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For those folks who have accounts with us, you may now go to: www.aacesonline.com and fill out the account information and view your accounts online. If you have trouble filling out the form, or in getting online, call and we will help you with the process. NASD regulations require the aacesonline site to be secure. Thus your password must be changed every ninety days. You will be prompted to make this change when needed.

For those clients of LY& Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
For Quarter Ending March 31, 2003 For Quarter Ending December 31, 2002 For Quarter Ending September 30, 2002
For Quarter Ending June 30, 2003 For Quarter Ending September 30, 2003

31 December 2003 - Evening Comment

7:37am and initial jobless claims for the week ending 12/17 were 339,000 down 15,000 from the previous week. That’s good news unless you are one of the 339,000 folks who lost their jobs Christmas week. If you are your life has been turned upside down, 15 % of you will never take another job and the country is a poorer place for not being able to afford you a job.

In other economic news the dollar continues its fall against all currencies. The experts are saying there is no reason for the dollar to rally. We would guess that there will be a good bounce beginning Friday as folks begin the New Year and hedge funds that have been piling on the dollar decline pull in their horns to view the New Year. The trend is down until it isn’t.

Mortgage refinance applications fell about 15% in the latest week while the index of purchase applications fell 5%. Since it was a holiday week we don’t know how much the markets will care today.

Japan gained 1.6% overnight to close over 10600. Maybe the Nikkei and the DJIA will now move in lock step. The rest of Asia was mixed as is Europe.

8:08am and Sycamore and Ciena are higher this morning on news that they have won a piece of the Defense Department’s global communications network project.

9:16am and stocks opened higher but now are moving back to even. We picked up a few year end stocks in trading accounts in Motorola, Level Three and a bit more Duke Power. We are trading a bit of Andrew today since we think the down this morning in ANDW share price will be met by buying this afternoon. Mostly though, we are finished buying and as Don would say now we have to start thinking about when to sell.

9:35am and right now the NASDAQ is at 2003.

12:30pm and we bought CORV at $1.71 in our aggressive trading accounts. It sold as low as 50 cents and as high as $110 per share in the last three years. We are looking for $1 per share anchovy profit.

We are also selling SCMR at $5.35 which is up 70 cents per share today on the contract news and buying an equal amount of JDSU at $3.67with the proceeds. We are more comfortable with JDSU; we are leaving SCMR with a profit and raising a little cash along the way.

2:01pm and entering the final hour of 2003 the DJIA is now positive and the NASDAQ is struggling back to even. We are having a pretty good day as the selling has relented on our down and out low priced stocks.

We decided to only sell the SCMR in large tax free accounts and are holding it in our other accounts for the new tax year.

3:02pm and the DJIA closed up 35 points at 10446. The S&P 500 gained 2 points to close at 1111 and the NASDAQ dropped 6 points to end at 2003 as predicted here in the Evening Comment on December 19th when the NASDAQ was at 1951.

On the Home Front we will have Luna and Pooper and Tubby on patrol tonight as we ring in the New Year with a toast to all our friends and clients who have passed over this year and all who are still with us.

And tomorrow begins a new year. Amen.

31 December 2003 - Morning Comment

6:59am and we have arrived at the last day of the year. The big question is whether the boys and girls will be playing games or whether the trading today will fade with the sun. Our guess is that the bullish trend will continue and that we will have a higher close. If folks ever stop selling some of our downtrodden stocks we may even get a nice pop in them.

This morning the Model Portfolio is again up over 13% and well situated for a nice run in the New Year if the rally continues. Time will tell. We have a lot of different companies in the Model Portfolio, most of them old friends. Over the weekend we’ll give a run down on each.

And so let the games begin.

30 December 2003 - Evening Comment

7:15am and keeping up with the Jones’ also known as UPS has Fed Ex buying Kinko’s for $2.9 billion.

9:11am and stocks opened higher but now are in the negative column in reaction to less than positive economic data released in the last hour. The Chicago Purchasing Managers Index was 52.2 below the forecast 61. Consumer Confidence was a tad shy of forecasts at 91.3 and Existing Home Sales dropped to just over 6 million units from 6.33 million units. Existing home sales have been lagging new home sales for a while and that is a function of the fact that new homes are more easily financed with much lower down payments and much lower overall prices.

We are wrapping up our year end purchases and will be looking for opportunities if tax selling pushes any of our favorites lower.

12:02pm and with Kathy out of the office this week we have been more involved in correcting the mistakes we make on a daily basis. This has been consuming much of our time and so our posts have been slower.

Trading is light and stocks are weaker but there is no great rush to sell—or buy. The current level is a comfortable one for many traders. We’ll see how the mark up and down boys and girls do tomorrow.

1:51pm and entering the final hour of trading them major measures remain lower. But breadth is positive, up volume slightly exceeds down volume on both the NYSE and NASDAQ and new highs are approaching 900 on the combined NYSE/NASDAQ. We’ll see if the bulls will pop the measures to the plus side today or save their powder for tomorrow.

2:11pm and we bought AVX Technologies and Micron in our trading accounts. We bought the Micron yesterday and today there is a rumor that Micron is going to plead to conspiring to fix prices on DRAM chips. The stock is down about 30 cents per share from where we bought it and we are going to take our loss and move on. MU was a trade and we don’t want to be in it with this type of news overhanging.

2:25pm and we just heard that the USDA has announced a ban of slaughtering ‘downer’ cattle. It’s a travesty that this ban was not in place before this mad cow brouhaha. We mentioned this in our morning post yesterday. We must say we are glad we home raise our own beef.

3:02pm and the DJIA closed down 25 points at 10425. The S&P 500 closed unchanged at 1009 and the NASDAQ rose 3 points to finish at 2009.

And tomorrow is it.

30 December 2003 - Morning Comment

6:54am and stocks futures are flat as traders rest and wait to see how their compatriots react to yesterday’s big up day. We would guess there won’t be much of a sell off since folks who have taxable accounts don’t wish to realize any more profits in 2003. Tax selling may continue but the folks with the big gains didn’t own many of those stocks

For the year the NASDAQ is now up 50% as it crossed 2000 again yesterday. Only 3000 more points to go for those folks who bought the top in March of 2000.

Asia was mixed overnight but Japan was up 1.7% and Hong Kong gained 0.50%. Europe is also higher.

The set up for the next few days is higher and then we’ll see what Friday brings. We think folks are more afraid of being out of stocks than losing money in stocks. We heard that refrain before and it ended badly but not till stocks had enjoyed a very big run.

Check out the Model Portfolio to see where we are now.

So let the games begin.

29 December 2003 - Evening Comment

7:28am and the WSJ has a story that the Pentagon paid commercial carriers $2.8 billion to ferry troops back and forth between Kuwait and the states during fiscal 2003. There should be the same benefit to carriers this year.

Treasuries are a little weaker this morning. The Department of Homeland Security is ordering armed guards on foreign airliners flying over the U.S.

9:29am and the major measures opened higher and are holding gains although down from their best number. The buyers were present at the opening but now some selling is appearing.

We continue to add stocks we own to accounts where we want to increase or initiate holdings. This is time consuming work and so our posts are less frequent. The reality is that the sold out stocks are getting a little bid as selling dries up and the stocks on their highs are getting bids to hold them up.

9:55am and over the week end we read that the U.S. deficit first reached $1 trillion in 1983 under Reagan. Today the U.S. deficit is $6 trillion on its way to $10 trillion in six years. When it reaches $10 trillion the interest expense will be over $500 billion per year. Even now with historically low rates the interest expenses it over $250 billion per year.

10:03am and JP Morgan has upped its rating on McDonalds to ‘overweight’ from ‘underweight’, no bun intended.

12:48pm and stocks remain higher while bonds are under pressure. We have completed most of our buying program to increase account exposure to over 50% in many accounts. Breadth today is positive and there are bids coming into stocks. We look for a positive close.

3:02pm and the DJIA closed up 122 points at 10446. The S&P 500 gained 13 points to finish at 1109 and the NASDAQ ended at 2006 up 33 points. We were two days off in our prediction. And tonight anyone who is long is a genius. What will tomorrow bring?

And tomorrow is another day.

29 December 2003 - Morning Comment

6:15am and we have several thoughts on the ‘mad cow’ disease brouhaha. If dairy farms were still family farms with 50 to 100 cows, the USDA would have known in hours where the diseased cow came from. But according to the Saturday NYT, the dairy “farm” where the diseased cow resided had purchased 100 cows the month it purchased the cow that was diseased. So the dairy farm probably is milking 2000 or more cows. That’s not really a farm it is a factory and the lives the animals lead is filled with stress and is very short. Thus there is a need to medicate to prevent disease. All in all it is a “non farm” atmosphere.

