question is which way.
Asian indexes gained overnight
with Hong Kong up 2% and Shanghai
back on track with a 1.7% increase. European bourse indexes are mixed and Gold
is down $2 while oil is at $73.50. Treasuries have a bid as stocks swoon in the
Preliminary second quarter GDP
was up 4%.
The Fed added $10 billion to the
banking system today in two separate actions. That is not the normal activity
although recently it ahs become normal.
A paper delivered by Bernanke is
circulating in financial circles. When he was an academic in 2002 he gave a
speech in which he said that the discount window should be used by the Fed to
relieve financial panics and dislocations. Moving the Fed Funds rate should
only be used when longer term economic impact is desired.
That would suggest that the cut
in the Fed Funds rate is not coming until at least the September meeting, if
then. But Bernanke might like the confusion because it keeps the markets from
going down too much or up too much.
European shares closed higher
Thursday for the ninth time in ten sessions.
Gold lost $2 to $674 and Oil closed
down 16 pennies at $73.26. Treasuries closed firm with the two-year at 4.10%
and the ten-year at 4.52%. Brazil
and Mexico were
The DJIA lost 50 points to close
at 13240. The S&P 500 dropped 6 points to 1457 and the NAZZ gained 2 points
to 2565 as tech stocks held their rally.
Breadth was 3/2 negative on the
NYSE and volume was light.
There were 60 new lows and 25 new
highs on the NYSE.
Today was a slight
win for the bears but the bulls remain ahead for the week on the back of
yesterday’ strong rally.
29 August 2007 Daily Comments
On the DJIA 100
points opening pop higher this morning we sold all our holdings in all accounts
and went to cash. We worked hard to weather the recent downturn and play the
reflex rally from the low made on August 19 and had succeeded but then we gave
most of our gains of the last two weeks back Monday and yesterday. With our
accounts positive 4% to 6% for the year we are going to cash and re-assess. *****
Asian markets were lower
overnight and even Shanghai lost
1.7%. European bourses are mixed as they dropped yesterday and are trading on
the fact that in the early going the U.S.
markets are higher. Gold is up $4 and Oil is up at $72.50. Treasuries again
have a bid.
Home Depot is going to keep the share buyback at 20% of the
outstanding stock even though it received $2 billion less on the sale of its
construction business. HD is borrowing $12 billion to buy back stock. Good
A hedge fund in Britain
named Cheyne Capital is abandoning its $7 billion commercial paper program and
liquidating $20 billion in structured securities. And an Australian hedge fund,
Basis Yield Alpha Fund –what a great name- filed for bankruptcy in Manhattan
after losing 80% of its value. We guess the alpha overcame the omega basis.
At 11am the major measures
survived the first small pull back and are now moving higher again with most up
over 1% and regaining half of yesterday’s loss. It is a very thin holiday
market. The bulls would like to see more volume today than yesterday. The bears
of course wish for the opposite.
Jim Cramer is suggesting on his
website that the rally in the last hour is related to rumors that the Fed is
going to cut the Fed funds rate tomorrow because the discount rate cut is not
dong the job of stabilizing the money markets and financial institutions
ability to fund their operations.
The Fed rate cut rumor could also
be a pump and dump rumor to get stocks higher for an afternoon sell off. We
don’t believe the Fed would cut on a holiday week because of he thin markets.
But anything is possible.
Entering the final hour the DJIA
is up 200 points. Up/down volume is the reverse of yesterday and overall volume
will approach yesterdays.
European bourses closed flat to slightly
higher. Treasuries gave ground as stocks rallied with the two-year at 4.15% and
the ten-year at 4.56%. Gold was up$3 to $676 with oil up $1.80 to $73.50. Mexico
regained the ground they surrendered yesterday.
The DJIA closed up 250 points at
13290. The S&P 500 gained 31 points to 1463 and the NAZZ jumped 62 points
Breadth was 6/1 positive. Volume
was holiday light and on a par with the volume during yesterdays sell off. Up
volume exceeded down volume by a 12/1 margin on the NYSE today.
There were 80 new lows and 20 new
The bulls won the day. *****
28 August 2007 Daily Comments
markets are back in their cup half empty mood this morning as the trading day begins.
News that credit card write-offs were 4.8% of receivables in the first half of
2007 has cast a worry on trading. A bank in Germany
had to be rescued and State Street Bank is said to have $20 billion in exposure
to asset backed commercial paper. Carlisle Group, of which the Bush family is
an owner, has had to pump $100 million into a company that went public in Europe
2 months ago and more is needed. (From the Financial Times: Carlyle
Group, the US private equity firm, has apologized to shareholders for a “lapse
in communication” after extending a second $100m loan to a highly-leveraged
mortgage backed securities fund it listed last month on Euro next Amsterdam.)
Asian markets were mixed
overnight with Hong Kong and Japan
lower and India
and of course Shanghai higher. European bourses are down about 1% at and after trading higher early on Oil is
lower with a $71 handle and Gold is also off $1. Treasuries have a bid as
stocks look weaker out of the gate.
Consumer Confidence was 105 for
August down from 112 in July and the lowest level in a year.
The Russian Central Bank injected
$10 billion into its economy last night. That is a lot of rubles for that
economy. The Fed injected $2 billion today.
We bought more GM
in our larger/aggressive accounts at $29.98. This purchase is for a trade around a position. To fund this
purchase we sold INTC for a scratch profit and we also sold JAVA for a gain.
By trade around we mean that we add shares to accounts that already
own a stock to trade the new shares while maintaining the basic position. We do
this in our large/aggressive accounts.
From realmoney.com: Rumors are circulating that the State Street Limited Duration Bond
Fund, which managed $1.4 billion for institutional clients, lost about 37% of
its value during the first three weeks of August. Another fund, State Street Global Advisors, also was hit hard in the
dog days of summer and has fallen 42% for the year.
The news comes as reports from Bloomberg
are circulating that the bank and investment custodian has $22 billion in
credit lines in asset-backed commercial paper. Such short-term debt has been
hard to unload for many financial institutions of late because debt buyers are
skittish about credit quality.
According to S&P Existing
home prices dropped 3.2% in the second quarter of 2007.
A week ago the Fed suspended a
rule that limited the amount of capital Citi and BankAmerica could lend to
their brokerage subsidiaries while taking complicated securities as collateral
for those loans. Minyanville.com suggests that the suspension had to do with
the large amount of structured notes and mortgage backed securities that the
subsidiaries hold. That is a much larger story than borrowing at the Fed
The Fed releases their beige book
minutes from the last meeting at .
But since it won’t contain any discussion of the decision to cut the discount
rate a week ago Friday the minutes really shouldn’t have much impact on the
market. Treasuries are rallying today on the lousy stock market action.
European shares ended a
seven-session winning streak with sizeable losses Tuesday. Barclays paced a
decline in the banking sector amid worries about exposure to ongoing
The Fed minutes said inflation
seems to be under control, housing is a worry, and mortgage woes could
breadth on the NYSE is over 4/1 negative and not improving. There has been no
bounce and so we are selling this morning’s GM trade for a 20
pennies loss. Markets that are down all day tend to stay that way
and there hasn’t been even a whiff of rally. And these markets are a lot
thinner than we realized because of the holiday week.
We are going to take some trading
money off the table in our large/aggressive accounts.
Chico’s earnings come tomorrow and we bought for a pop before
earnings. Most retail stocks are lower today as the credit card write-off talk
has placed a damper in retailers. The tenor of the markets has changed in the
last two days and with the dicey markets we don’t want to hold through earnings
and so we are taking a 30 pennies loss.
And we are selling a trade around position MOT for a
50 pennies profit that we bought in our large accounts in the market drop
two weeks ago. We are maintaining our core position in accounts. We are also selling our MU trade
around position for a scratch profit. we
are maintaining our core position.
Oil ended down 24 pennies at $71.74.Gold
lost $2 to $674. Treasuries rallied
on the stock market decline with the two-year at 4.10% and the ten-year at 4.50%.
both dropped 2%.
The DJIA lost 280 points to end at 13040. The S&P 500 lost 35 points to 1432 and the NAZZ was down 60 points
Breadth was 4/1 negative on the NYSE and 3/1 negative on the NAZZ. Volume was light.
Down volume exceeded up volume by
10/1 on the NYSE. 10/1 down and up days used to be very unusual but with the
volatile hedge fund driven markets they are coming more often.
There were 65 new lows and 20 new highs
on the NYSE.
