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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 For Quarter Ending December 31, 2003

29 February 2004 Leap Year Political Comment

6:45am and with the word: “This long-simmering crisis is largely of Mr. Aristide's making”, White House press secretary Scott McClellan said in Saturday's statement. “His failure to adhere to democratic principles has contributed to the deep polarization and violent unrest that we are witnessing in Haiti today.” Otto Reich wins. And if you don’t know who Otto Reich is, google him or go to http://www.dissidentvoice.org and be amazed that a terrorist is making U.S. policy and plotting the overthrow Western Hemisphere democracies.

McClellan said Aristide's actions "have called into question his fitness to continue to govern.”

The irony of the U.S. actions in regard to a democratically elected President in Haiti is lost on the entire Republican establishment in Washington. Arsitide was elected, which is more than #43 can say.

6:48am and the Congressional Budget Office projects that the presently proffered Bush Budget for Fiscal Year 2005 will result in a $2.75 trillion deficit over the next ten years without including the costs of Iraq or any permanent adoption of the expiring tax gimmicks used in the 2002, 2003, or 2004 budgets.

6:50am and it looks like House Speaker Dennis Hastert bowed to the pressure placed on him by our column last week along with a change of heart by the White House after reading the teas leaves and is going to allow the 9/11 Commission to go on investigating for 60 more days but not one day longer. And President Bush has agreed to have a conversation –as opposed to testify- with the co-chairmen (it is two men) for an hour and not one minute longer. Bush has a busy schedule and will need to get to the exercise room before lunch on the day of the meeting.

6:53am and the John Asscroft censorship scheme has reached all corners of America. According to an article in the NYT on Saturday at: http://www.nytimes.com The Treasury Department has warned publishers that editing any manuscripts or adding any illustration to writings from Iran or other disfavored nations may cause the publishers to face legal action for trading with the enemy.

7:02am and as reported by UPI http://washingtontimes.com there were more mass layoffs in January 2004 than in any January in the last nine years. There were 2,428 layoffs affection 239,454 workers.

Happy Leap Year day. If gay folks get married today they'll only have an anniversary every four years. Will that satisfy the rabid right?

Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.

27 February 2004 - Evening Comment

7:35am and Preliminary GDP for the fourth Quarter was announced as 4.1% while the markets were expecting 3.8%. The initial indication on fourth quarter GDP had been 4%. The boys and girls have to pump that number up because it is easier to fudge with hedonics than the jobs number. The other numbers for trading today are the Michigan Sentiment Index which will be released at 8:45am and the Chicago Purchasing Managers Index at 9am. The markets expect 94 for the MSI and 63 for the Chicago PMI.

9:01am and we learn-not from the NRA- that Jim Miner the new Chairman of Smith & Wesson, the folks who make guns, has offered to resign after it was learned that he spent time in prison for a series of armed robberies he committed in the 1950s & 60s.

We went to war with Iraq to install democracy. 700 short miles from the United States the duly elected President of Haiti is about to be deposed and probably killed. Bush is taking enough time thinking about what to do that he will be on time to recognize the folks who overthrow Aristitde. Venezuela is next. We guess democracy is only for the Arabs in the Middle East; in the Americas Republicans have always preferred juntas.

9:57am and the Chicago PMI bettered expectations at 63.6 and the Michigan Sentiment Reading was also better at 94.4. So the bulls have the numbers they need to close the markets higher today.

The DJIA is up 50 points, the NAZZ is up 8 points at breadth is positive. Volume remains suspect.

10:54am and we were doing some comparisons for a client when we noticed that since 3/1/02 to 3/1/04 the S&P 500 is basically unchanged. In that same time period the Model Portfolio is up about 25%.

1:44pm and volume is summer light. Maybe everyone has deiced to go to spring training with the baseball teams. The major measures are slightly positive but there is no real conviction being exhibited. We are watching the paint dry.

2:58pm and near the close the DJIA was up 5 points at 10585. The S&P 500 gained 1 point to finish at 1145 and the NAZZ dropped 5 points to end at 2030.

And tomorrow is another day.

27 February 2004 - Morning Comment

7:06am and Asia was higher overnight with Europe also slightly higher. U.S. futures indicate a higher opening and given that it is the last day of the month we also expect a higher close.

As is obvious from the Model Portfolio we are playing tech and telecom for the resumption of the rally. And if the rally resumes we think small traders will go after the low priced stocks as the markets lead up to a climax pop toward the end of the quarter. That is our scenario but as always we react to events not to our predictions.