Our second thought is that we had no idea that cows that are down and paralyzed could be sold for meat for human consumption. That is a travesty and no one is commenting on it. A down cow has something wrong with it or it wouldn’t be down. It may be toxemia or some other birth related occurrence but it should only be sent to the rendering plant not a slaughterhouse.

Sunday’s news on ‘mad cow’ blamed it on the Canadians. Not the French Canadians, the Albertan Canadians. So all is well in la la land and the markets should respond positively to that news.

7:06am and with stock futures higher we look for a continuation of the upward bias through year end. Market should move slowly higher through out the day with a positive close.

We’ll have a short post after the bell.

So let the games begin.

26 December 2003

7:25am and a late start today plus we are going to have only one post since the markets again close at 12 noon. Trading should be slower than Wednesday and with the non-panicky way the markets absorbed the ‘mad cow’ news we would guess that the trend today will still be up.

We added various stocks to accounts on Wednesday increasing the amount of shares owned by many accounts. We have a few more additions to make today and next week to raise the amount invested in accounts to a 50% to 60% level. In for dime, in for a dollar and we are sticking with our bounce in the New Year theme for the depressed low priced stocks we have been buying.

Today we are guessing up slowly till the close at 12pm.

So let the games begin.

24 December 2003 - Morning Comment

7:19am and this will be our only comment today. Mad Cow disease and the accompanying media hype has reached the United States and cattle futures are going to be limit down today. Europe and Asia have banned meat imports from the U.S. All the authorities are saying this is an isolated incident and probably a statistical happenstance.

The Mad Cow news has placed a damper on the stock markets and may inhibit any push higher for today at least.

With stocks like Research in Motion jumping almost 50% yesterday as shorts were crushed and bulls elated, it is not hard to see that momentum players are back in the stock market in a big way. Speculation will carry the markets higher early in the New Year.

And so we wish all a peaceful holiday and we’ll be here bright and early on Friday morning for a dull day of trading.

And tomorrow is Christmas.

23 December 2003 - Evening Comment

7:38am and final GDP for the Third Quarter was announced at 8.2% versus final GDP for the Second Quarter of 3.2%. And so the government statistics tell us the U.S. is experiencing a roaring economy. Fourth Quarter GDP is expected to be 4.2%. Maybe it is just our age, but the numbers don’t seem to suggest reality where reality is large profits and good jobs. That’s what GDP numbers of the size being reported were always meant to represent when we were in school. But that was long and trillions of deficit dollars ago and GDP was a much simpler compilation.

7:40am and consumer spending rose 0.4% and consumer income rose 0.5% in November. The WSJ reports that consumer spending reached it highest pace in the third quarter in seventeen years. Seventeen years ago was 1986 and then came 1987.

7:42am and we are more invested than we have been in a year because we believe the trend is higher into the New Year. We don’t know for how long in 2004 the trend will continue in the bulls’ favor but rather than predict we will probably ride our stocks till we perceive a change in trend occurring. The move in PCS from $4.10 to $5.30 (25%) in two weeks is the expectation we have for most of our recent low priced purchases. At times like these we wished we owned more of PCS and less of a few that haven’t moved but that is the reason we purchase a package rather than concentrating on one or two stocks.

7:48am and this year the Model Portfolio is up 11.4% for the year which is where we have been for most of the year. The S&P 500 with six trading days remaining is up about 25%. Last year the Model was up 7% and the S&P 500 was down 22%.

If one does the math, with $100,000 invested in the S&P 500, last year an investor lost $22,000 and finished the year with $78,000. Assuming the investor didn’t panic and go to cash the S&P account is now up 25% which would give it a value of $97,500 today.

With that same scenario, the Model Portfolio was worth $107,000 at the end of 2002 and is now worth $119,300.

7:57am and overnight Asia closed mixed with Japan higher and Hong Kong lower. Europe is also mixed in early trading. Treasuries are trading lower.

8:17am and we get e-mail:

Hi Bud:

Just curious, are you giving up on AWE...for your info Raymond James likes PCS thinks it could go to $10 for whatever its worth

Our response:

Our thoughts are that by purchasing AWE we became aware of many relatively low priced telecom stocks. This occurred because we bought AWE for a trade and as it moved lower we violated our rules and let it become an investment. We then spent some time analyzing its value versus other Wireless stocks and decide that PCS was the cheapest with AWE second cheapest. In order to extricate ourselves from our mistake of turning a trade into an investment we decided that rather than place all the eggs in one basket we would use a package approach. Since the AWE holding was so large we lowered it and increased Brocade, PCS etc. Today there is talk in the WSJ of Cingular acquiring AWE but we are remain worried about the first quarter numbers coming next month. We have some AWE left in most accounts and may sell on a big pop. On our numbers PCS is much cheaper.

8:52am and the U of M Sentiment number is 92 for December versus 93 for November. Yawn!

Stocks are mildly higher. Awe has jumped 25 cents on a takeover mention on CNBC. We are buying some more PCS and also more XEL.

11:24am and stocks are meandering and we are picking up shares of CBB, and XEL and KMG to add to accounts. We are reviewing individual accounts to make sure we are happy with their exposure to the markets.

1:52pm and we have been busy working on accounts. Entering the final hour we have the reverse of what has been the usual with the DJIA down 32 points and the NASDAQ up 5 points. Volume is light as the holiday has already begun. We are adding stocks to accounts as the light trading creates opportunities.

2:04pm and a reader e-mailed wanting to know whether we were starting a defense fund for Rush. Our reply was that since he has the same lawyer who got the Kennedy/Smith cousins off on the rape charge we weren’t worried about Rush.

3:02pm and the DJIA closed up 3 points at 10340. The S&P 500 gained 3 points to end at 1095 and the NASDAQ gained 15 points to finish at 1970. Treasuries were weak into the close.

And tomorrow is another day.

23 December 2003 - Morning Comment

6:44am and the first piece of new that greets us in not about the War in Iraq, or world Peace or homelessness, or the AIDS Crisis or even Gay Civil Unions. No, we are greeted by the sad fact of poor defenseless Rush Limbaugh who claims he was blackmailed by his housekeeper and who just wants all this brouhaha to go away. He and Martha Stewart may become best buddies along with Ken Lay and Richard Grasso.

It seems that Rush had over 2000 pills in his medicine cabinet, possession of one illegally is a felony, and authorities want to know why. Rush doesn’t know why and blames his housekeeper. He had wanted to go to the FBI but an ‘undisclosed’ friend told him the FBI would target him. Rush also thinks his enemies are out to get him. Since the Repubs control the whole government that plaint rings a bit hollow but poor ole’ Rush feels he is being picked on.

Maybe his friends will start a defense fund for him. Do you think he has any friends in high places to help him? As we remember a Supreme Court Justice performed the services for his third marriage. Ah well we think it will end well with Rush’s housekeeper going to jail for tempting the poor man, and Rush continuing to spew venom and make millions which is the American way these days.

And all this is happening to him on the day before the day before Christmas. Merry Christmas Rush, have a drink on us.

6:53am and now that we have that out of our system we’ll return to the markets. Stocks futures are lower but the trend is still up. We look for a slow day and a higher close.

Visit the Model Portfolio page to see the changes and additions we have made. We are content with our holdings.

So let the games begin.

22 December 2003 - Evening Comment

7:54am and Treasuries have a bid in them as the big boys and girls try to protect profits in whatever area they are invested. The bid also come from the raising of the security alert.

The NYT is reporting that our great ally Pakistan sold nuclear secrets to Iran and North Korea. With friends like that…

Over the weekend the U.S. also reached a deal with Gadhafi in Libya on nuclear and other weapons of mass destruction which only Allah knows whether he has. We are sure the deal involves lifting the embargo on oil. So now the U.S. has made a deal with a Middle East leader who actually was involved in the killing of Americans, while going to war and spend hundreds of billions with a guy who was a Reagan and Daddy Bush ally and used U.S. supplied poison while the U.S. knew he was doing it.

Consistency is the hobgoblin of …

8:25am and Ford is assuming about $1.6 billion in labor costs for Visteon, the parts supplier it spun off a few years ago. By having Ford assume these costs Visteon will be able to lower prices to Ford. Ford is taking a special charge to account for the costs it is assuming. Visteon will sell parts to Ford at a cheaper price thus allowing Ford to report higher earnings. Huh! And this is one way Ford will grow earnings next year. And the stock market loves the news.