The bears won the
27 August 2007 Daily Comments
Asian markets were higher overnight
with both Hong Kong and India
up over 2.5%. And Shanghai was higher
for the fifth straight trading day. Shanghai
is up 90% this year and 270% in the last 12 months.
European bourses are mixed to
higher at . Treasuries have a
bid in the early going and Gold is off $1 while Oil is trading down with a $70 handle.
Home Depot cut the price of its sale of its construction sales unit
by $1.8 billion to get the deal done. The shares are trading above $35 as the
arbs are now trading around the Dutch tender offer which has a minimum tender
price of $37.
This week should be slow as the
week before the Labor Day holiday usually is. But that doesn’t mean it can’t be
We purchased Boston Scientific in accounts at $12.68. We have traded the stock
profitably at higher prices over the past year. With a book value of $10 and
recently renegotiating with their banks the terms of the debt they took on to
buy Guidant last year we are buying for over year end but…..
As we said last week the Hong
Kong market is rising because the Chinese are opening that market
to mainland citizens. And the fast money is moving there to get ahead of the greater fools. The Chinese bubble can go
a lot longer than other bubbles because the Chinese government controls the
market. But at some point….
European shares ended higher for
the seventh straight session, with almost all sectors advancing following Wall
Street's solid gain Friday. London
trading was closed for a public holiday.
Gold ended down $2 at $675. Oil
gained 96 pennies to $72.05. Treasuries
were a tad better with the two-year at 4.23% and the ten-year at 4.58%.
The DJIA lost 60 points to 13320. The S&P 500 was down 12 points to 1467 and the NAZZ dropped 15 points to 2560.
Breadth was 2/1 negative and volume
was holiday light.
There were 60 new lows and 35 new highs.
Today was a win
for the bears.
24 August 2007 Daily Comments
Asian markets were mixed overnight
with Hong Kong and Japan
lower and Shanghai at a new high. European
bourses are slightly higher at .
Treasuries have a bid and Oil is up to $70.50 while Gold is up $3 at $671.
Home Depot was unable to close the sale of its construction
division last night even though it was willing to take $1 billion less that the
original offer. According to the WSJ the banks financing the deal want better
terms than originally offered as in a higher interest rate.
Countrywide Financial is off $1 today and so the euphoria over the
BAC cash infusion has faded.
New Home Sales in July were up 2.8% month over month and Durable Goods Orders were up 5.9%. Ex
transportation Durable Goods were up 3.7%. Those numbers will place the Fed on
hold for a while on cutting the Fed Funds rate.
Support /resistance/support is right around the 1460 level on the
S&P 500. A pullback below 1416 would
not be good but it doesn’t look like there is any danger of that today. With
the low volume it is obvious that some folks have resumed their vacations although
probably with a Blackberry close at hand.
We bought Chico’s in our larger/aggressive accounts. It was down 5% today
near its 12 month low while all the other specialty retailers are higher.
Earnings are announced Wednesday so the position is not large and we may be
gone by then.
European shares closed the week with their sixth straight daily
advance. Mexico and Brazil
were both up close to 2%.
Oil gained $1.32 to $71.15. Gold
was up $9 to $677. Treasuries gave
ground on the short end but were firm on the long end. The two-year finished at
4.31% and the ten-year was 4.63%.
The DJIA gained 144 points to end at 13350. The S&P 500 rose 17 points to 1480 and the NAZZ jumped 35 points to 2576.
Breadth was better than 2/1 positive but volume was light as it has been all week during this rally.
There were 50 new lows and 30 new highs
on the NYSE. New highs are taking a
long time to cross over new lows in this rally.
The bulls won the day
and the week.
23 August 2007 Daily Comments
Asian markets rose strongly over night
with Hong Kong again leading the way up 2.8%. Fast money
is moving into that market ahead of the Chinese money that is sure to follow
since the Chinese government is going to allow mainland Chinese folks to invest
in the Hong Kong stock market for the first time in
history. That bubble is going to last a while longer.
European bourse indexes are up
large fractions and Oil is up 40 pennies with a $69 handle. Gold is flat and
Treasuries are a bit weaker.
BankAmerica is investing $2 billion in a Countrywide Financial convertible preferred stock. That pretty much
saves Countrywide and takes it off the bankruptcy list. It is interesting that
BAC didn’t buy the company outright.
is selling a preferred stock to raise capital. These are the genius that just
bought billions in shares back at $38. That action reminds of Ford spending their cash wad on Jaguar
and Land Rover.
We get e-mail:
Bud: I have a question regarding the action
of Ford in the market action
today. I was watching the tape today on my TV and in an up
market investors seemed to be getting out Ford as though it was a dirty shirt.
Ford was down 0.0733 in an up market. Do we need a down market for Ford to go
We think the action is a result of traders buying Ford convertible
bonds. The way they do that is to buy the bonds and short the stock- the
thinking is that if Ford goes broke traders will make money on the shorted
stock which will be worthless to offset the drop in the value of the bonds
Conversely when Ford jumped up last week when the markets were lower is
was because traders that were selling the Ford bonds to raise cash had to buy
the Ford stock back because they no longer were long the bonds as upside
There are reports that the Goldman
Sachs hedge fund, in which GS invested $2 billion of its own money last week to
rescue it, is up 12% since that time. The DJIA is up 6% in that time period so just
2 to 1 leverage would give the same result. And we are sure they are operating
on more than 2/1 leverage. And, of course, the original investors are still
The news that the four large
banks- Citi, JP Morgan, Wachovia and
BankAmerica -borrowed at the discount
window was greeted as a wonderful happening by the talking heads. For the life
of us we can’t figure out why. The talk was that they really don’t need to
borrow but that they were doing so to encourage other banks to do so. Say what?
The only reason for their actions
that makes sense is that the Fed asked them to do so to obfuscate that fact that
there are banks that need to borrow at the window to fund their operations (NCC?) and the Fed doesn’t want any bank
runs while the markets are so volatile.
The major measures pushed higher
in the first half hour of trading but now are pulling back and testing the
mettle of the bulls. Micron Tech opened lower and we bought
shares at $11.30 in accounts that own Alcatel Lucent. This is an
over year end purchase unless….
We also sold our trading position
in Tellabs for a 5% gain.
The Home Depot sale is supposed to close today. There has been no announcement
as of . If the deal closes
the markets should rally. If the deal doesn’t close the markets will flounder.
If the deal is called off the markets will collapse. Our guess is that the Fed
is behind the scene on this one making sure it gets done.
Countrywide was up $2 earlier this morning and it is now even on
the day at .
European bourse indexes gave back most of their gains late in the
trading day as the U.S.
stock markets slipped into the red. Oil
ended up 67 pennies at $69.93 and Gold
was unchanged. Treasuries were lower on the short end and firm on the long end
with the two-year at 4.22% and the ten-year at 4.63%. Brazil
also were lower.
The DJIA was up 2 points at 13235. The S&P 500 was down 2 points at 1462 and the NAZZ dropped 11 points to 2540.
Breadth was positive on the NYSE and negative on the NAZZ and volume was light.
There were 57 new lows and 23 new highs.
Today was a tie
between the bulls and the bears. *****
22 August 2007 Daily Comments
Investors Intelligence had 37% bears and 40% bulls last week. Coupled
with the 1000 new lows on the NYSE it is obvious in hindsight that a rally was
in the cards. Actually the day of the 1000 lows we did say a rally was due.
The DJIA is now up over 600
points from the low on Thursday as it opened 100 points higher after the first
hour of trading this morning.
We noticed that at the big bank stocks turned negative and so
we sold our Dell and Texas Instruments holdings for a nice trading profit.
Asian markets were higher
overnight with Hong Kong up over 2% and India
up 1.8%. Shanghai was 0.5% higher. The
Chinese authorities are going to allow investment in the Hong Kong
market for Chinese citizens. This is the first time the authorities have
allowed investment outside of the Shanghai
market. And that may be the reason the Hong Kong market
has been higher the past few days. Maybe the Fed can convince the Chinese authorities
to allow investment in the U.S.
European bourse indexes are also
higher at and Gold is up $4
with Oil higher but still with a $69 handle.
Treasuries are giving ground as
the cut in the Fed Funds rate that traders were expecting yesterday failed to
Citi borrowed $500 million at the Fed discount window this morning. JP
Morgan and Wells Fargo also did
so supposedly to encourage other banks to use the facility. JPM and WFC are
said to have enough liquidity to borrow other places. And so then the question
becomes if all the banks have liquidity why is there the need for any to
borrow. And if one or two don’t have liquidity and the ability to borrow other
places which of banks using the discount
window are the ones in trouble?