Our main reason for buying this past week was because the NAZZ has been down five weeks in a row and we were expecting a bounce. And any good news could turn the bounce into a real rally and lead the DJIA higher also.

Time will tell.

So let the games begin.

26 February 2004 - Evening Comment

7:30am and Durable Goods orders were down 1.8 % in January after an upward revision to December. Initial claims for unemployment were 355,000. The dollar is doing better today on the back of better action yesterday.

CNBC has a fellow from the Cato Institute saying that he has an IRA and 401K so he isn’t worried about Social Security. Funny thing is that the Cato Institute receives its funding because it is a tax exempt organization and so the fellow is paid with tax advantaged dollars...

8:42am and the rally we foresaw today isn’t in the early going. Breadth is 2/1 negative and the major measures are down about 0.5%.

9:15am and tech stocks are beginning to bounce from their morning drop. We are buying back CCMP at the $43.20 level and we also are picking up a bit more LYNX under $6 per share.

One more analyst went from neutral to reduce on CHTR today and so there are only a few left at neutral and none at buy. That sort of clears the decks so that the next news out of the analyst community may be positive on CHTR.

11:16am and the Labor Department still is not able to produce a Producer Price Index (PPI) number for January that was due last week. When companies delay earning’s announcements it is usually because their books aren’t in order.

Volume is light today with the NAZZ to the plus side and the DJIA off about 30 points. It is a positive to see the NAZZ leading but there isn’t much conviction in the buying as witnessed by the light volume and the NAZZ dead cat bounce we wrote about yesterday may be occurring.

11:33am and today the Washington Post is reporting on Page A4 that Speaker of the House Dennis Hastert, the portly wrestling coach from Illinois, has informed President Bush that even though President Bush supposedly wants to extend the expiration date for the 9/11 Commission to give its report to Congress, that he, Dennis Hastert has decided that such an extension is not possible.

11:47am and we sold the CCMP we bought this morning for a $1.25 gain. We are only trading this stock in a few of our most aggressive accounts because it is hard to trade in size and is quite volatile.

We purchased another chunk of LVLT at $4.42 for many accounts. And we are adding shares of LYNX to a few accounts today at $5.95. We also established a trading position in FITB $56.33 in the same accounts where we have been trading CCMP. We may buy more FITB in more accounts if it visits the $55 per share region.

TLAB is presenting at the Morgan Stanley tech conference on March 2, 2004 .

1:47pm and approaching the last hour of trading the NAZZ remains in the plus column while the DJIA hasn’t been able to climb out of negative territory today. Breadth is positive but volume is anemic.

3:02pm and the DJIA closed down 215 points at 10580. The S&P 500 was up 2 points at 1144 and the NAZZ gained 10 points to end at 2033.

And tomorrow is another day.

26 February 2004 - Morning Comment

6:46am and over night we were again thinking of Greenspan’s testimony of the last two days before Congress. In the early 1990s and again in the early 2000s Greenspan rescued the banks and the markets from his mismanagement by lowering interest rates to levels that starve folks who were savers and prepared for their retirements by holding their savings in C/Ds and Treasuries.

Now the man says that folks shouldn’t buy fixed mortgages when they are the lowest in 50 years and the U.S. is faced with rising interest rates caused by $500 billion deficits as far as the eye can see. And he wants to destroy Social Security to keep the reductions in the top income tax rate.

The cost to switch Social Security to the savings plan he and the Bushies envision would be $1 trillion plus and no mention is made of where the dollars for that switch will come.

His theory is that young folks can save for their retirement while paying off college loans, credit cards, mortgage debt and college educations for their kids all the while feeding their families and buying $30,000 SUVs to keep the economy growing.

Currently retired folks did save and scrimp for their retirements because they were children of the Depression and were blindsided when Greenspan decided to rescue the banks and brokerages from their folly by creating artificially low interest rates.

Now older folks are being told to buy stocks to hope for a living return. The risk that older folks are being asked to assume would be considered criminal except that it is the Fed Chairman who is suggesting they assume the risk.

And the Bushies are telling folks that it is a crime to seek lower drug prices and that no the Federal Government won’t negotiate with drug companies to ask them to lower their prices. These are the same drug companies that produce many of their drugs in tax havens so that they don’t have to pay U.S. income taxes on the profits they make.