As reported by many news organizations, the New York Stock Exchange is seeking $50 to $100 million from Richard Grasso. It seems they really didn’t mean to give him that much money, they just didn’t read the fine print. And these are the folks who make sure all the nations big brokerages are on the up and up.

8:51am and stocks opened lower but have now moved to the plus side. The holiday mood seems to be in charge for now.

10:44am and Treasuries are now lower in price, higher in yield as the terror alert rally has dissipated. Stocks are meandering with individual stories moving individual stocks. Volume is holiday light. We have purchased small amounts of TLAB, ORCL, RSTO and RFMD for our larger accounts. And we are adding a new stock to our larger accounts, ADC Telecom at $2.80 for a year end trade.

12:20pm and Wal-Mart reports weekend sales at the lower end of the plus 3% to 5% sales gain range it has been estimating. That report is affecting retail stocks.

12:58pm and breadth is positive on the NYSE and negative on the NASDAQ. Up and down volume are also positive and negative respectively. Trading is light and Treasuries continue to remain off on the day.

1:39pm and a 6.5 magnitude earthquake just hit California. California has suffered fire, rain, earthquakes and the Gropergovernator all in four months time.

3:02pm and the DJIA gained 58 points to end at 10338. The S&P 500 rose 5 points to finish at 1093 and the NASDAQ gained 5 points to close at 1955.

And tomorrow is another day.

22 December 2003 - Morning Comment

6:55am and stocks look a bit lower this morning to start with, given the raising of the security alarm to Chartreuse from Magenta. We of course have Tubby and Clementine and our newest guard dog Luna the Tuna paroling the perimeter of our defined risk area to protect client records and company computers. We have also cleaned our single shot varmint gun and are at the ready for any untoward incidents.

Since Asia and Europe are both hire we have a feeling that before the day is over U.S. markets will also be higher.

There is not a lot of news to report and we are having a cup of coffee and awaiting the opening. Only seven trading days left in the 2003.

So let the games begin.

19 December 2003 - Evening Comment

7:32am and oil and gold are making new highs as are stocks and Treasuries. That is confusing but we think it is a function of traders in the various entities who have good years in the bag and don’t want to exit positions till the New Year so that they may go out on the highs. For the same reason we doubt a dollar rally till the New Year but a rally then could extend the stock market rally for a month or more. These are just Friday morning musings.

8:47am and stocks are opening mixed. Last night we were thinking about a client that we don’t trade as much as most of our clients and ourselves. Over the last five years her account is up about 40 % with 20% of the gain coming in the last year. This contrasts with trading accounts up 100% or more over the five years with a 12% return the last year. At this point in time we are wondering whether the trading that has kept us whole for the bear market should be surrendered for the longer term approach that worked so well the last year.

We often write about consistency in investing. But there are times when methods need to change in order to take into account a different market scenario. This may be one of those junctures.

For now we haven’t made any decision but our thoughts above are one reason we have been taking positions in larger cap stocks.

10:33am and breadth is negative, up volume exceeds down volume, new highs are moderate at 360 and volume is relatively light given that it is an expiration day. There is a bit of adjusting going on and we are bidding on a utility stock XEL that we took a couple of point loss on last year. Moody’s is considering upgrading its rating and the subsidiary that was in bankruptcy has emerged and XEL gave up its equity interest and assumed a $650 million cash liability to free itself from anymore entanglement. It is again a plain vanilla utility stock. They may have to cut the dividend again to meet the $650 million obligation or do a combination dividend cut/bond offering. But the company is on the road to recovery. The question of the hour is how much of a pop is there in a stock on its high for the year. We are betting there is a 25% upside over the next few months.

10:56am and ABC news.com reported that there is a female suicide bomber in NYC. As a result stocks quickly sold off and are now climbing back a little. Thin markets controlled by programs show this kind of action.

The dollar is hitting new lows against the euro. That is not good.

11:12am and we decided to buy the XEL in our larger and trading accounts only at $16.985.

12:03pm and the markets seem to have stabilized after the terror in NYC attack rumor. Duke Power agreed to pay $2.5 million to settle its part in the California energy overcharge case. We own the stock… but come on….

1:16pm and with the terrorism and many cities report by ABC, stocks have to contend with traders who don’t want to be long over the weekend. It’s funny how these rumors often arise on Friday. Whatever, we are buying more Qwest at $3.80 for accounts. Q is actually buying assets of a bankrupt telecom and we take that as a positive. Q has a ton of debt but the equity seems to have survived and we want to own enough to take a nice profit early next year and still hold some.

As the news gets more positive with Qwest it stays negative with AT&T Wireless and we may take our lumps on the stock in the next few days because we have more near term confidence in the other telecoms we own. We have learned that in these markets to fight the perceived wisdom is usually a searing and unprofitable battle.

One question in our mind is that since everyone expects AWE to have lousy numbers at the end of January whether that news is already in the stock price. The more important consideration is what frame of mind the general markets will be in when AWE announces or pre-announces. Hopefully there will be a pop toward days end today or early next week. Our cost on AWE in most accounts is down to under $8 and we are inclined to take the loss and get on with our lives.

1:59pm and the DJIA and S&P 500 are close to even for the day. The NASDAQ is down 1% as we enter the final hour. We shall see who wins the day.

2:50pm and we kissed our sister by selling half of everyone’s (except in very small accounts) AWE position at $7.35. That reduces our holdings in all account to in line with our other telecom holdings. The sale also pays for our Qwest purchase today.

3:02pm and the day ended in a draw for the bulls and bears, but the bulls won the week and most certainly the year to date. At the close the DJIA was up 16 points at 10278. The S&P 500 gave up 1 point to end at 1088 and the NASDAQ dropped 5 points to end at 1951. Our guess is that the NASDAQ ends the year 2003 at 2004.

And tomorrow is another day.

19 December 2003 - Morning Comment

6:41am and it’s nice to have a rally in which we participate. As we mentioned two days ago the light volume on the NASDAQ may have meant that the sellers were exhausted. We know we were tired of seeing our year end picks head south instead of north. But the sell off gave us a chance to buy stocks cheaper than they already were and for that we are grateful. We just aren’t looking for any more sales.

We used yesterday morning before the rally erupted to add some big cap names. Merck is down from $65 to $44, the same goes for Kerr McGee. All the other big stocks are also nearer their lows than highs for the year except TWX and it is a special case.

The Model Portfolio is now 50% invested and that is our limit. That’s about where we were last year at this time.

We don’t know if the rally will continue today. Asia was stronger with Japan and Hong Kong up over 1%. Europe is mixed to mildly higher and U.S. futures are basically flat. A little strength in the dollar would go a long way to helping the rally blossom.

The DJIA and S&P 500 are well into new high territory and now the NASDAQ is going to have to play catch up as we think it will.

Today should be interesting.

So let the games begin.

18 December 2003 - Evening Comment

7:32am and first time claims for unemployment were 353,000 for the week of 12/13 which is down 22,000 from the last reporting period. That drop is more than the 8000 expected. On that news Treasuries are slightly lower and stock futures are higher.

Oil is making recent highs at $33.75 per barrel, gold is a tad lower at $412 to the ounce and the dollar has inched slightly higher versus the euro.

8:59am and stocks are higher in moderate trading. We want to add some big cap names to our large accounts for year end and beyond and today we are buying Bristol Myers at $27.25, Merck at $44.62, Oracle at $13.50, Schwab at $11.25 and Kraft $31.62 and Kerr McGee at $45 in those accounts. We also repurchased DUK at $19.60 and added Darden Restaurants at $19.70 ahead of tonight’s earnings. If DRI sells off on the earnings we’ll add more and if it doesn’t we will probably purchase for many more accounts.

10:27am and stocks remain higher with breadth good and volume light. The Index of Leading Economic was up 0.3% in November.

11:34am and breadth remains strongly positive. There is a bit of a pullback from their morning bounce but the major measures are higher. Volume is moderate. Stocks will have to survive expirations and then hopefully the year end rally will begin.

With this morning’s purchases the Model Portfolio is about 45% invested and that is about where we planned to be. Small accounts are over 50% in stocks and larger accounts are 25% to 50% invested.

We have to take the kittens for their shots and vet exam and we will return for a closing comment.

3:02pm and the DJIA closed up 102 points at 10248. The S&P 500 gained 12 points to finish at 1089 and the NASDAQ rose 34 points to end at 1956. At the close breadth was good and volume was better.

And tomorrow is another day.