More interesting than the Citi news will be the aggregate tally on the
amount of discount-window borrowings made over the past week. This figure will
be released as usual at Thursday. Last week's tally was $271
million (yes, with an "m"). The normal amount of discount loans
outstanding on a daily basis is about $180 million, a figure that tends to rise
during the summer and fall months to the levels seen recently. *****
The talking heads on CNBC are
saying the Fed will cut soon. The Citi
borrowing is supposedly related to them passing mortgage originations on to the
Fed by borrowing at the discount window
and posting the new mortgages as collateral. And so the folks who hate big
government want the government to finance the mortgage industry.
Cheap is not always good:
Wal-Mart Stores Inc. quietly stopped selling two brands of dog treats
in July, after customers voiced concerns that the Chinese products may have
caused their pets to fall ill, but no recall has been announced, a company
The world's largest retailer started pulling Chicken Jerky Strips from
Import-Pingyang Pet Product Co. and Chicken Jerky from Shanghai Bestro Trading on July 26, spokeswoman
Deisha Galberth said late Monday.
Wal-Mart also placed a computerized block on all cash registers to prevent
workers from selling the products, Galberth said.
"When we took it off shelves at the
end of July, we pulled it based on the customer feedback so we could do testing
prior to announcing anything publicly," Galberth said. "That's why
did not make a public announcement -- it was still going through the testing
A few months ago we read that
Wal-Mart was going to get some of the organic products they will sell from
china. That should be interesting.
Last week we mentioned Home Depot’s deal to sell its
professional construction business for $10.2 billion as another shoe to drop.
The deal was supposed to close last Thursday but was put off to this Thursday.
HD also said that the buyers wanted to re-negotiate the terms of the deal.
Since a buyback of 20% of the outstanding stock is to be re-purchased with the
proceeds of the sale, the stock and bond markets are very interested in this
Bill Gross of PIMCO sees a 0.5% cut in the Fed funds rate to 4.75% before
or at the September Fed meeting. Two months ago he saw over 6% on the Fed Funds
rate in the next year and one half. The
times they are a changin’.
Lehman is shutting down its mortgage unit and 1900 folks will be
out of work. Lehman is taking a $25 million charge.
Gold closed up $3 at $669. Oil
lost 30 pennies to finish at $69.25. Treasuries
were lower in price/higher in yield as stocks rallied with the two-year at 4.16%
and the ten-year at 4.64%.
European bourse indexes closed up 1%and higher across the continent.
Brazil was up 3% and Mexico
up better than 2%.
The DJIA gained 150 points to 13240. The S&P 500 rose 17 points to
1464 and the NAZZ gained 32 points
Breadth was 4/1 positive on the NYSE and better than 2/1 positive
on the NAZZ and volume was light.
There were 70 new lows and 30 new highs.
The bulls won the
21 August 2007 Daily Comments
Asian markets were mostly higher
overnight with Shanghai up 1% and
up 25% in the last five weeks as markets around the world have sold off. India
was down 2%. European bourse indexes are mixed and Gold is trading at the sign
of the devil $666 again today. Oil has a $70 handle and Treasuries remain the
place to go in these wild times.
Capital One Financial closed their Greenpoint Mortgage unit and
will fire 1900 folks and take an $850 million charge. The street says hooray
and the share price is higher. And the executives at Capitol One are also happy
because now they can throw some other expenses into the special charge and help
operating earnings look better. Capitol One services the greatest number of
credit cards outstanding in the U.S. *****
The WSJ says that Warren Buffet
is looking at purchasing assets from Countrywide Financial and that has perked
up the share price of Countrywide.
The major measures opened lower
today and the stock markets may provide a reprise of yesterday’s down till the final hour action.
Williams Sonoma, the Pottery Barn folks, had lousy earnings and Target was on the money and projected
same store sales for August of up 5%.
Oil now is trading at $69.05 at . The major measures have turned
All is well in la la land as Fannie Mae moves to a yearly high on
Senator Dodd’s remarks that the Treasury Department already has the authority
to raise the dollar limit on mortgages above the current ceiling of $417,000.
The Congress should address the
sub prime mortgage category to help true home owners instead of the speculators
but that issue is so complicated that only the banks will be bailed out by the
Fed and Congress per the business as usual and too big to fail scenario.
We added Sun Micro
at $4.85, Dell at $26.09 and Intel at $23.97 to our large/aggressive accounts
and Alcatel Lucent at $10.68 to many accounts.
We traded ALU over
year end for a nice profit and are hoping to do so again. We have room to add
more at lower prices.
We have been in
and out of Intel all year and we are only adding to L/A accounts because we are
only looking for a short term trade. We owned Dell earlier and again we are
only looking for a trade. We are not adding to most accounts because we don’t
like the fact that executives of the firm lied about earnings for four years
and no action was taken against them by either the company or the SEC. So Dell
is strictly a trade. Sun Micro was over $6 a month ago and we own for a trade.
Foreclosure filings rose 9
percent from June to July and surged 93 percent over the same period last year,
with Nevada, Georgia
and Michigan accounting for the
highest foreclosure rates nationwide, a research firm said Tuesday.
The figures are the latest measure of the ailing housing market, which has seen
defaults and foreclosures soar as financially strapped borrowers have failed to
make payments or find buyers.
In all, 179,599 foreclosure filings were reported during July, up from 92,845
in the year-ago month, according to Irvine-based RealtyTrac Inc. California, Florida,
account for over 50% of the foreclosure filings.
3 month Treasury Bills were
priced at auction today at 2.919% this am and ended the trading day at 3.60%...ouch.
Oil ended down $1.64 at $69.50. Gold finished unchanged at $666. Treasuries finally slipped on the day with the two-year at 4.10%
and the ten-year at 4.70%. European
bourses closed mixed to higher and Brazil
was up 1% while Mexico gained a small fraction.
The DJIA closed down 30 points at 13095. The S&P 500 gained 2 points to 1448 and the NAZZ rose 12 points to 2520.
Breadth was positive on the NYSE and the NAZZ and volume was end of summer light.
There were 90 new lows and 20 new highs
on the NYSE.
The bulls and
bears tied today. *****
20 August 2007 Daily Comments
While we were away we had 11
inches of rain in the land of milk and honey and Uncle Ben decide to rescue the
wayward wunderkinds of Wall Street by opening the discount lending window at
the Fed to all banks who wanted to monetize the underwater mortgage debt they
were holding and couldn’t borrow against.
We should have knows it was going
to occur when the bank stocks began moving the markets higher on Thursday
afternoon after the DJIA had plunged 340 points in the morning. As in all casinos
the house knows when it is going to change the rules and the biggest of the big
boys and girls usually gets a heads up so that they can place their bets in a
winning way. That’s what took place on Thursday.
The current crisis is the result
of the sub prime mortgage mess and other financial jiggering. This article at
salon.com is a good explanation of all the shenanigans that have created the
perfect storm. http://www.salon.com *****
was down big-time on Friday before the Fed opened the discount window and the
Nikkei recovered in Monday in the rally in Asia on the
first trading day after the Fed acted. But the recovery was less than the fall
(down 5.45, up 3%). Hong Kong was up almost 6%, Shanghai
was up 5% and other Asian market indexes also rose.
European bourse indexes are
higher at but they had time to
react on Friday and so the gains are more muted. Oil is off pennies with a $71
handle as it looks like the hurricane will miss the oil area of the Gulf
of Mexico. Gold is at $666.
On Friday we sold
into the rally and made a few dollars on our one day holdings. We continue to
believe that stock markets have more to go on the downside.
According to Jeff Saut of Raymond
James Financial the world’s central banks have added $300 billion in liquidity
to the world marketplace it the last week plus a cut in the discount rate in
the largest market, the U.S.
Treasury Bills that mature in three months are trading under 3%. That is down
from 4.5% on Friday. That yield could mean that some big boys and girls expect
trouble or there are a bunch of money funds that are scared and only willing to
European indexes closed fractionally higher on Monday. Oil closed down 9 pennies at $70.99. Gold was up $1 at $668. Treasuries were firm with the two-year
at 4.11% and the ten-year at 4.64%. Brazil
was up almost 2% while Mexico was unchanged.