And when the young folks who do save reach retirement age and convert their funds to Treasuries and C/Ds who’s to say that a future Fed Chairman then won’t pull the same three year trick of abnormally low interest rates.

Greenspan says don’t raise taxes. Taxes created the airline industry and keep it running. Taxes created the interstate highway system; taxes pay for government in Washington including Greenspan’s salary. Tax breaks allowed him to make the money he did before he became Chairman when he was a consultant by allowing companies to deduct the fees they paid to him. Taxes feed the hungry, heal the sick, clothe the poor, bury the dead, educate the next generation and protect America .

Greenspan is wrong on interest rates and Social Security, the Bushies are wrong on tax cuts. But they run the show right now and so…

7:02am and having finished our rant we look for the markets to be up today on the back of yesterday’s tepid attempt at a rally. We are encouraged that the turn was difficult and think the markets will build on the turn today.

So let the games begin.

25 February 2004 - Evening Comment

8:53am and stocks have opened higher but there is no sustained buying. Fed Governors are reassuring the markets and that is adding a positive tone to trading. We are on the sidelines. Existing home sales come at 9am and we’ll see how stocks react.

9:31am and existing home sales were at a 6.03 million annual rate versus and expected 6.21 million. Greenspan is continuing his testimony before Congress.

We sold the CCMP we bought yesterday for a $2 per share profit. It is a volatile stock and we may continue to trade it around these levels.

10:44am and as Greenspan testifies that Social Security payments should be adjusted rather than taxes raised, Bush is on TV saying lets not change it for near-retirees who are going to vote against him if they do.

Social Security benefits spending is money that is always spent except by rich folks who pay taxes on it. This spending and taxes provide a continuing stimulus to the economy that any Fed Chairman could want who is trying to get the economy going. To cut the top rate of the income tax and then suggest funding the deficit that tax cutting created by reducing money paid to retirees is balderdash.

And it’s baloney to think that the younger generation is going to be able to save money for their retirement. Many of them are paying off college debts and will be doing so till they buy their homes at which time all their money will go towards house payments until their kids are in college. The Republican leadership lives in a dream world of oil men and lobbyists. The Social Security solvency debate is a scam created by financial firms who want to rip off several generations.

Back in the late 1990s when the economy was humming along with a higher tax rate and a budget surplus very few folks complained about taxes or worried about Social Security. The initial tax cuts were propounded because Greenspan and Bush were worried about too big a surplus. Well, they solved that problem. Then Greenspan and Bush wanted tax cuts to get the economy going. Now they say we need tax cuts to get rid of the deficit. These guys are consistent in wanting tax cuts, only their reasons for justifying the tax cuts changes as their schemes go the way of WMD.

10:51am and as Bush and Greenspan continue talking the markets are giving back gains and stocks look like they are going to test the downside before long.

12:11am and stocks are holding in there. It looks like the last hour will be the tell for the day and maybe the week since Friday is month end. Our thought is that if a rally can get some legs today that tomorrow and Friday will be up days into month end.

1:48pm and we added more CHTR to accounts at $4.31. The markets are approaching the hour of truth and the major measures are higher. Breadth is positive but volume stinks.

3:02pm and the major measures closed higher but volume was light. So we’ll call today a draw with the bears still in overall control. At the bell the DJIA was up 36 points at 10601. The S&P 500 rose 5 points to 1143 and the NAZZ gained 17 points to finish 2022.

And tomorrow is another day.

25 February 2004 - Morning Comment

7:14am Asia was mixed and Europe is also. U.S. stock futures suggest a slightly higher opening. Yesterday’s action was a win for the bears and stocks seem to want to move lower.

There are two schools of thought on trading the markets. Actually there are millions but what we are referring to is the practice of waiting for stocks to bottom before buying, or buying stocks on the way down known as catching falling knives. We have always tried to catch the falling knife by initiating or re-establishing position during the sell off rather than waiting for the bottom. That causes some sleepless night but it is the way we do it.

It is our thought that the markets are in a correction phase and that there is going to be one more strong rally before the resumption of the bear market. In our view, the deficit is going to take center stage by summer and the expected rebound in jobs and growth is not going to occur. But before that happens there is time for more upside and that is why we have been doing some buying in the last few days.

Markets don’t go up forever and they don’t go down forever and unless the eventual downturn is already upon us the seven down weeks for the NAZZ suggest at least a dead cat bounce is in the cards. And such a bounce may reinvigorate traders and speculators.