18 December 2003 - Morning Comment

7:15am and the markets just managed to make it to positive territory yesterday. NASDAQ volume was about equal to NYSE volume and a very light 1.4 billion share. We haven’t seen this closeness of volume before. Our guess is that the tax sellers are running out of shares to sell and that the buyers are on vacation.

Overnight Asia and Europe were slightly higher. U.S. futures are also higher.

First time jobless claims are announced in a few minutes and that is what the markets will trade on for at least a few seconds. Quadruple Witching begins with tonight’s close and after tomorrow vacations start till year end.

We continue to look for a few more large cap adds. We are comfortable with our strategy even though it has cost us a few points of performance for the year. That happens every year and goes with the territory.

So let the games begin.

17 December 2003 - Evening Comment

7:08am and Bear Stearns, the big trading house, announce blow out numbers for the quarter. Circuit City missed already reduced forecasts. Fed Ex net per share was 2 cents light but they projected a better 2004. Ford is going to take a large non cash charge in the fourth quarter, the better to show improved earnings next year.

The dollar remains weak and oil is over $32 a barrel.

7:52am and Treasuries are trading at their lowest yields in several weeks. Supposedly low inflation, and higher oil prices have put a bid in bonds. There are also many shorts in the bonds as traders await the eventual tightening if the economy is recovering. There might be a bit of a short squeeze occurring also.

Michael Dell sold 10 million shares of Dell stock recently.

9:51am and trading is holiday light and thin. There is a quadruple expiration on Friday but it seems many folks are through trading for the year. The thin markets will make prices more volatile both higher and lower through year end.

Stocks opened lower and have remained that way for the first hour and one half. We still expect a higher close.

We are waiting for Darden Restaurants earnings which come tomorrow before deciding whether to add that stock. And AT&T remains on our list as does a stock that we made a ton of money with a few years ago, Kerr Mc Gee. We are also looking at Newell.

Big draw down in oil has that price moving higher.

10:35am and upon further review we are going to wait for Newell’s earnings before we buy the stock. The earnings are going to be lousy and they may come right at year end.

We did repurchase Time Warner today at $17.50 which is one dollar more than we sold it for recently. Sometimes stocks zag instead of zigging for us and this is one of those cases. TWX is on its high for the year so we don’t think there will be any tax selling, and because it isn’t really a go-go stock anymore we doubt there will be much profit taking. We want to own it as part of our cable/telecom package.

S&P cut Schering Plough’s corporate credit rating to A from A+. All the companies we own should be so lucky. This rate cut is causing the shares to sell off a bit and we are using the sell off to increase our holdings buy buying stock at $16.84.

11:03am and China’s largest life insurer was listed on the NYSE today in an IPO that raised $3 billion for the company which is aptly named China Life. We wonder if they have to pay on life insurance policies for folks killed by the Communist regime in China for protesting totalitarian rule.

1:01pm and as stocks meander we purchased a bit more Cincinnati Bell in accounts at $4.99. The NASDAQ is down 1% while the major measures are off fractionally. We guess this type of action will continue for a few more days. With the Thursday holidays the next two weeks trading is really going to get thin next Wednesday. Which way stocks go after Christmas will be interesting.

2:08pm and the dollar is at a new low versus the euro and January crude oil futures are over $33. Entering the final hour the major measures are trying to rally to positive territory. Two food stocks, General Mills and Kraft had negative news today and the Orbitz IPO couldn’t hold its offering price. That may mean speculators are more interested in trading CAT and UTX than the new internet stuff. In a perverse way that may be a positive.

3:02pm and the DJIA edged into positive territory to close up 15 points at 10145. The S&P 500 also closed 1 points higher at 1076 while the NASDAQ couldn’t make it to plus territory and closed down 4 points at 1920. Interestingly, volume on the NYSE was almost equal to volume on the NASDAQ.

And tomorrow is another day.

17 December 2003 - Morning Comment

6:27am and yesterdays action was a day late but certainly not a dollar short. The major measures moved nicely higher. Unfortunately, and there usually has been one or two lately, breadth was not that impressive. It was 9/6 positive on the NYSE while 6/9 negative on the NASDAQ. But the DJIA has been in the lead for the last week as the NASDAQ has taken a back seat due to profit taking and tax loss selling. There has been a rotation out of tech to cyclical going on for a few weeks and that trend has just become more pronounced the last few days.

Overnight Asia was lower and Europe is in the red this morning. U.S. futures are mixed. Treasuries are a bit higher in price lower in yield. For the year the DJIA is up 21% and the S&P 500 is up 22% with the NASDAQ up 44%. That means over the last two years these major measures are about unchanged. The Model Portfolio is up 11% this year after being up 7% last year so the average for the last two years is a plus 9%.

With that in mind we think many folks would be happy just to have the stock markets fritter away the next few weeks and finish unchanged from here. It looks to us like the year end rally may be a non show and so we have set our sites on the first few weeks of the New Year to see how big a bounce our tax selling package gets. Till then we’ll be looking to place a bit more money to work in larger cap stocks.

For today we guess an early pullback followed by a modestly higher close.

So let the games begin.

16 December 2003 - Evening Comment

7:08am and we receive e-mails:


What gives? Every stock in the portfolio had a minus sign at today's close. Every stock in the portfolio has a net unrealized loss except PCS which managed to stay above water to the tune of $66.00. The total unrealized loss for the portfolio is approximately $4,500 after a loss today of $1,872. These are small amounts in relation to the total funds ($700,000 plus) in the portfolio but they seem to indicate that results are trending in the wrong direction considering the upward direction of the market lately. When do we start participating in market improvement? AWE continues to perform poorly as it did last year which produced approximately $15,700 in losses. Do not think that can happen this year as the overall position this year is substantially less than last year. Anyway, where are the bright lights in the current portfolio? Are we counting on the "Santa Claus" rally? Or are we counting on the fact that we have not sustained a major loss in the total portfolio which, of course, is a very positive factor from an overall view point?

Wondering (as in uncertainty),


Dear Ed:

With George as our leader we should not fear.

Actually we just read a piece that historically the 8th to the 15th of December is the weakest period of the month of December. Moreover with the negative action yesterday approaching 90% negative, according to a guru we follow who does work with market statistics it is all but certainty that the markets will rise for the next few weeks.

Who knows, all is a bet. Last year we were so far ahead of the markets that no one worried but we dropped 3% or more in December before making it all up plus in January. The sell off yesterday in the out of favor stocks is a yearly occurrence and the odds have always favored recovery in January when the tax selling stopped.

For example RSTO traded at $5.25 yesterday before closing at $4.75. Volume was a piddling 250,000 share. That is a 10% move. After year end we would guess that yesterday's move in RSTO would see the higher rather that lower close. If you apply that to all the tax selling stocks we own, we will have not losses but profits in the New Year.

Happy holidays.

7:35am and housing starts rose 4.5% in November. November CPI was down 0.2% and core CPI was down 0.1%. There is no inflation if you are in the Fed or creating the CPI numbers.

Of course for elderly folks in nursing homes whose bills are rising 10% in January and whose drug prices will rise 10% next year because the Republican Congress and AARP say Medicare can’t use pressure to keep drug prices down there is rampant inflation. Couple that with the abnormally low interest rates which punish old folks’ C/D yields and you have a pretty dismal inflation climate for the senior crowd.

9:26am and the DJIA and S&P 500 opened higher and are holding slight gains. Breadth is negative on both the NYSE and 2/1negative on the NASDAQ. The NASDAQ remains lower.

We are buying RFMD for accounts at $9.75. We don’t quite know how to play this one because it is being removed from the NASDAQ 100 on Friday along with another of our stocks, BRCD. Since that news was announced last Friday RFMD share price is down 20% and 30% below its yearly high. We aren’t sure whether folks are cheating and selling ahead or just profit taking from a good run up this year and whether more selling will come on Friday. With RFMD’s good sales growth this year we are content to buy some now and be ready to buy again on Friday if the stock does a total collapse. Our feeling is that there will be some big funds ready to buy on Friday and whatever happens as soon as this week’s artificial selling pressure is relieved both BRCD and RFMD should rise.

We are repurchasing SGP at $16.90 in our larger accounts and RSTO at $4.70 in accounts where we reduced our holdings in ANDW yesterday. We also added another round of SCMR at $4.35. That is 25% lower than our first small purchase several weeks ago. SCMR has about $3.80 per share in cash in the company. It is a high tech fiber optic play that sold at a zillion dollars a share in the go-go years. Actually the high was $199 per share on March 3, 2000. Really!

11:32am and not much is happening. Traders don’t want to press the issue and hedge funds are continuing to lock up profits according to reports.