The DJIA opened higher on the day
but quickly moved negative and traded in the loss column until the final hour
of trading. Program trading in the final hour saved the day for the bulls. The
programs came early in the final hour and pushed the DJIA up 100 points and the
major measures managed to remain in positive territory till the end of trading.
At the close the DJIA was up 40 points at 13120. The S&P 500 was unchanged at 1445 and
the NAZZ rose 4 points to 2508.
Breadth was flat on the day and volume was light.
There were 90 new lows and 20 new highs
on the NYSE.
Today with the
final hour shenanigans the bulls won at the bell.
16 August 2007 Daily Comments
We will be traveling
tomorrow and so the next post will be Monday August 20. *****
Asian markets were down big-time
overnight with Korea
off 7%, India
down 4%, Hong Kong down 3%, and even Shanghai
down 2.5%. Hedge funds are selling what they can in the foreign markets to unwind
European bourse are also down 2% and more across the continent. Gold is down $6
and Oil is down over $2 with a $71 handle. Again this is hedge fund liquidation
Treasuries are on fire with
Treasury bills down another 50 basis points as Money funds buy bills instead of
The Fed has added $19 billion in
reserves in two passes so far today at .
Countrywide Financial had to draw on an $11.5 billion line of
credit because money market would no longer buy its paper. Citi and JP Morgan
among others are on the hook for big bucks. That is good for Countrywide because
the Fed is not going to let the major money center banks wind up with a bunch
of worthless paper. It is the Donald Trump principle that if you owe enough
money it is the lenders self interest to keep you solvent.
New housing starts were down 6%
in July and Permits were down 3%. Jobless claims rose to 322,000.
With the DJIA and
S&P 500 both down 10% from their highs a month ago there should be a bounce
and so we are adding some trading buys to our larger accounts: GE at $36.35, Fifth
Third at $36.25, Texas Instruments at $32.55, American Eagle Outfitters at
$21.97 and TLAB at $9.80. We also added GM at $29.85 and Ford at $7.60 to many accounts.
Many commodities remain under pressure selling today.
breadth is 4/1 negative and there are 900 new lows and 8 new highs on the NYSE.
The markets should pounce for that new low figure or…..
Gold is now down $22 and oil is
off $2.50. There certainly is liquidation occurring. The problem is in trying
to figure out how much leverage ahs been removed from the system. Bear Stearns
and Goldman and Merrill know since they clear hedge funds but they aren’t
The DJIA was down over 300 points
by but at the banks are rallying and the DJIA is now down
200 points. Hang on.
Gold ended down $22 at $658. Oil dropped $2.35 to $70.98. Treasuries were on fire all day and the
two-year finished at 4.22 % and the ten-year at 4.66%. Treasuries gave back
10bps into the close as stocks rallied. A stock rally means no rate cut and
that may catch some bond bulls the wrong way. It’s dangerous out there boys and
European bourse indexes were down 3% to 4% across the continent and
was down 6% and Mexico 3%.
The DJIA traded 340 points lower
that last nights close during the trading day. There were more
than 1000 new lows on the NYSE today. That means a rally is in the cards.With the 10% drop off the highs of a
month ago a rally from the low levels of today coupled with the 1000 new lows
is almost a no brainer. But it is
what comes after the rally that is the great unknown. Our guess is that some
point trapped longs will begin liquidating again.
The 350 points move off the lows today to close the DJIA higher is
probably not all of the rally but today’s flip higher seemed more short
covering than investor buying. Into the close we sold our NCC holdings for a 50 pennies loss at
$28.25. Since NCC traded at $25.25 earlier in the day we took the money off the
table to look at it later; and in many accounts we have the Huntington
Bank position which is now profitable to the extent of the NCC loss. We held it
because it acted better today. *****
At the bell the DJIA was down 15 points at 12781. The S&P 500 gained 4 points to 1411
after being down 34 points today and the NAZZ
was off 8 points to 2451.
Breadth was 3/21 negative on the NYSE and 5/41 negative on the
NAZZ. Volume was too low to mark a
bottom for a full correction but enough to suggest a rally before further
correction. By the by, at breadth
was 4/1 negative.
There were 1033 new lows on the NYSE and 10 new highs.
The bears won the
day. Options expire tomorrow and Monday should be a barn burner. We’ll be
watching tomorrow and back in the saddle on Monday.
The Ides of August 2007 Comments
Last night we realized that the
current market miasma is reminiscent of 1982. Back then the Penn Square Bank debacle (Penn
Square was a phony banking operation that
snookered many large banks) had placed many banks in danger of not being able
to keep their funding. Bank funding came from banks selling their own
commercial paper and short term C/Ds to the market place to raise money on a
daily basis to have funds for their operations and loans. The money fund
industry was in its infancy but even then it was a source of funding for the
Continental Bank was the major bank in Chicago
and had weathered the Crash of 1929 and other financial crisis over the years. But
it had made participated in a lot of bad loans with Penn
Square and had become dependant on selling short
term commercial paper and C/Ds to raise funds to conduct its business.
A crisis of confidence swept the
commercial paper market and Continental was a casualty and filed bankruptcy because
its funding dried up. Back then we were younger and along with a lot of other
folks we were of the opinion that a huge operation like Continental Banks
couldn’t go broke. We were wrong.
And that is what may occur with Countrywide Financial in the next few weeks.
Countrywide is a huge mortgage company and according to the analysts it is well
run. But it relies on short term funding for its operation and the sharks are
circling. This Morning Merrill went from buy to sell and CNBC is all over this
story. CFC may be the next shoe to fall.
Many money funds own Countrywide
Commercial paper and it is in their self interest to keep buying the paper so
that they aren’t stuck with it. But if one or two large funds decide to exit
the paper the trickle will become a torrent in an instant.
There are many banks that would
like to own Countrywide’s mortgage operations but with the current funding
crisis they may decide to wait until the Fed asks them to take it over out of
Asian markets were lower overnight with Japan
and Hong Kong off over 2%. European markets were lower at . Gold is down $4 and
Oil has a $73 handle as a hurricane moves maybe towards the Gulf of
Mexico and the yearly hurricane game begins. Treasuries again have
a good bid on the short end as the trading day begins.
Home Depot has delayed the closing of the sale of its supply
business from tomorrow to August 23. If that closing doesn’t take place that
will be another shoe. Contrarily, if the closing does occur the markets will
breathe a sigh of relief...
consumer prices edged up 0.1% in July on falling energy prices but clothing and
medical care posted sharper gains, suggesting the recent disinflation trend may
have come to an end with underlying inflation near the high end of the Federal
Reserve's comfort area. Core inflation, which excludes the energy and food
prices, rose by just 0.2%, the same as June. A big drop in gas prices in July
contributed to the smallest rise in consumer prices in eight months. Core CPI
year over year was up 2.2% and CPI was up 2.4%.
In the first hour of trading the
DJIA was down 70 points and then up 90 points and is now back
even on the day.
European shares regained some of their early losses but most bourses
still closed lower on the day. Oil
ended at $73.20 and Gold was unchanged
at $679. Treasuries were bid and the
yield on Treasury Bills dropped 30 bps. That is a flight to quality trade. The
two-year closed at 4.28% and the ten-year was at 4.70%.
Countrywide Financial is down $4 in
the last hour of trading as folks who can’t sell CFC bonds and commercial paper
are shorting the shares to lock in some protection. Not enough we would guess.
The DJIA lost 170 points to close at 12855. The S&P 500 dropped
21 points to 1406 and the NAZZ gave
up 40 points to 2460.
Breadth was over 4/1 negative on the NYSE and 2/1 negative on the
NAZZ but volume was again only
There were 415 new lows and 8 new
The bears won the
day but since this is a Triple Witch on Friday week anything can occur the next
14 August 2007 Daily Comments
Asian market indexes were mixed
overnight with Shanghai up 1% and India
lower. European bourse indexes are also mixed at .
Gold is off $2 and Oil is pennies higher with a $72 handle in the early going
in NYC. Treasuries are flat.
PPI was up 0.6% and 4% year over year. But without the essentials
of living core CPI was up 0.1% and 2.3% year over year.
UBS reported good second quarter earnings
but warned that market turbulence may hurt earnings going forward. That is earnings
speak for we lost a bundle last week but we hope to make it up in the months
Sanford Bernstein is out with a
report that Citigroup may have lost
$3 billion in trading last week.