We have only committed about 25% to 35% of our money except in our very small accounts and so we have plenty of buying power in reserve if the correction becomes more pronounced.

Our theme remains tech since tech is what led the markets higher over the past year.Visit the Model Portfolio to view the changes we have made.

So let the games begin.

24 February 2004 - Evening Comment

7:17am and Morgan Stanley has reduced its rating on AT&T. We like the stock for its dividend and because we think that land lines aren’t going to be dinosaurs soon. But we will wait to see if it trades lower. Morgan also dropped its rating on Sprint PCS.

CNBC is rather bearish in its commentary this morning and that is a refreshing change and positive note from the relentless bullishness that they have been propounding for the past few months.

Greenspan speaks again today. Folks who trade on his words rather than his actions are missing the point. Suggesting ARM mortgages yesterday for folks is an example of his non connection with what the common mortgage holder is capable of understanding.

9:02am and Consumer Confidence was 87.3 in February versus 96.8 in January. That’s not good since the expectations were for a 92 number. But that number is worth only about ten minutes of trading although it does reinforce the negative sentiment.

Breadth is over 2/1 negative but the DJIA is holding its own only down 25 points while the NAZZ is off 14 points already.

We are improving the quality of our tech buys adding Cabot Microelectronics and Cisco to our more aggressive accounts. CCMP which announced better than expected earnings of 46 cents on January 22 is down from $57 to $42 in the last four weeks and CSCO is down from $28 to $22.40. We are also looking for a reentry point for HPQ.

Russian President Putin dismissed his government. That is another negative for the stock markets and will help in the correction process.

9:43am and Greenspan began testifying and the stock markets began rallying. All the major measures are now positive

10:57am and we are yo-yo city today. The major measures are now lower so Greenspan’s effect lasted about one half hour today. Actually the increasing volatility is a good sign although we would guess today is not going to be the day the bottom occurs for the NAZZ.

2:02pm and we bought a bit of CSCO at $22.50, a small amount of CCMP at $42, and repurchased the HPQ at $22.50 that we sold three weeks ago at $24.20 and the RFMD at $8.90 that we sold at $9.25. We also added more CIEN to accounts at $5.70.

3:02pm and stocks closed lower with the DJIA down 44 points 10566. The S&P 500 lost 2 points to end at 1139 and the NAZZ was off 2 points at 2005.

And tomorrow is another day.

24 February 2004 - Morning Comment

6:58am and Japan dropped 2% overnight with elections around the corner. Europe is lower with Germany down over 1% and the U.S. futures are suggesting a slightly lower opening. The NAZZ is now in its sixth week down in a row and didn’t even try to bounce yesterday.

That type of action interests us and we will keep adding low priced stocks during this drop since we think we are close to the end of the NAZZ pullback. The S&P and DJIA haven’t pulled back as much and we think that is a function of the flow of money into large mutual funds and investment portfolios run by banks that want to be in the stock market but don’t want the risk of NAZZ stocks. Since the NAZZ has led the markets higher over the last eleven months we think it will continue to do so. Either that or it will lead the markets lower.

If there is going to be a month end rally the sell off in the NAZZ should end today or tomorrow. We don’ see any catalyst to turn the markets but then that is the surprise of catalysts. And with a market as technically orients as the present market maybe no more than the pullback running its course and support at support will do the trick. Even so we have no desire to do much more than be 15% to 20% in the markets and hopefully scalp a few percentage points of gain. When five-year Treasuries yield 3% on a yearly basis a 2% gain without giveback every few months is a decent goal.

So let the games begin.

23 February 2004 - Evening Comment

7:02am and Ralph Nader has joined the fray making Republicans happy and Democrats disturbed. But then Democrats are always disturbed and our belief is that the folks who vote for him in this election are those who wouldn’t vote for an establishment candidate anyway.

Rumors abound in the overseas press that Osama is cornered in a ten mile by ten mile patch of Pakistan with 5,000 British and American Special Forces troops seeking him. Any capture of Osama might be the catalyst the markets need for the blow off top many are awaiting.

8:53am and stocks opened higher without any enthusiasm and tech stocks did not rally. Tech led the rally for the last year until five weeks ago and the S&P is either going to roll over or tech is going to resume its upward movement. We are of the second camp in our betting and that is why we have concentrated on the low priced speculative stocks. We think there is still time for the individual investor to enter the fray and we are guessing they will go for the “cheapies” in price if not in value.