We remember back in 1990 there was a point where Don said, “It’s too late to sell, now is the time to start buying.” While we don’t plan to get much more invested, we are adding to the shares we own as the stocks move lower. We made our call earlier last month to buy tax selling candidates and we are basically sticking to it. While none of them are as cheap as some of the stocks we bought at year end last year, we don’t think any of the stocks we are buying are overpriced relative to their peer class. That caveat is why-except for our smallest accounts-we are maintaining a 50% to 70% cash holding.

1:58pm and entering the final hour the NASDAQ has crawled into positive territory and the DJIA is up 95 points. The rotation to cyclical names like CAT and UTX and safe names like KO is what is pumping up the DJIA and the profit taking and tax selling in NASDAQ stocks is what is hurting that measure. This is all part of the year end gyrations that it doesn’t pay to think about since there are so many cross currents. What is necessary is to have a plan and stick with it.

2:18pm and it occurs to us to mention that we re-price and adjust the Model Portfolio for changes every trading day. Just click on the Model Portfolio bar to visit that site.

3:02pm and the DJIA closed up 105 points at 10130. The S&P 500 gained 7 points to finish at 1075 and the NASDAQ tacked on 6 points to finish at 1924.

And tomorrow is another day.

16 December 2003 - Morning Comment

6:47am and yesterday sure was a kick in the teeth. All Sunday night we dreamed of higher stock prices and a Christmas rally. Asia and Europe cooperated and then the U.S. stock markets opened and after the initial pop to new highs it was all downhill. As everyone is saying today, yesterday was a classic sell the news day.

Now we can all get back to awaiting the start of the New Year rally. We do remember years when the rally didn’t start until the New Year and that may be the case this year. But it has been a very long time since there has been no rally. Ana so we plan on continuing to play the odds and add a few more issues and a little more to some of the issues we hold over the next week.

Amgen lowered its forecast for 2003 earnings last night but Oracle while not greeted as an oracle of things to come did not disappoint. Motorola has a new CEO from Sun Micro. Asia and Europe are lower as are U.S. futures and the dollar continues its slide against the euro.

For many of us the New Year can’t arrive quickly enough.

So let the games begin.

15 December 2003 - Evening Comment

7:32am and Treasuries are lower this morning on the Saddam news as the safety premium is reduced. Oil and gold are both lower as would be expected. The gurus are wondering if this is a sell the news rally since there is some question as to whether the resistance in Iraq was actually being led by Saddam. We are just watching.

8:46am and stocks opened higher but are undergoing some sell the news action right now. We ourselves are reducing our holdings in ANDW as we mentioned last week and we are also trading some BRCD in our larger accounts.

If stocks reverse and close lower the markets could be in for a rough week.

9:16am and breadth remains 3/1 positive but there is no liquidity for sellers. Many of the market gurus are predicting Bush the winner of next November’s election and looking forward to the goodies of the next five years under Bush. Guru talk is cheap but they do like the tax cuts for their own pocketbooks.

There is going to be a Bush press conference at 10:15am and so we may get another charge higher at that time.

10:18am and the press conference is on and no action yet.

12:38pm and stocks are weakening. We used some of the ANDW sale money to buy more RFMD at $10.15 in larger accounts. We also repurchased HPQ in many accounts at $22.30 as a first step of buying some bigger cap stocks for year end.

1:58pm and as we approach the final hour the S&P 500 is testing new support at 1075. We have no idea which way stocks will go in the last hour so we are watching like everyone else.

3:02pm and it was quite a day and we would give the win to the bears. At the close the DJIA was up 20 points at 10022. The S&P 500 lost 5 points to end at 1069 and the NASDAQ dropped 30 points to 1920.

And tomorrow is another day.

15 December 2003 - Morning Comment

6:15am and Saddam is captured and the Iraqi people are better off. Hopefully U.S. troops will be coming home sooner. The question is will his capture set off the Christmas/New year’s rally? Asia and Europe were up strongly and U.S. stock futures are over 1% higher.

We made an error on Friday when we said the Michigan Sentiment Number came in at 95. It actually was a disappointing 89.7. But all of that is more meaningless this morning than it was on Friday.

In the FOMC minutes released by the Fed on Friday it was stated that the members did not expect hiring to improve significantly until 2005. We wonder who is gong to buy all the products that the supposedly recovering economy is going to be producing if that is the case. We presume the markets are guessing that folks will keep borrowing to buy.

We are reading figures of a $ 2 trillion increase in the deficit over the next 5 years and that number is the reason we are so tepid in our investing in stocks. We can’t digest the enormity of the future interest payments of 25% of the total budget going to Japan and China and all the other countries who will have to be financers of our debt. Think of it, 25% of our tax dollars we be going overseas to build those countries economies. We guess that is the Republican way of increasing foreign aid.

Government Spending has increased 16% per year in the first three years of the Bush Administration versus 3.5% per year in the last five years of the Clinton presidency.

Whatever, this morning it is higher, then selling then a rally into the close?

So let the games begin

12 December 2003 - Evening Comment

7:32am and PPI was up a negative 0.3%, and negative 0.1% ex food and energy which are the only things that matter in most folks lives the PPI was up 0.2%. So be happy, there is neither inflation nor deflation, or so the gurus say. The Trade Deficit was an astounding $41.7 billion. We sure hope the Chinese and Japanese keep buying U.S. bonds.

9:29am and the markets are meandering. GM announced that it has closed its $19 billion pension gap by earning an 18% return this year in its plan. What the stock market takes away it can also give back and then take away again.

The Michigan sentiment number was 95 up from 92. Stocks are churning at the 10000 level and the conundrum for money managers who have had a good year of not losing the returns they have, and of money managers who are trailing the markets of trying to make it up by year end.

9:51am and we bought a bit of AT&T the long distance company at $19 in a few trading accounts. We would like to buy more if it gets back under $18. For now we own to trade.

12:18pm and it is boring out there today. We sold at $11 the ANDW we bought several days ago at $10.60. Since then it has traded below $10 and we realized we weren’t comfortable with the size of our position in some accounts. We also are uncomfortable with the volatility of the stock and if it moves higher we are looking for even and out.

The major measures keep trying to break out into new high territory but don’t seem to have the oomph to do it today.

2:22pm and with the ANDW money we bought shares of RF Micro Devices at $10.13. RFMD makes integrated circuits for the wireless industry. The shares are up from $5 this year but down from their $12.50 yearly high made last month. The stock is being kicked out the NASDAQ 100 and should be under selling pressure for the next week. They are reporting record sales and we like for it for a year end trade or more. Hopefully we’ll be able to buy more lower next week.

3:02pm and the DJIA closed up 34 points at 10043. The S&P 500 closed up 3 points at 1073 and the NASDAQ gained 7 points to close at 1948.

And tomorrow is another day.

12 December 2003 - Morning Comment

7:02am and it is cold. But now that the new kittens have warm cream and we are assured that the horses' water is not frozen we can address more mundane matters like the world stocks markets.

Overnight Asia was higher and most of Europe is in the plus column this morning. U.S. stock futures are indicating a slight carry through of yesterdays bid up. As benchmarks, 1070-1075 remains resistance on the S&P 500 with 1060 as support. 10000 is the psychological number around which the DJIA will trade.

The NASDAQ 100 is replacing 6 stocks today of which Brocade and Ciena are two that go. So we may see Brocade trade lower as the indexers are forced to sell. The folks who manage this index say it is the least number of stocks they have replaced. It is interesting to us how a managed unmanaged index can be used to measure managed performance. But then the whole proliferation of index products and such have really made stock buying and selling into the casino game it has become.

At 7:30am the PPI, Producer Price Index, and Trade Deficit are announced and then at 8:50am the useless but tradable Michigan Sentiment Survey is released. We are not holding our breath for any of these numbers.

The markets want to go higher and for today we would guess higher then lower with a higher close.

So let the games begin.

11 December 2003 - Evening Comment

8:01am and the market value of our portfolio continues to erode as our year end purchases continue to trade lower. For those of you who haven’t been here with us before, this is a natural occurrence and the result of buying out of favor tax selling candidates. As the saying goes we have to give a little to get a little. It will all work out OK by early next year. We hope.

9:02am and stocks are higher in lethargic trading. Breadth is positive. There just isn’t a lot happening. Maybe the holiday season is beginning early.

11:48am and Mother Merrill upgraded Brocade to neutral from sell and that has pushed the stock higher after Goldman Sachs downgraded yesterday from accumulate to neutral.