Home Depot reported FY06 net income down 15%. For the quarter ended
July 29, HD posted net income of $1.59 billion compared with $1.86 billion a
Wal-Mart reported second quarter
$0.72 EPS versus $0.76 on revs of $91.99 billion versus $92.42 billion. The
company also issued downside guidance for FY '08.
The WSJ discovered the shorting on downtick rule change today
on the first page of their C section. We have been writing about what a bad
idea it was to change the rule for two years.
From the WSJ:
Another factor some traders say is causing turmoil: an arcane rule
change -- referred to as the "downtick" rule -- that kicked into
effect in July that makes it easier for investors to bet on stock-price
declines. Before July, investors typically had to wait until a stock was
actually rising to bet on its downfall.
We say that it is no coincidence
that the increase in volatility began immediately after the rule was eliminated.
A talking head in CNBC commenting on the WSJ article said that the rule change
may only account for 10% to 20% of the increased volatility but is not the main
Talking heads are paid to spout
such gibberish. All price changes in the markets occur on the margins. By that
we mean that it is the 10% that something is different from the normal that usually
causes the major moves.
Last week, Cisco
CEO John Chambers said that this is the strongest global
economy that he's ever seen. Yesterday, he said that "recent
economic turmoil was likely to subside in three to six months" and that
"Cisco is not immune to economic change."
Today we are
buying Huntington Bancshares at $16.90. At that price the shares have a yield of 6.2%
and a P/E of 9. HBAN is an Ohio based bank holding company. We flipped the
shares last week at $17.50 when we were trading too much. We are adding to
portfolios today for a longer trade.
Clients who visit their
accounts on the Mesirow website will notice that we are switching money funds
to one that invests only in Treasury backed securities. We are doing this for
the extra ounce of safety. The yield is about 20bps less but at times like
these we want only the safest of money funds.
European shares posted broad
losses Tuesday as a warning from Swiss banking giant UBS hit shares. Market
indexes across the continent closed down close to 1% and more.
Are hedge funds that don’t hedge
really hedge funds? The whole purpose of hedge funds was to hedge the markets
so that the investor wouldn’t be hurt as badly in downturns. In return the
investors won’t gain as much in bull markets. Last week the DJIA dropped 4% two
of Goldman’s hedge fund go down 30%. Obviously they were not hedging their
bets. And bets they certainly were.
Gold ended down $2 at $679. Oil
was up 79 pennies at $72.40. Treasuries
were strong with the yield on the two-year dropping to 4.38% and the ten-year to
The DJIA closed on its low for the day down 210 points at 13030. It is down almost 1000 points in less than a month. Sic
transit gloria. The S&P 500 was
down 26 points at 1426. The NAZZ
dropped 43 points to 2500.
Breadth was 4/1 negative on the NYSE and volume was lighter than it has been.
There were 420 new lows and 20 new highs on the NYSE.
certainly won the day.
13 August 2007 Daily Comments
13 August 2007 Comments
The EU Central Bank injected $80
billion this morning. The Fed announced it is not going to make any special
injections of cash today. Stocks are going to open higher.
Goldman Sachs is adding $3
billion to one of its funds that is down 30% for the year. Another fund is down
27%. These are the smart guys.
Asian markets were higher
overnight and European bourse indexes are also higher. Oil has a $72 handle and
Gold is off pennies. Treasuries are higher in yield as the global markets are
This week is a Triple Witching
week. The markets are reflecting trader optimism this morning and a rally seem
to be in the cards for today. Goldman Sachs is on a conference call saying
stocks are cheap and JP Morgan is telling clients to up exposure to stocks.
Our take is that August/September
is a seasonally weak time of year for the stock markets. The markets rarely
rally in September but they did so last year.
And anecdotally from the talking
heads it seems that folks are worried about missing the next up leg. We are
worried but we were last year and missed some of the move. Nevertheless we had
a decent return on our investments for the year.
Retail Sales for July were up
0.3% and ex autos and oil they were up 0.6%.
In order to make a statement about their money management prowess, GoldmanSachs is adding $2 billion of the $3
billion to the North American Opportunities fund that is down 30% on the year.
We often have the tendency to want to add to positions when they are lower or
not behaving the way we thought they would. And then we have to remind
ourselves that that we are sometimes wrong and that we don’t have all the money
in the world.
Like us, Goldman is wrong
sometimes. Unlike us, Goldman does have all the money in the world. And so it
is bravado backed by bucks that allows them to contribute to their fund. And it
isn’t just happenstance that they are doing it when the fund is down 30% in
value. The OPM (others peoples’ money) is down 30% when Goldman decides to pony
up its own money. Goldman has been collecting its management fee while
presiding over the mess they have made. Ain’t this business great? And now you
know why the brokers have the yachts and homes in the Hamptons.
Zhang Shuhong, who was the head
of a Chinese toy manufacturing company at the center of a huge U.S.
recall, killed himself at a warehouse over the weekend, days after China
announced it had temporarily banned exports by the company, the Southern
Metropolis Daily said.
In the U.S.
a person in the same position would retire with his $200 million golden
It should be
cautioning that the DJIA is up 6% for the year and is only down 5% from its all
time high and yet Goldman Sachs has two funds that are down almost 30%.
But the talking heads are taking this fall as a positive. *****
This morning we learned that all
the major U.S.
carriers (Verizon, AT&T, and Sprint) have added the second generation
Motorola Razr2 wireless phone to their fall selling campaigns. An analyst of
the industry whom we have followed and respect thinks that this news is positive
In a highly unusual development, all top
five U.S. mobile operators have
picked up Motorola's Razr2 for their late August/early September launch
frame. Such wide U.S. carrier support this autumn could signal a third-quarter
revenue turnaround for Motorola's beleaguered phone unit……Razr2 packs strong 3G
support (EV-DO for Verizon, HSDPA for AT&T) into a 13-millimeter-thin phone.
This is more important than it sounds. Most HSDPA-quality 3G phones out there
are really thick; the Nokia N-95 is 21 millimeters. And most thin phones do not
offer 3G support…..The markets have
underestimated Motorola's third-quarter bounce potential. Motorola may well
surprise markets by growing units from the dismal second quarter levels and
there may be average selling price upside too, since the launch of the new
high-end model is so wide -- both within and outside the U.S. market. Most key
rivals for Razr2 seem to be a step behind when it comes to launch schedules.
And so we are
going to buy MOT at $16.90 in accounts to hold for --- with our Ford and National City.
We sold MOT at $17 last week when
we were eliminating very short term trading positions. Luckily, we are re-establishing
our holding at a scratch lower price.
European shares closed sharply
higher Monday, with financials and miners back in favor. European bourse
indexes closed 1% to over 2% higher across the continent.
Trading volume is much lower
today than it has been for the last week. That fact makes today’s rally
Gold closed down $1 at $680. Oil
was up 21 pennies at $71.68 after trading above $72 in late morning. Treasuries closed higher in price/lower
in yield with the two-year at 4.45% and the ten-year at 4.78%. The Treasury
gain is the opposite of what would be expected with the major measures
rallying. The dollar was firm today. Mexico
were both higher.
The financials couldn’t get their
share prices moving higher today. That in turn squashed any rally in the
markets. Goldman Sachs was up over $4 in the early going on the $3 billion
infusion news but closed down pennies on the day. Programs turned the major
measures to the negative side in the last ten minutes of trading.
The DJIA closed down 6 points at 13235. The S&P 500 dropped 1 points to 1452 and
the NAZZ lost 3 points to 2542.
Breadth was flat on the day and volume was lighter than it ahs been.
There were 207 new lows and 21 new highs.
The bears scored a
slight win today.
10 August 2007 Daily Comments
Not to worry are the words of the day from Wall Street. That makes
Overnight Asian indexes were down
with Hong Kong and Japan down over 2%. Even Shanghai moved a small fraction lower.
European bourses are lower (the EU Central Bank added another 60 billion euros
to the system) and Treasuries continue to have a bid. Gold has bounced $3 higher
and Oil has a $70 handle. The stock futures are indicating a down opening in
The Fed added and extra $19 billion
in reserves to the banking system this morning and the talking heads are saying
that this means the Fed is signaling that it is aware of the turmoil. Duh.
The Fed statement from WSJ
The Federal Reserve is providing
liquidity to facilitate the orderly functioning of financial markets and will provide
enough money into credit markets to keep the Fed's target for the federal funds
interest rate at 5.25%. U.S. federal-funds futures early Friday priced in about
a 100% chance that the Federal Reserve will reduce its key lending rate by a
half-percentage point to 4.75% by the next policy meeting on Sept. 18.