11:04am and the NAZZ continues its sell off with it down 27 points at this hour. The DJIA is down 40 points. Breadth is 2/1 negative and sellers abound. We sold XEL at $17.50 for a slight profit to free up some money to add to our tech package if the correction continues without increasing our overall exposure. Tech stocks offer more bang for the buck.

12:38pm and the NAZZ remains under pressure while the DJIA is vacillating at lower levels. We are repurchasing RFMD at $9.30 in some of our larger and/or more aggressive accounts on the back of the good news from QUALCOMM on phone sales. We are also initiating a very small position in Lynx Therapeutics at $6.30 which is a highly speculative biotech issue. And we are adding a bit of TLAB at $9.36 on the sell off today to aggressive accounts.

1:33pm and the AP is reporting that Chairman Greenspan has declared U.S. households to be in good shape even with higher debt loads because interest rates are low. Greenspan suggests in his speech that adjustable rate mortgages are “less expensive” for folks who can manage the interest rate risk than traditional fixed rate mortgages. That kind of muddled recommendation/non-recommendation is the same kind of gibberish talk from the Chairman that caused the stock bubble in the late 1990s. With a $700 billion (ex the Social Security surplus) Federal deficit expected this year and deficits on and on into the future, the odds favor higher interest rates somewhere down the road. To suggest that most mortgage holders have the financial expertise to know when switch to fixed from adjustable is just plain irresponsible.

There is highly contagious bird flu on a chicken farm in Texas.

The fact that the NAZZ is off on good news from QCOM today and AMAT on Friday is an indication that there is more work to do on the downside. A prescient client has suggested that around 1900 on the NAZZ is a good resistance/buy point. That seems a good level to us also. We are picking at small amounts of stock on the drop because buying the rally will be difficult.

With month end approaching, we wonder if some funds and banks aren’t saving their fire power for a mark-up session on Friday.

IBM is back under $96 and it should bounce at around $93 if it gets that low.

2:03pm and entering the final hour of trading the NAZZ continues to flounder with it now down 36 points at 2000 and negative for the year.

3:02pm and the DJIA rallied but sill closed 14 points lower for the day at 10605. The S&P 500 surrendered 3 points to finish at 1041 and the NAZZ closed off its low but was still down 30 points at 2007.

And tomorrow is another day.

23 February 2004 - Morning Comment

6:42am and Asia was mixed overnight with Japan higher and Hong Kong lower. Europe is higher as are U.S. stocks futures. By the by, on Friday the Bovespa reversed its 500 point drop to close 300 points higher on the day. Now that is volatility.

Qualcomm is raising its guidance this morning which may put a bid in tech stocks. The markets need a catalyst to get them moving higher after last weeks nice start and then desultory finish.

Over the past year the NASDAQ is up 100% and even though it has been lower the last five weeks it is still up over 15 % from the middle of December. The S&P 500 has also had a nice ice mover over the past month capping a fantastic eleven month run.

The question of the month is whether those runs may continue. We have moved most of our money to the sidelines although we have a small commitment to speculative stocks that may present good percentage gain potential. But we are not starry eyed and we won’t be surprised by a pullback. Time will tell and we will be watching.

So let the games begin.

20 February 2004 - Evening Comment

8:16am and thankfully the rain has turned to snow and there will be no more water runoff for a while at least.

Stocks are set to open a bit higher this morning but we would guess they will visit the negative side before the morning is over.

9:13am and stocks did indeed open higher but have now moved slightly lower. Index options expired on the opening this morning and options on individual stocks expire this afternoon.

The Brazilian stock market is down 5% again today.

We noticed that the price target on Nordstrom has been raised from $49 to $62. A few years ago we were trading the shares under $20. Wow! There are times when we wish we had more imagination. But then a few years ago we were trading SBC in the mid $40 and it is now $24, and HPQ over $40 and it is also $23. We mention this to point out that often times folks remember the ones that got away without remembering the ones on which they were so right.

9:31am and we see that there are reports that Japan has raised its terror alerts to the highest level. It’s interesting that the terrorists don’t have to do anything but talk on wireless phones and they inflict huge costs on developed countries around the world as those countries react to the “chatter”.

10:27am and stocks remain lower. The dollar is stronger this morning and gold is down $6 while oil is also weaker. With bonds and stocks weak there is something wrong with this picture. Maybe it is the terror alert in Japan .