Breadth is now 2/1 positive and the NASDAQ is up 25 today which is its best showing in a week. Volume remains moderate.

We are still under the weather and that is the reason for our lethargic posting.

1:27pm and the DJIA just pushed through 10000 again we’ll see if it has staying power in the last hour. Treasuries pushed into positive territory.

3:02pm and the bulls finally closed the DJIA over 10000 and the S&P 500 over 1070. At the close the DJIA was up 84 points at 10005. The S&P 500 gained 12 points to close at 1071 and the NASDAQ rose 37 points to end at 1942.

And tomorrow is another day.

11 December 2003 - Morning Comment

7:15am and according to the gurus today should be an up day after two down days. Japan and Hong Kong were both up over 1% overnight and Europe is mixed. U.S. stock futures are slightly positive.

First time claims for unemployment and retail sales are on tap in 15 minutes. No matter what they are stocks seem set to rally today but it may be a one day wonder. The markets are in an area where they can’t find the catalyst to move higher. The dollar is rallying this morning and a strong dollar rally for any reason could be the catalyst to move stocks up.

We are continuing to pick away at our low priced stocks as they trend lower and will do so through year end.

7:32am and retail sales ex auto were up 0.4%. Initial claims for unemployment were up 13,000 to 378,000. Overall retail sales including autos were up 0.9%.

So let the games begin.

10 December 2003 - Evening Comment

8:43am and after opening slightly higher stocks are headed lower in a continuation of yesterdays failed break out attempt to the upside. It looks like more consolidation will have to occur before any meaningful breakout can occur.

One positive is that in our readings there is pain in the writing as folks who have been ‘right on’ about the markets direction for the past few months have been sideswiped.

We wrote that this period in December would be difficult. We also wrote that it might not be difficult. We’ll take credit for the first prediction and ignore the second. Because we were worried we have concentrated on a low priced package of stocks that have value and the potential to double from our buy points. Unfortunately, these stocks are all testing our resolve and causing pain as they drop everyday on tax selling and profit taking. That is the reason we have kept a large cash hoard to give us some stability and reserve buying power. The milk has been spilt, the horses are out of the barn and now we must deal with the reality of where we and the markets are now.

We don’t think the rally is over yet and we are continuing to add to positions so that when the rally does come we can sell our higher priced stock and maintain a holding in the lower cost shares.

Makes sense to us.

10:10am and light sweet crude oil is over $32 per barrel. Breadth is negative and new highs are under 100 on both the NYSE and NASDAQ. Volume is relatively light and the battle of 1060 on the S&P 500 continues. There isn’t much news to move stocks and so the flow is directed towards individual names.

11:29am and we are betting that the RSTO is moving lower because Janus is selling its 1.5 million share holdings. The Janus funds have had to raise cash for mutual fund redemptions and RSTO is an obvious candidate. All our low priced stocks are under pressure but by month end the pressure will end and then hopefully the pop will occur and recover all of the losses we currently have and then some.

12:58 and stocks continue to meander with no direction. We purchased BRCD in many accounts at $5.55 and also bought CHTR at $4.90 and RSTO at $4.77 in some of our larger accounts.

1:46pm and according to CNBC mortgage applications are down over 60% from the peak in May. The stock markets are bored and quiet and trending lower as we approach the final hour. We are under the weather and so our posts have been muted but there really is not a lot to write about. Stocks that disappoint are hit hard and stocks that have good news go nowhere. This is probably the calm before the storm but it may go on for a few weeks.

We are using the erosion in prices to add more shares to existing holdings as we said we would do. It is difficult to continue to add shares as prices drop, but this is the one time of year when such a strategy usually pays off within a month or two.

2:25pm and Robert Fisher is retiring as Chairman of the Board of The Gap. CNBC is running a five minute segment singing his praises. The people commenting probably don’t know that Mickey Drexler is the one who made the GAP what it is today. Drexler’s name wasn’t even mentioned in the piece. Sic transit Gloria.

We bought Cincinnati Bell at $5.26 in many accounts.

3:02pm and the DJIA closed down 3 points on the day at 9920. The S&P 500 dropped 2 points to at 1058 and the NASDAQ closed down 5 points at 1904.

And tomorrow is another day.

10 December 2003 - Morning Comment

7:39am and we are getting a late start because of the snow and a gosh awful head cold. The machinations of the stock markets over the last few weeks are also enough to make either bull or bear sick.

Yesterdays outside day on the DJIA (new high in morning and closing lower) mirrored the same occurrence with the S&P 500 last week. The NASDAQ never did retouch the 2000 mark in yesterday’s strong opening.

Thus we would surmise that there is consolidation ahead. This bear market or new bull market rally hasn’t yet had a serious 5% or better correction and so maybe these next few weeks will be a time of testing.

For now we are adding to our low priced stocks as they get lower priced and have no inclination to buy the big caps yet.

Japan was down 2% overnight while Hong Kong was fractionally higher. Europe is lower across the board and Treasuries have regained yesterday’s losses.

This morning lower to begin with and then a higher close?

So let the games begin.

9 December 2003 - Evening Comment

6:15am and the S&P 500 and DJIA are poised to break out to new highs this morning with any kind of good news. Gaming the stock markets this year has been a difficult task and we feel no more prescient now than we did 9 months ago.

Overnight Texas Instrument boosted guidance. Last week Intel gave the same kind of guidance and the markets moved lower.

One of the reasons we have been concentrating on cable and wireless telecom companies and their suppliers is that we and others surmise that with the easy going attitude of the FCC towards business that this area is going to experience consolidation. Next year Sprint is rumored to be going to reintegrate Sprint PCS into the main company. We are guessing that at least a price of $9 in FON stock will be necessary to accomplish this goal. AWE is the third largest wireless carrier and if it slips up someone will be there to buy. By the way we don’t think AWE is going to slip. Charter and Time Warner are cable companies and the move to telephony over cable is in its infancy. While many of the stocks we own are up from their lows they still percentage wise are a great deal below where they will be priced when the telecom revolution again surfaces on institutional investors investment screens after year end.

6:33am and the stuff about trading mutual funds is interesting but a none starter. There was nothing illegal about doing it and there are larger fish to fry. For one, the lack of excess insurance over the $500,000 SIPC maximum is going to be a very big problem. In reference to our morning post we realized that the insurance companies dropping coverage is a ploy to get the Federal Government to offer some guarantees and maximum loss ratios. Such pleas to the Republican Congress would be in keeping with the welfare for the rich mantra of Republican policy.

6:42am and General Motors has become the darling of the buy cyclical now crowd. An analyst raised his estimate on GM last week and set off the buying frenzy. But a part of the increased earnings the analyst expects are to come from gains in the pension plan that will negate the need for GM to make contributions. What the market takes away and then gives back it can also take away again.

1074 is the high from December 3 that the S&P has to break through today.

11:59am and out of the gate the DJIA scooted through 10000 and the S&P 500 visited 1075. Then traders thought better of the move and decided to hear what the Chairman has to say at 1:15pm and stocks backed off. Volume is light.

Washington Mutual missed its numbers because of a decrease in mortgage refinancing, guided lower for next year and is looking to save $1 billion in costs by initially firing 4500 folks since August. That is not the stuff of booming or even improving economic times.

Newell Rubbermaid has guided lower and is off $2 per share at $20.50. Washington Mutual is down $4.

SBC is going to lay off 4000 people to cut costs.

1:17pm and the Fed is not going to do anything. Stock reaction is muted and Treasuries are rallying. The Fed thinks that the risk of deflation or inflation is about equal.

1:25pm and now Treasuries are lower and stocks are heading lower also.

2:02pm and entering the final hour both Treasuries and stocks are lower. The bulls seem to be losing today’s battle but there is an hour to go.

3:02pm and Treasuries went out on their lows for the day as did stocks. The S&P 500 closed at the 1060 support level off 9 points. The NASDAQ closed at 1908 down 40 points which was below its 50 day moving average. The DJIA touched a new high at 10000 this morning and closed lower on the day at 9923 down 42 points, mirroring the action of the S&P 500 last week.

During the sell off we added more Q at $3.55 to accounts and we sold our last trading position in TWX at $16.45 for a 30 cents per share loss.

And tomorrow is another day.

9 December 2003 - Morning Comment

5:31am and we have to leave this morning for a while so we are posting an early comment. Yesterday's market action was manna for the bulls and the major measures are at or near their yearly highs. The Model portfolio has been treading water because of the large cash holdings and because we are buying tax selling candidates that aren't going to rebound until the selling abates. We continue to have the utmost confidence in our approach.