Countrywide Financial (the largest U.S. mortgage lender) and Washington Mutual (the largest Savings and
Loan) said in filings with the SEC that the credit crunch is affecting
The Fed released a statement that
the discount window is open and that some banks may be experiencing unusual
funding needs. This statement was released before the stock markets opened.
In the first half hour of trading
the DJIA was down 150 points but is now recovering as bargain hunters come. We are using the mini-rally to unload TLAB for a plus scratchand SYMC for a 50 pennies loss.
We bought them in the sell off after the Fed announcement on Tuesday for a
trade. We made money on the TWX, MOT, JPM, and TLAB and lost on the SYMC. In
this market we want to have the funds available for higher quality issues that
have sold off or these same issues all of which may get cheaper over the next
The Fed added ($17 billion)
reserves to the banking system for the second time today at 10am.
Donald Trump was just on CNBC
calling for 1% Fed rate cut to save the
little guy. The Donald is all heart.
All the doom and gloom from the
talking heads is occurring while the DJiA is up 6%
for the year and the S&P 500 is up 2% and both are just weeks from all time
highs. We guess the new mantra is the Fed must prevent the stock markets from
ever trading in negative territory. And most of the talking heads are saying
they don’t want to save the fat cat hedge fund managers and investment banks
and their own portfolios. No, they are interested in taking care of the little guy and gal in Peoria. Of course
they have been laughing at the lace of sophistication and investment knowledge
of the little guys and gals for years they have always been happy to use the little guys and gals as an excuse to
fatten their wallets. But the fat cats’ minions control the Casino games and set
the rules. And as in the futures markets when the House says the limits to
moves are such and such that is the law.
With all angst in the marketplace
please note that the S&P 500 at 11am is up almost 1% from last Friday’s
close at 1433.
At 11:20am the S&P 500 turned
positive for the day and the DJIA will soon
follow. The world is once again safe for the little guy and gal thanks to the
largesse of Uncle Ben.
is not a nostrum to make people happy. The boom it engenders must inevitably
lead to a debacle and unhappiness... Accidental, institutional, and
psychological circumstances generally turn the outbreak of the crisis into a
panic... The final outcome of the credit expansion is general impoverishment...
Some people may have increased their wealth... but the immense majority must
foot the bill for the malinvestments and the overconsumption of the boom
Economist Ludwig von Mises
The spread of the sub prime mess
to France on Wednesday and Germany and Japan on Thursday - as banks and funds
fessed to owning and mis-pricing some the hot stuff - suggests that the weekend
is not a time to be a hero.
Following the old maxim sell when you can not when you have to
we are eliminating more of our trades from Tuesday.
We stayed an hour too long on the
trades we initiated on Tuesday afternoon. When we sold the JPM on Wednesday
morning we should have sold the rest. But of course that is the
coulda, shoulda, woulda market where everyone is always correct.
We exited our AEO
position for a scratch, the HBAN holdings that we bought yesterday for a 15
pennies loss, and the speculative SHLD holding for a $4 loss to get back to owning
only NCC and Ford.
The Fed did a third pass into the
financial markets today adding $3 billion more to the system.
Gold jumped $9 today to $679. It was down $12 yesterday. Oil ended the day down 12 pennies at
$71.47. Treasuries were flat on day
except the 30 year which moved under 5.03 from 5.15% yesterday.
European bourse indexes were down over 2% across the continent. Mexico and Brazil also ended sharply lower.
The DJIA closed down 35 points at 13230. The S&P 500 was flat at 1453. The NAZZ was down 12 points at 2543.
Breadth ended 2/1 negative and volume
was very heavy.
There were 445 new lows and 30 new highs on the NYSE.
The Casino won the
day and the bears and bulls tied for the week.
9 August 2007 Daily Comments
Asian markets were higher
overnight but European bourse indexes are down over 1% at . Gold is down $12 and Oil has a $71 handle. Treasuries
are on fire.
Last night as we rode through the
land of mild and honey on our bike we thought about the trading day. We
realized that volatility is back big time. And that may create some trading
opportunities as well as quite a bit of risk. The
DJIA really looked like some kind of Casino game yesterday. The moves in individual
big cap financial stocks were as random and violent as the moves in the major
The DJIA jumped 153 points in the
last 10 minutes of trading. In the last half hour of trading it was up and down
100 points twice. Yesterday’s action was the result of the big boys and girls
punching buy and sell programs into their computers and watching the green and
red on their screens pop up.
This morning looks to be more of
the same. The DJIA futures are down 183 points pre-market trading which effectively
negates the move of the last ten minutes yesterday.
BNP Paribus, France’s
largest bank halted redemptions from three of its funds because it said it
couldn’t determine the value of the CDOs in the funds. IKB Deutsche Bundesbank
also announced that they are holding a meeting today to discuss their sub-prime
holdings. That caused somewhat of a panic in Europe and a rush to quality and
the EU central Bank added 95 billion euros in a one day tender at 4% to calm
In the U.S. Home Depot lowered
the terms (tender price it will consider) of its $20 billion Dutch tender and
said it was renegotiating the sale of its construction supply business. That news
added to the market jitters.
Gold is down $12 which is the opposite
of what would be expected in a panic. But the drop suggests that hedge funds
are liquidating positions they can sell which is why the stock futures are
suggesting a much lower opening. Those funds that own CDOs can’t sell them at
reasonable prices and so to raise cash they need to sell liquid stocks and
Obviously, Treasuries are
rallying and the speculators in the bond pits are betting that the Fed will cut
the discount rate in September or earlier to avert crises. The odds of the cut
are now 100% plus according to the speculators who can buy futures to bet on
Hold on, it’s going to be wild
The DJIA was down 240 points five
minutes into the trading day but is rallying back as bargain speculators jump
When Bush came on TV at to speak to calm the markets the DJIA
had recovered to down 100 points. The DJIA is down 150 points ten minutes into
The bank of Canada
issued a statement today that everything is fine and that they will assure the
continuity of the Canadian financial system. Coupled with Bush saying all is
well, the Fed adding $24 billion in reserves to the banking system today, and
the governments of France England and Germany
plus the European Central bank saying everything is OK -- our question is “do
these folks know something that we don’t?”.
Bank of Canada statement:
In light of
current market conditions, the Bank of Canada
would like to assure financial market participants and the public that it will
provide liquidity to support the stability of the Canadian financial system and
the continued functioning of financial markets. These activities are part of
the Bank's normal operational duties relating to the stability and efficient
function of Canada's
financial system. The Bank is closely monitoring developments, and will deal
with issues as they arise." *****
From today’s WSJ:
Global Alpha, Goldman's widely
known internal hedge fund, is now down about 16% for the year after a choppy
July, when its performance fell about 8%, according to people briefed on the
matter. The fund, based in New York,
manages about $9 billion……
Campbell & Co., an $11
billion hedge fund that trades in the futures market as well as in stocks and
bonds and is completely driven by such computer programs, was down 10% to 12%
by the end of July. Quant funds -- "quant" stands for quantitative --
generally operate by building computer models of market behavior and then
allowing the computer programs to dictate trading. A recurring characteristic
of the recent trouble in financial markets is that many lenders, funds and
brokerages were following statistical models that grossly underestimated how
risky the market environment had become. "Our risk models failed to pick up the fact that we were due for a
correction," says Keith Campbell, founder of Campbell & Co. "We
were highly diversified. It was the perfect negative storm." *****
We bought shares
ofAmerican Eagle Outfitters in our
large/aggressive accounts for a trade as the share price opened down $1 at
$22.92. AEO reported same store sales for July down 6%. The shares are down
from $35 this year and at a price level where they should bounce. This is an
As the markets sold off toward we eliminated our Motorola
holdings for a 50 penny profit. Our guess is that many of the beaten down and
high growth stocks that are moving higher today are doing so because of short
Ford jumped 60 pennies higher yesterday (it is off that much today)
and that was probably because a hedge fund was selling Ford convertible bonds
they owned and had to cover the short position they had in the common stock of
Bancshares, an Ohio bank holding company, hit a 4 year low today and is at a 6%
yield and we bought a starter position in our larger/aggressive accounts.
Oil ended down 50 pennies at $71.65. Gold dropped $13 to $672. Other commodities tanked. Treasuries rallied on the down stock markets
and financial meltdown rumors with the two-year closing at 4.48% and the
ten-year at 4.79%.