11:58am and stocks are heading lower with more steam with the DJIA off 75 points and the NAZZ down another 20 points. Breadth is over 2/1 negative and volume is expiration heavy. We added Lucent to accounts at $3.95 and bought just a bit more Charter at $43.5 for our larger accounts.

1:36pm and the markets have rallied on ebullient comments by Chairman Greenspan about jobs but are now turning lower again.

2:46pm and it looks like The Chairman’s words are only worth about 50 points for half an hour. The markets are heading lower for the day.

3:02pm and the DJIA lost 40 points to close at 10625. The S&P 500 dropped 3 points to 1145 and the NAZZ lost 7 points to finish at 2040.

And tomorrow is another day.

20 February 2004 - Morning Comment

7:32am and CPI was up 0.5%, ex food and energy the CPI it was up 0.2%, and so if you don't eat or drive or heat your home there is no real inflation. By the way, real earnings were up 0.2%. On the news stock futures weakened a bit and bonds also gave up some gain.

Overseas, Japan was down and Hong Kong higher overnight while Europe is mixed. The S&P 500 failed right below the 1160 resistance/break out level again yesterday and closed below 1150 so the gurus think there must be some more testing at lower levels before there can be another assault on the top.

Most earning numbers are out and there is no catalyst on the horizon for up or down movement. That doesn't mean the markets are going to stagnate because there are thousands of boys and girls who make their living guessing what thousands of other boys and girls are going to trade. We have rebuilt our speculative trading positions at higher levels and will add if they move lower with the markets.

For now our guess is that it will be an interesting day.

So let the games begin.

19 February 2004 - Evening Comment

7:35am and claims for unemployment were 344,000. It looks like there will not be two million jobs created in 2004 as the Bushies have been forecasting. Of course, like WMD that jobs growth forecast is now non operational

The stock markets were not moved by the jobless claims number and so it still looks like the higher opening like Tuesday past will occur. Whether the markets will be able to add to the higher opening, which they were unable to do on Tuesday, is the $24 question.

We are nibbling at some Ciena below $6.20 for a trade/hold after their earnings report.

8:12am and we are bidding to repurchase CHTR and Q after they announced their losses for the quarter. As we have said before we are more comfortable buying back trading stocks after they have announced earnings, even if we have to pay up for them.

10:28am and stocks opened higher with the DJIA up 60 points where it remains. This is similar to Tuesday’s action and it seems that traders hesitate every time the S&P 500 approaches the 1160 level. Stocks need to pierce this level on decent volume to get another leg going on the 11 month rally.

12:16pm and we purchased the CHTR at $4.75, the CIEN at $6.18, the Q at $4.30 and we also repurchased LVLT at $4.63 in our more aggressive accounts. These purchases don’t spend a lot of money but they do give us a bit more speculative stocks exposure.

3:02pm and in the last hour the major measures surrendered their gains to close lower on the day. That certainly wasn’t bullish action but expirations may have had some effect. At the close the DJIA was points at 10660. The S&P 500 lost 5 points to end at 1147 and the NAZZ was down 30 points to finish at 2046.

And tomorrow is another day.

19 February 2004 - Morning Comment

7:10am and stocks look to be in a blast off mood today if the jobless claims numbers cooperate. 340,000 folks are expected to have filed claims this past week.

Wal-Mart announced better earnings and sees a good year in 2004 and that news has put a bid in retailers. Stocks announcing good news are again being rewarded in the marketplace and that shows that buyers are back.

Overseas Asia was mixed with Japan up and Hong Kong down. Europe is higher across the board and pond.

Ciena is buying an ethernet equipment provider for stocks and announced in line losses and projects revenue gains of 20% in the next quarter. Its net cash position is about $500 million which gives it time. Or at least it gives us time to wait for the tide to raise even this volatile ship.

With strong stock futures it looks like traders want to take stocks higher in the early going. After that we have no idea.

So let the games begin.

18 February 2004 - Evening Comment

7:32am and housing starts were 1.9 million which were less than expected and down 7.9% on a month over month basis. Cold weather probably had a lot to do with that number. Bonds rallied a bit on the news and stock futures were muted.

8:45am and the housing number seems to have placed a damper on stocks as the major measures are opening slightly lower this morning.

9:54am and as we get our feet wet again we are trying to get our arms around this market with little success. We do mix our metaphors well, though. Financials have been strong and retailers are showing a little strength but our fear of losing money well exceeds our desire to make money at this juncture. And so we are consigned to the sidelines.