Overnight Asia was higher with Japan up a bit less than 1% and Hong Kong up 1.75%. Europe is trading fractionally higher and the dollar is rallying against most currencies except the yen.

The Fed has its last meeting of the year today and is expected to do nothing. Traders will be interested to learn how the Fed views the economic recovery for a clue as to when interest rates are going to begin moving higher if the markets don't move them first.

5:40am and we found the following commentary on estate taxes to be interesting.

In 1999, 50,000 taxable estates (2% of all deaths) accounted for the $23.6B collected from federal estate taxes. That is an average of $472,000 taxable estate. Of the 50,000 taxable estates, 3,200 paid 67%, or $15.7B. That averages out to $4,917,000 per estate. These were some big hitters. Of the remaining 46,800, $7.9B was collected, representing $168,000 per estate. Since this includes small businesses, farms and just plain folk, the average of $168,000 would not have bankrupted anyone. In 1999, the exemption was $600,000 per estate. The estates that paid $168,000 were worth about $1,000,000 each, so that the effective tax rate was about 17%.

5:50am and on our daily walk yesterday we got to thinking about the fact that the Medicare Reform Bill that was pushed through the Congress by Republicans gives the lie to their oft repeated mantra of letting free enterprise work its magic. That’s because the Medicare Reform Bill contains billions of dollars of support payments to hospitals and HMOs and guarantees that Medicare will not place pressure on drug companies to lower prices. Supposedly these corporate welfare payments are needed so that the private health industry can compete on an equal footing with the Government.

The same warped reasoning is being applied to fill the pockets of the oil industry in the stalled Energy Bill.

Since the Republicans have control for at least another year we presume the pipeline will continue to be filled with government financed goodies for industry. Those actions may keep the rally going.

But even rallies need rests and the preponderance of bulls in the surveys suggests that at some point in the next few months there is going to be a wicked correction. Since current wisdom suggests that Bush can handily beat Democrat front runner Dean, the markets are in a “full speed ahead” mode.

We just can’t pull the trigger and get fully invested. We have had an excellent five year run and feel that the risk/reward ratio at this point is being stretched thin in the choice between cash and stocks. We will continue to adjust and add to our lower priced stocks in the hopes of a year end bounce or more. We presume that if the markets continue to move higher that our volatile package will give us twice or more the return of the overall stocks market and that is why we can maintain a larger cash position and yet still think we will participate eventually in any run higher.

So let the games begin.

8 December 2003 - Evening Comment

7:32am and there is more talk on CNBC about which is the real jobs number. The Dept. of Labor Statistics number reported Friday of an increase of 57,000 jobs was well below estimates of 150,000 and hopes for a 250,000 number. Our cynical guess is that those numbers are being saved for next year.

The Friday number is the Bureau of Labor Statistics count of reporting companies. Those raw numbers are then tweaked and cuddled and coddled to arrive at the number that is released on a monthly basis of overall job growth in the economy.

There is another survey that is called the Household survey that is not tweaked and that survey has shown consistent albeit small job growth all through the last two years. This survey is not adjusted and includes folks who say they are self employed.

There probably is a greater accuracy in the Household survey of the number of folks with jobs but that begs the question of whether the jobs are providing a living wage. Many certainly aren’t. The California grocery workers are going to lose on the health care issue even though they gave up wage increases in the past for those benefits. The “Walmart does it so we have to also” is tolling the death knell for paid for health care for middle class Americans.

7:54am and Japan was down over 3% overnight and Hong Kong was off 1%. Europe is lower with the German DAX down over 1.5%.

8:05am and there is a Drug Bill but a shortage of flu vaccine. So much for priorities.

In a related note the WSJ reported today that average employee health costs rose less than 10% for employers, mainly because of the shifting of more of those costs to employees. So because in an ideal world the money spent on health care by a company would be passed on to employees (sharing of profit), the headline could also read that health care costs rose over 20% last years for employees of companies with health care plans.

8:39am and stocks are trading a bit higher. Treasuries are a bit weaker, the dollar remains under selling pressure and oil is over $30 per barrel. We are buying more PCS in accounts at the $4.70 level and also we are bidding on RSTO under $5.25.

There is an FOMC meeting tomorrow.

10:38pm and stocks continue to drift with the major measures in higher territory. The low priced stocks we own continue under selling pressure and we are buying more as they drop. This is the hard part. But this method has worked for us for many years and we will stick to it. The stocks we are buying are good long term speculations as well as New Year’s pop candidates and so we are comfortable with our approach.

Selling our larger cap trading stocks last week gives us room to buy the lower priced stocks with better percentage gain potential.

Oil is now over $31 per barrel.

11:59am and CNBC had a lead story this morning that was negative on the telecom industry. It is true that telecom is going through a transition but we think the negative attitude on the street gives us a buying opportunity. We have avoided the Regional Bell Operating Companies like SBC and Verizon and BellSouth and concentrated on two wireless carriers AWE and PCS, and a supplier to the wireless industry Andrew Corp.

We do own Qwest and will be buying more but we own as part of the low pried stock package.

12:18pm and we sold MSFT for a scratch and DUK for a 40 cents per share profit and SGP for a $1.50 per share profit. We wanted to get out of the big Caps for now to have money for adding shares to the low priced package without raising our overall stock market exposure. We are increasing the volatility of portfolios by buying these low priced stocks but that goes with the territory.

1:15pm and the DJIA remains in positive territory up 54 points while the NASDAQ is off 5 points.

We bought PCS for many accounts at $4.62 and we also added to our Brocade at $5.65 and RSTO holdings at $5.22 and a bit of ANDW at $10.70.

1:30pm and CNBC just had a story that the major insurance companies providing excess SIPC coverage for brokerage accounts are not going to provide it after the beginning of 2004. That is not good for the markets or for clients.

3:02pm and the bulls staged a rally in the last hour to close the DJIA at 9965 up 102 points. The S&P 500 gained 8 points to end at 1069 and the NASDAQ rose 11 to 1948.

And tomorrow is another day.

8 December 2003 - Morning Comment

7:08am and we are back at the farm and ready to get on with the end of 2003. We were not able to make a Friday post due to a computer collapse. With the major measures moving lower to close on support last week today becomes a pivotal day.

Our thought is that there is a bit more downside or at least sideways action and that the year end rally may be delayed until next year. We have been doing a lot of trading lately without making any progress and that is a function of the markets not making progress either. Since we are playing the long side of the markets in out of favor stocks we don’t expect any real improvement till after the New Year. We are hoping that the selling abates by the last week of December so we can have more positive results for the year. But if we don’t get the move then we do think the move will come in January for our stocks.

Bush is doing better in the polls and the media is playing the Drug Benefits Bill as a huge win for Bush which it well may be. The tax cuts seem to be working their magic and since no one is inclined to worry about who pays in the future the economic numbers are being warmly while the negative ones such as Friday’s jobs reports are being explained away as statistical aberrations or as the result of one time events like the grocery store workers stringing in California.

With the rose colored glasses firmly in place we would expect a positive month eventually and are positioning ourselves accordingly. The selling we did last Wednesday was tweaking of trading and investment holdings to get them more in line with our stand.

For today our expectations are minimal, with a slightly higher close in the cards at days end.

So let the games begin.

5 December 2003 - Traveling Comment

Due to technical issues, no comments until December 8th.

4 December 2003 - Traveling Comment

9:39am and yesterday the major measures went to new highs and reversed to close lower. That would suggest that the correction we were looking for in December should begin. The bulls gave it their best push but the markets seem to be saying that it is time for a rest. Coupled with tax selling and portfolio re-positioning and profit taking by non tax paying entities yesterday’s action is a negative for the short term.

In the morning we sold our GPS holding because we decided the Tuesday night that we didn’t want to hold it into Thursday’s sales numbers. We lost 30 cents per share on the trade. Today’s same store sales number was good but the stock only gained 10 cents per share. That is another indication of a tired market for retail stocks.

9:53am and www.minyanville.com has an interesting article on inflation. It mentions that a major part of the inflation number reported by the government is housing costs. But rather than pricing in the rise in the cost of housing the government uses rents to figure what housing costs are doing. Minyanville points out that rental costs are under pressure because low interest rates make buying cheaper than renting. The part of the CPI attributed to housing has only risen 2% this year. Thus the government is telling us that housing prices haven’t risen. You be the judge.

By the way initial jobless claims were 365,000 up from a revised upward (by 3000) 354,000 last week.

OPEC agreed to keep oil production steady at 24.5 million barrels per day.

1060 is the line in the sand on the downside for the S&P 500 for today.