European bourse indexes closed down almost 2% or more across the
continent and Mexico and Brazil
were also down big time.
We sold Time
Warner for a plus scratch.
The DJIA closed down 380 points at 13250. The S&P 500 lost 43 points to 1453 and the NAZZ dropped 56 points to 2556.
Breadth was 3/1 negative and
volume was heavy.
There were 310 new lows and 80
trading blind in that they don’t know whether the rumors they hear are true.
Again we would say that the casino won the day.
8 August 2007 Daily Comments
Treasuries are under selling
pressure as traders cogitated on the Fed Speak overnight and decided that the
Fed is more worried about China selling its $400 billion in Treasuries and $600
billion in other dollar denominated debt than it is about Aunt Millie losing
her home because she can’t make the payments on the sub-prime mortgage.
Priorities According to the British newspaper The Daily Telegraph: The Chinese government has begun a concerted
campaign of economic threats against the United States, hinting that it may
liquidate its vast holding of US treasuries if Washington imposes trade
sanctions to force a yuan revaluation.
Asian markets were strong
overnight with Hong Kong and India both up over 2%. Shanghai was only small
European bourse indexes are also
up and Gold is $3 higher while oil is unchanged with a $72 handle in early NYC
Cisco had an excellent earnings report and said business is gang
busters and that ahs given a positive tone to the markets in the early going.
The DJIA was up 90 points after
the first hour of trading on big volume and 3/1 positive breadth.
We have decided to trade the
volatility and so we sold the JPM that we
owned for 12 hours for an almost $2 per share profit.
Investors Intelligence for the last week had 43% bulls versus 47%
bulls the week before. Bears were 31% versus 26%. As a contrary indicator it
suggested and we saw the rally that occurred the last two days.
Results of the Treasury's $13
billion auction of 10-year notes were weaker than expected. The auction yield
of 4.855% was more than a basis point higher than expected and the bid/cover
ratio was, at 2.30, below normal levels of around 2.50. These results occurred
despite the 10-year's yield having increased about 20 basis points from its
And Sen. Christopher Dodd, chairman of the Senate Banking Committee,
said in a statement, "It may be appropriate, consistent with safe and
sound practices as determined by the regulator, to ease the temporary
regulatory cap on Fannie and Freddie's mortgage portfolio."
Naturally, Fannie Mae and Freddie Mac have long been opposed to
portfolio limits, and easing the limits could directly increase their
And rather conveniently it could also bail out any number of Wall Street
firms by providing them a place to unload mortgage-backed securities that are
being marked to their real value.
Hmm, this sounds almost like a case of government sponsored enterprises
bailing out those who perhaps
overleveraged in ill-conceived investments, doesn't it?
Entering the contra hour the
major measures are up almost 1% with the DJIA up 132 points and the S&P 500
touching 1500. What sell off?
European bourse indexes closed 1% to 2% higher on Wednesday. Mexico and Brazil were also higher.
Gold gained $4 to $686 and Oil
was down 22 pennies to $72.20. Treasuries
lost ground in a big drop with the two-year at 4.63% and the ten-year at 4.85%.
With forty five minutes of
trading remaining the major measures are higher but have surrendered half their
gains. This is the time for a bear raid to close the markets down on the day
and dash bull hopes.
At 2:30pm the DJIA is now down on
And so ends a strange trading day that tops all the other
strange trading days of the last two weeks. The DJIA closed up 145 points at 13648 after several visits to the dark
side in the last half hour and a 130 point pop higher in the last five minutes.
If you were
watching the last hour of trading today you know that stocks
trading is now a casino where the big boys and girls make the rules.
The S&P 500 rose 20 points to 1497 and the NAZZ jumped 51 points to
Breadth was 2/1 positive on the day and volume was heavy.
There were 436 new lows and 150 new highs on the NYSE.
Today the casino
7 August 2007 Daily Comments
Asian market indexes were mixed
overnight and European bourse indexes are all up over 1% as they recover
yesterday’s losses on the back of the strong market performance in the U.S.
yesterday after their markets closed.
Gold is down $3 and oil is up a
few pennies with a $72 handle in early NYC trading. Treasuries are flat ahead
of the Fed announcement at .
Productivity, a gauge of employee
efficiency, advanced at an annual rate of 1.8 percent after a revised 0.7
percent gain in the previous three months, the Labor Department said today in Washington.
A measure of wages and benefits increased at a 2.1 percent pace, more than
anticipated and climbed 4.5 percent in the 12 months ended in June.
That gain was the largest
year-over-year gain since the third quarter of 2000. Unit labor costs have
advanced at an annual pace of 1.6% over the past 15 years.
Your broker is your friend until the going gets
tough. From Bloomberg:
Bear Stearns Cos.' decision to liquidate two bankrupt hedge funds in
the Cayman Islands instead of New York may limit creditors' and investors' ability
to get their money back.
While most of their assets are in
New York, the funds filed for bankruptcy protection
July 31 in a court in the Caymans, where they are incorporated. The bank also
used a 2005 bankruptcy law to ask a U.S. judge in Manhattan to block all lawsuits against the funds and
protect their U.S. assets during the Caymans proceedings.
The Bear Stearns cases may establish a precedent that would let other
failed hedge funds liquidate in the Caymans, where judges have a track record
of favoring management. The local monetary authority estimates that three out
of four hedge funds globally are incorporated in the islands. *****
Six weeks ago when the Fed met
the DJIA was at 13400. So it is this time.
Ahead of the Fed meetingwe are buying a few stocks. We
bought National City at $28.85 in accounts where we sold it at $32.15 on July 11. We also
bought Symantec (the folks who make Norton computer security) at $18.05 sold in
January at $21, Time Warner at $18.47(sold in January at $22) and Motorola at
$16.35 (sold in May at $18.15).
Last year at this time the
markets bottomed on this kind of action. And so we are doing a very little
buying just in case. The drop has been swift but there is still a lot of room
to go lower by our estimation. But we thought that last year and it didn’t
We are buying TLAB
at $9.99. We have had luck buying the shares under $10 in the past
and we think the share price is down on fund liquidation. There was takeover
talk in the share price and the 25% drop in the last month has removed the premium.
larger/aggressive accounts we are buying Sears Holding at $134.50. The
share price is down from $195. SHLD is the combination of Sears and Kmart and
is run by Eddie Lampert who the financial press ahs dubbed the next Warren
Buffet. At $134.50 the share price is unchanged on the year and since a good
portion of Eddie’s pay is determined by the price of the shares we are betting
that the share price will move back up into year end. Lampert controls 45% of
the shares and is buying back shares on a regular basis.
We bought JP
Morgan at $44.62 in accounts. The shares are down from $53 last
month and yield 3.2%. We traded this stock several years ago and then it got
away from us. We are glad to have the chance to repurchase it on the sell of in
financials and will buy more lower.
The DJIA is down 120 points at . We guess the big boys and girls are
having some fun. . Oops it is only down 80 points, they are having some fun.
Finally we are hopping
back into Ford at $8.20 in accounts where we sold at $8.25 a few
the DJIA is up 80 points and so the wheel spins.
Gold ended unchanged at $683. Oil
was up35 pennies at $72.41 and Treasuries
gave a bit of ground with the two-year at 4.60% and the ten-year at 4.77%.
European bourse indexes closed over 1% higher and Brazil
The DJIA closed up 30 points at 13500. The S&P
500 rose 9 points to 1476 and the NAZZ
jumped 15 to 2563.
Breadth was 5/4 positive and volume
There were 515 new lows and 62 new highs on the NYSE,
The bulls eked out
6 August 2007 Daily Comments
Oil is down $2 at $63 level and
Bears Stearns is still in business. The Fed meets tomorrow and traders are
speculating on whether any comment about the sub-prime stuff will be positive
for the markets. Like everyone else we have no idea what the Fed will say and
what the markets will do on what the Fed says or doesn’t say.
Asian indexes were lower by 1% or
more overnight except China
which goes its merry way making new highs. European bourse indexes are
fractionally lower and Gold is up $1 in the early going in NYC.
The major measures have opened to
the plus side in NYC.
been speculation as to whether LEND
will go broke. LEND is a company named Accredited Home Lenders and they are the Lending Tree folks you
see on every website you go to.LEND is
scheduled to be acquired at $15 per share. The shares are currently trading at
Realmoney.com says the deal will close
unless the acquirer, Lone Star Funds, is insolvent.