Truth be told, we don’t see any catalyst that is going to get us back into stocks soon. We think we have reached the age where risk aversion trumps reward and where our desire to preserve principal is the overriding concern of our investing. That is why we are so quick to move to the sidelines when we perceive a change.

Breadth is negative and the major measures are slightly lower. Since yesterday the S&P 500 has been bumping up against high side resistance and if it can push through the markets may experience a fast spike higher.

Some idea stocks like Broadcom are popping higher today. We checked and it is selling at 40 times projected earnings. That may seem high but in the salad days BRCM trade over $200 per share so at $45 per share it may seem like a cheapie to aggressive traders. We just know that if those are the types of stocks we need to trade to make money we are not part of the game.

12:33pm and the paint is drying.

3:02pm and stocks sold off in the afternoon on low volume. The volume indicates the lack of conviction since it was low on the upside yesterday also.

At the bell the DJIA was down 43 points at 10672. The S&P 500 dropped 5 points to 1151 and the NAZZ was off 4 points at 2076.

And tomorrow is another day.

18 February 2004 - Morning Comment

6:42am and yesterday was a 2/1 up day on the breadth front and the major measures maintained the gains they started with for the whole day but didn’t add to them by much. Also volume was a little less than wanted. This is an expiration week and so strange things may happen.

Analysts are questioning the price being paid for AT&T Wireless. Of course they all had sale recommendations on the stock at a share price of $7 so they may be just exhibiting sour grapes. After all the fair price of a stock is the highest price someone is willing to pay for it. We do think the price is pricey but then what do we know. And we too sold it too soon because we were hoping for a bad sales report in January which occurred. The only problem was that by then the company had placed itself up for sale and so share price didn’t drop on the news. Those are known as the travails of a trader. But the AWE takeover put a bid in Sprint PCS and we were able to lock up a nice profit in that stock.

Asia was mixed overnight with Japan down a tad and Hong Kong higher. Europe is higher.

With U.S. futures higher we look for a higher opening in continuation of yesterday’s trend. Then crunch time will come and the strength of yesterday’s rally will be tested.

So let the games begin.

17 February 2004 - Daily Comment

6:30am and we are going to be driving most of the day and so we have decide to post this morning and then our next post will be on Wednesday morning when we will be home from our winter vacation to Kentucky. Some folks go to Florida but when one lives where we do we figure that Kentucky is as far south as we want to go so that our system won’t be too shaken by warm weather. And our grandchildren live there.

In our over the week end reading we were reviewing some of the news that came out while we were on our business trip. On Friday the trade deficit was announced as an almost record $42 billion. And that is after the almost 20% depreciation in the dollar over the last year which should have the effect of lessening the trade deficit.

The University of Michigan sentiment reading dropped ten points as reported on Friday. The presidential campaign is now in full swing and it looks like the Kerry vs. Bush poll numbers are having a bit of a dampening effect on stocks.

Dell earnings on Thursday led to a rally in tech stocks Thursday night that fizzled on Friday, and even Dell’s pop higher was muted by Friday’s action.

While the DJIA is up for many weeks in a row the NAZZ is lower for four week. The NAZZ led the markets higher last year and it is our guess that the NAZZ has to turn higher for the DJIA to continue its rally in any convincing manner. We don’t think that is going to happen.

It is being reported that Cingular is making a $14 per share bid for AT&T Wireless. It looks like we left our money on the table. Several folks have asked about re-entering Sprint PCS on this news. We don’t have any answer to that question since we don’t like buying stocks on takeover rumors. We do believe that without the buyout AT&T Wireless would be selling at $6 given their lousy numbers.

We bring up the AT&T Wireless news because it looks like the markets are entering an era of takeover turmoil. All manner of stocks will be moving on takeover rumors and folks may get caught up in the media brouhaha. The Comcast/Disney battle promises to keep the media busy churning out news and counter news for many months.

We are of the opinion that as in the late 1990s the combinations are more about ego and power than economic sense. We note that the AT&T Wireless merger is quoted at $$38 billion when in fact the number is closer to $45 billion if debt is included. That price is three times revenue and seems steep to us for an industry that is seeing margin compression and average monthly billings fall. Moreover expansion of phone users is slowing.

But we missed the consolidation and initial profits in the 1990s as we watched Frontier (Rochester Telephone) and many other phone companies be acquired at what turned out to be ridiculous prices. And all those mergers had letters from investment banks saying that the mergers made economic sense.