11:55am and speaking of housing, when we were driving to Chicago yesterday we heard a mortgage ad. The mortgage company said it could write a 100% mortgage and get the applicant a grant for the down payment. They could do this even for folks who had been through bankruptcy as long as they had been out of bankruptcy for more than a year. No interest rate was mentioned.

12:02pm and the major measures remain up while volume is moderate and breadth is negative.

12:48pm and the WSJ had another negative article on AT&T Wireless today. These articles remind us of the WSJ attacks on IBM in the early 1990s that were completely off base. Be that as it may, the negative publicity is affecting the stock price. Moreover we would like to own more Sprint PCS Wireless if it gets back under $4 without increasing our wireless exposure. And we also expect a correction. For these reasons we are going to sell half our AWE position in all accounts. That still leaves us with a good exposure to the stock but places the share holdings more in line with our other low priced stocks package.

1:45pm and since the S&P 500 failed and closed lower after reaching a new high on the rally yesterday we are taking a few trades off the table. We sold HPQ for a scratch profit and SCH for a 30cents per share loss. These up and down markets are difficult but the winnowing process and trading in and out will lead to positive returns by year end and into the next. We are using the “elbows in the strawberries” approach since it seems to be the method that has always worked best for us.

“Elbows in the strawberries” refers to our younger daughter’s habit of placing her elbows in her food when she was young to see whether the food was worth eating. So to with us, we usually have to buy the stock to see whether we want to own it and buy more if the stock moves lower.

We are holding the MSFT and DUK because they are acting well in a lousy market and we are keeping the TWX and SGP because we will buy stock lower.

2:40pm and the S&P 500 held the 1060 level so the failure of the breakout is not yet fact. With tomorrows employment report we’ll see how the markets react.

3:02pm and buy programs rallied the DJIA into the close but the S&P 500 remained stationary. The DJIA closed up 56 points at 9930. The S&P 500 gained 1 point to finish at 107 and the NASDAQ was up 10 points to end at 1970.

And tomorrow is another day. We’ll have a post since it may be a pivotal day for determining market action for the next week.

2 December 2003 - Evening Comment

For the next five days we will be in Chicago with clients. There will be a post Thursday evening.

8:01am and the NYT has a story today about manufacturing activity being at its highest level in 20 years. Say what? This statement is occasioned by the ISM Index of yesterday rising to 62. Economic activity is picking up.

The one problem that the NYT mentions is that much of the activity is from borrowed money both on the part of the Treasury running a $500 billion deficit and companies borrowing money. Also what used to be called our balance of payments deficit is at record levels.

Manufacturing is benefiting from overseas operations which is good for the world and may show up on the bottom line of manufacturers. But if those profits stay overseas for capital investment we don’t see how that will help the U.S. economy unless the whole country is to obtain their wealth from trading stocks.

8:28am and things are so good that Pepsi is going to cut 750 jobs in the next quarter.

9:41am and stocks are lower in moderate trading. The action seems to be more profit taking or tax loss selling than a desire not to own stocks. We bought Duke Power at $18 and Schwab at $11.65 for many accounts. These are two more of the larger cap stocks we have wanted to add for year end.

We still would like to take a position in MRK but we are hoping for a sell off later this week to accomplish those goals.

11:17am and for our most aggressive accounts including the Model Portfolio we are taking positions in GPS at $21.60, HPQ at $22.40 and TWX at $16.70, the other three big cap stocks we want to own, with the hopes of buying more around at lower prices for the rest of our accounts if there is a correction next week. We are paying up for these stocks from the prices at which we sold them earlier and that is the reason we are holding off for many accounts. The momentum seems to be with them but if the markets fail to continue to rally we expect these stocks to come back in a bit.

12:05pm and breadth is negative on the NYSE and positive on the NASDAQ. Trading is moderate.

1:04pm and sell programs just hit the stock markets moving the DJIA down 40 points in a few minutes.

GM November sales were up 22% and Ford adjusted sales rose 0.5%.

1:51pm and entering the final hour Treasuries are closing higher in price and lower in yield. Stocks are near their lows for the day. January crude oil futures are now over $30.

The Federal Trade Commission said on Thursday that television advertising of drugs does not increase the cost or inappropriate prescribing of drugs.

3:02pm and the bulls couldn’t bring ‘em back again today. The DJIA closed down 46 points at 9852. The S&P 500 lost 5 points to finish at 1066 and the NASDAQ dropped 10 points to end at 1980.

And tomorrow is another day.

2 December 2003 - Morning Comment

7:46am and there has been some profit taking in Japan and Hong Kong after their strong days yesterday. Europe is also weaker and U.S. stock futures are lower. We would expect a stable day with early down and then recovery and a lethargic up close.

Stocks can’t go up 1% every day and there are still cross currents from tax selling and repositioning affecting many individual stocks.

We are going to be traveling to Chicago for the rest of the week to visit clients and so there will be no posts after today until next Monday.

So let the games begin.

1 December 2003 - Evening Comment

7:24am and CNBC is reporting that Wal Mart had Friday sales of $1.5 billion. The NYT reports modestly higher retail sales, while the WSJ reports retail sales up 4.8% and that retailers are optimistic of a good Christmas selling season.

7:32am and Phil Condit is out as CEO of Boeing. We aren’t surprised because the story last week that only the CFO and not the CEO knew of the hanky panky with hiring the defense department person involved in the $20 billion tanker contract that was to carry Boeing through the slump in retail airliner sales didn’t pass the smell test. Harry Stonecipher has been named the new President and CEO.

7:54am and the WSJ reports that Roy Disney has resigned from the Walt Disney Company Board in protest over the way Michael Eisner is running the company. Welcome to the crowd Roy, you’re about ten years late.

8:14am and the ten-year Treasury is back to the last auction level of 4.37% and the thirty-year is approaching 5.15%. Oil is lower this morning in advance of the OPEC meeting this week but Treasuries are weaker on the back of strong retail sales and the strong stock markets and weak dollar.

9:33am and Treasuries are under a lot of pressure as stocks move higher. Construction spending was up 0.9% versus an expected 0.7% and the ISM number came in at 62 versus an expected 58. That is the Institute of Supply Management Manufacturing Index and measures something that is being taken as positive.

10:59am and stocks remain higher with the S&P 500 at 1068. This afternoon will be a good tell on how the week may go. We expect a pullback from the bullish move this morning and a test this afternoon into the final hour.

We are picking up some RSTO and ANDW for accounts. We are also eyeing MSFT for repurchase and an end of year bounce. MSFT is down 20% on the year. One reason it remains under pressure is that it is a good source of cash for mutual funds that need to raise money for redemptions since almost all growth funds own the stock.

12:27pm and breadth remains 2/1 positive, even with the slight pullback in the major stock measures. We sold SGP fro a $1.25 two day profit in some of our larger and more aggressive accounts. The CEO’s purchase coupled with the rotation again into drug stocks has pumped some life into SGP. We are being cute trying to trade the holding but we left stock in our less aggressive accounts and in the Model Portfolio.

The momentum guys and gals are in control of this market and our low priced stocks are under selling pressure today as we enter the final month of the year. We will be picking up shares on the downdraft.

1:14pm and as the first of our year end large cap buys we purchased MSFT at $25.90 for many accounts.

1:20pm and a series of sell programs just hit the markets as the S&P 500 dropped down through 1063. The boys and girls are playing hardball today.

2:01pm and entering the final hour the bulls are making their stand with the DJIA up 98 points and the S&P 500 up 9 points at 1067. Oil is below $30 per barrel as OPEC oil ministers suggest that there will be no supply cuts at Thursday’s OPEC meeting.

2:39pm and the major measures continue to move higher and the S&P 500 is through upside resistance at 1069. The DJIA is at resistance at 9897. The NASDAQ is at 1967. We have to leave early but it looks like stocks will go our on their highs.

And tomorrow is another day.

1 December 2003 - Morning Comment

Rabbit! Rabbit!

6:59am and stocks will try to break out this week to new highs. The S&P break out level is 1062 and on the DJIA is 9900.

Overseas Japan was up 3% while Hong Kong was up over 1% and Europe is also strongly higher.

There is talk that the Bushies will eliminate the steel tariffs which will make free traders happy and may be the step needed to allow stocks to break out to the upside. The 1060 level on the S&P 500 has been approached three times in recent months and failed. Time will tell

We are continuing to look for low priced stocks to add to our package and will wait a few more weeks to add higher priced stocks for the year end bounce if we do at all.

We will have a post tonight after the close.

So let the games begin.

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