That last statement
is a comment on present market conditions. *****
Robert Nardelli will become CEO
and chairman of Chrysler. Nardelli
is the ex CEO of Home Depot who
received a going away package of $250 million when he was fired. Actually,
Nardelli doubled Home Depot’s sales and earnings while he was there but the
share price fell and that is the only thing that counts on Wall Street. Since Chrysler
is private the value will rise each year as the LBO firm that owns it marks the
price up to collect its 3% performance fee.
1370 on the S&P 500 is the trendline
up from the 2002 low. 1400 on the S&P 500 is 10% down from the high in
The Penn Square debacle it the
early 1980s, the Savings and Loan scandal in the late 1980s, and the telecom/dot.com
bust of 2001 were all the result of Wall Street selling the latest free lunch to the unsuspecting. The CDO, CLO, LBO binge
that is currently under correction is of the same stripe.
After two and one half hours of
up/down trading the major measures have moved firmly to the plus side. Breadth remains
2/1 negative and volume is active.
Fannie Mae and Freddie Mac
are both up 8% today. Oil issues are down as is Oil. Bank stocks have a bid.
There may be another hedge fund going belly up.
Oil ended down $3.42 at $72.06 after trading at $71.60. The last time oil dropped this much in a day
a hedge fund was going belly up.Gold
was down $1 at $683. Treasuries were
a little weaker with the two-year at 4.52% and the ten-year at 4.75%.
European markets closed before the mid day rally in the U.S.
and were lower at the close. Brazil was higher and Mexico
The DJIA closed up 286 points at 13466. The S&P 500 gained 34 points to 1467 and the NAZZ was up 35 points to 2546.
Breadth recovered in the last hour to close 5/4 negative on the day
after being almost 2/1 negative for most of the day. Volume was heavy.
There were 628 new lows and 36 new highs on the NYSE. That is the high number
for new lows on this latest move down over the last week.
The bulls won the
day. There was no real sell off today which is unusual and makes
this rally suspect after the collapse Friday. Or maybe it makes the collapse on
Friday an anomaly. Nothing is as it used to be. The financials led the markets
higher. The Fed speaks at tomorrow.
3 August 2007 Daily Comments
Here we go again.
The monthly Employment Report said 92,000 jobs were created in July when
135,000 new jobs were expected. The unemployment rate rose to 4.6% from 4.5%.
The report cast a negative
influence on the opening and rumors about Countrywide Financial and a credit
outlook downgrade from neutral to negative of Bear Stearns by Standard & Poor’s
sent the DJIA down 100 points after half an hour of trading. It is going to be one of those days. Round
and round the little ball goes where it ends nobody knows. The Wheel of Fortune
is spinning. *****
Oil is touching $77 and gold is
unchanged while Treasuries have a strong bid on the back of the Employment
Asian markets were higher
overnight with Shanghai at new highs
up 3.5%. European indexes are lower at .
Unhappy Friday: American Home Mortgage Investment Corp.
plans to close most operations on Friday and said nearly 7,000 employees will
lose their jobs as the lender becomes one of the biggest casualties of the U.S.
Daimler Benz announced the closing to the sale of Chrysler to Cerebus with no change in conditions. That announcement a few
minutes ago at helped stocks
to rally a bit. Daimler lost over $30 billion on the buy and sale and operating
losses but the share price is at a multi year high because that is old news and
the glass in now half full instead of half empty.
Oil is down under $76 in NYC
trading and Gold is up $4.
Best headline of the day: Ron Paul remains longshot for GOP nom *****
The Fed meets on interest rates next Tuesday.
Gold ended up $0 at $686. Oil
was down $1.74 to $75.12. Treasuries
were higher in price with the two-year at 4.44% and ten-year at 4.69%.
European bourse indexes closed over 1% lower across the continent
indexes were both over 1% lower.
The DJIA was down 100 points
after an hour of trading. The DJIA then rallied back to even on the day about and is again down 150 points at . That is a move of over 300 points down
and up and down today and we haven’t yet visited what has become the wild time
of the day.
One reason for the rally to even on the DJIA at 1pm was that Bear
Stearns held a conference call and said they were profitable and in good
financial condition. But later in the
conference call the CFO said that the mortgage market was the worst they
had seen in 22 years and that they would not use capital to buy back stock since
they needed the $11 billion in cash on hand for their business. Since the stock
is down from $180 a few months ago to $110 today, traders took that as a negative and a 150 points drop in the DJIA
ensued. But there are still 50 minutes of trading left in the day so
anything can occur.
At 2:15pm the S&P 500 is down 22 points at the 200 day moving
average of 1450 and needs to close above that number today for the bulls to be technically
On Wednesday the S&P 500
bounced off the 1440 level at
and rallied 2% to Thursday night. Today at and the S&P 500 is at 1440. That was a quick round trip.
The DJIA closed down 285 points at 13178. The S&P 500 was down 40 points at 1432 and the NAZZ dropped 65 points to 2511.
Breadth was over 4/1 negative and volume was active.
There were 325 new lows on the NYSE and 50 new highs.
The bears won
today and the week.
2 August 2007 Daily Comments
The markets continued their
volatile action while we were away. On Tuesday the DJIA was up about 50 points entering
the last half hour of trading. (It had been see-sawing all day having been up
as much as 150 points early in the day). Suddenly the bottom fell out and the
DJIA closed 150 points lower on the day. Then on Wednesday the mirror of
Tuesday’s action occurred. The DJIA was down 70 points going into the last half
hour of trading and is suddenly rallied to up 160 points by the close.
Such market action isn’t for the
fainthearted and we were content to be on the sidelines. Overseas markets
reacted down on Wednesday to Tuesday’s decline in the U.S.
and overnight last night the overseas markets gained in reaction to the higher
close in the U.S.
After touching $78 yesterday oil dipped under $76 this morning but
is now trading at $77 and hour into the session. Gold is up $2 at $678 and Treasuries
are giving ground. Treasuries are
moving up and down 10 bps a day and those are big moves in relation to recent
The increase in volatility the
last few weeks can be ascribed to the sub-prime mess and the reaction of the
markets to individual stock stories that occur throughout the day. We also
think that the abolition of the short tick rule has contributed. That’s because
day traders can now short at will. But if they get caught in an updraft like
they were yesterday at they
have to cover by the close.
GM reported sales down 22% in June while Ford sales were down 17% and even Toyota sales
were down 7%. Since there was one less selling day this year than last the
numbers aren’t quite as bad as they seem but they were still bad. Toyota’s
adjusted sales were down 4% and the negative number is the first for Toyota
in a long while.
Jobless claims were 307,000.
The stock markets for the last two weeks have been like NBA games. With
NBA games you only have to pay attention to the last five minutes of the game.
With the present stocks markets you only have to pay attention to the last
thirty minutes of the day.
European stock indexes closed large fractions higher. Mexico
were 1% higher at the bell.
Gold was up $1 to $676. Oil
gained 33 pennies to $67.87. Treasuries
were higher in price lower in yield into the close ahead of the monthly
employment report tomorrow morning. The two-year ended at 4.58% and the
ten-year was 4.76%.
The DJIA closed up 99 points to 13460. A two minute spike in the DJIA
right on time at 80 points higher to up 130 points at managed to hold most of the gain into the close.
The S&P 500 was up 6 points to
1472 and the NAZZ was up 22 points
Breadth was 5/4 positive and
volume was active.
There were 216 new lows on the
NYSE and 45 new highs.
The bulls won the
1 August 2007 Daily Comments
Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
August 1, 2007
After 25 years at 208 S LaSalle in Chicago, we are moving our downtown office to 42 South Washington Street in Hinsdale, Illinois.
We must take this action because the folks who now own 208 La Salle
are converting the first 12 floors to hotel rooms and office space our size is unavailable.
In the future, all checks
for deposit to accounts will need to be sent directly to Mesirow
Financial, the folks who hold your accounts. We have envelopes to facilitate this activity and will be happy to
supply them or the address.
350 North Clark Street
Attention: Cash Management
Chicago, Illinois 60610
Two of our toll free phone numbers will remain the same:
Our local 312 numbers will
disappear as will the 800-654-9865 number and so we ask you
to use the toll free numbers above in the future.
The move will be made early in August. Therefore, beginning on
August 1st, please mail all communications to the Hinsdale address.
There will be no interruption of service and you may use our toll
free numbers to reach us. Our branch office at the farm in Wisconsin will remain.
Since we communicate mostly by phone, e-mail “and
snail mail”, we hope this move will be seamless for our clients.
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