As we enter the post holiday week day trading we continue to avoid the markets. If and when a pullback occurs we will take another look, but for now we are on the sidelines.

This morning would we would guess down early then a rally with a lower close.

So let the games begin

16 February 2004 - President's Day

13 February 2004 - Evening Comment

9:15am and stocks have opened higher in moderate trading. The trade deficit jumped 11% and the University of Michigan Sentiment Survey dropped to 93.1 from 103.8. The markets had been expecting 100. On the news there was a quick dip but then the DJIA moved back up.

Asia was stronger overnight while Europe is lower across the board. Guru talk suggests yesterday’s action while not positive was not negative either. It continues the pattern of one or two big up days each week mixed in with consolidation pullbacks on the other three days.

One thought in traders’ minds is that Monday is a holiday and so positions held tonight won’t be tradable again till Tuesday. That’s long term for a lot of folks.

9:40am and the major measures are now lower. The long holiday week end is a negative. Dell remains higher by $1.50 on the day but below its best levels. It will be a tell later today on the bulls strength.

2:05pm and entering the final hour all the major measures are weak.

3:02pm and the DJIA closed down over 60 points and the NAZZ dropped 20 points. Breadth was almost 2/1 negative at the close with new highs at less than 400. The DJIA has been up ten weeks in a row with a fractional gain this week. The NASDAQ has been down four weeks in a row. Dell finished $1 higher but $1 below its high for the day.

Monday is a holiday and we will be traveling Tuesday morning so our next post will be Tuesday evening.

Happy Valentine's Day

13 February 2004 - Daily Comment

6:15am and we wish one and all a happy Friday the Thirteenth. Yesterday stocks gave ground but after the close Dell reported good numbers and the tech stocks traded higher. We were traveling yesterday so we don’t have a feel for what happened on the trading front but we think today’s action will be important.

If the rally is to continue we would think that stocks should resume their upward movement. Because it is a Friday, that may be tough. We will be in one place today and able to watch the markets and so we will have a post after the close.

We still consider cash to be king.

So let the games begin.

12 February 2004 - Daily Comment

6:15am and in direct contradiction of our suggestion yesterday morning of a boring day of trading the DJIA staged an impressive rally and stocks closed on their highs yesterday with the DJIA at almost a three year high. The DJIA was up over 120 points and the S&P 500 gained 12 points to close at 1157. That is near the high end of the 1150 to 1160 resistance/support range that the S&P has been toying with for over one month.

The NAZZ lagged the other two measures but manage to tack on 15 points and breadth was 2/1 positive on both the NYSE and NAZZ. New highs approached the 750 mark which is healthy but not scary. Usually when new highs hit the 1000 mark an overbought condition suggesting a pullback may be expected even if only for a day.

Disney tacked on $3 plus and Comcast surrendered $2 plus. Even those traders who see a merger occurring are indicating it will be a long process with many approvals needed. The Roberts family controls 33% of the voting stock of CMCSB while owning only 2% of the outstanding stock. So much for voter democracy. Analysts speak highly of the Roberts and predict great things for Disney if the Roberts gain control. We are but spectators to the show.

Coke and Wal-Mart and Cisco and Schering Plough and Hewlett Packard all closed lower on the day. OPEC is going to try to hold production quotas and oil rallied on the news. The commodity stocks like Phelps Dodge and Alcoa were also strong as were the banks and brokers.

Some gurus were speculating that hedge funds had been caught short by Greenspan’s rather mild testimony which suggested that there isn’t going to be a tightening before the election. Why that is a surprise to anyone is beyond us. With the Fed Funds rate being kept artificially low Treasuries and other debt instruments are going to also offer low interest rates. We would be inclined to buy the five year for the yield but we think by trading stocks during the year we can make another 5% without having to worry about getting off the train in time to miss the debt induced interest rate wreck. We are sure that no matter who is elected rates are going to rise although our guess is that if Kerry gets in the rates will rise faster.

The dollar continued to fall against world currencies as Greenspan and Snow display no interest in it. A lower dollar is good for exports and bad for overseas vacation travel for Americans. We are agnostic on all these matters being more comfortable as observers with wonderful cash position than as participants.

We will be traveling all day today and so our next post will be tomorrow morning.

So let the games begin.

11 February 2004 - Daily Comment

7:21am and yesterday the stock markets moved higher in lethargic trading. This morning Asia was higher and Europe is also higher. U.S. stock futures are slightly higher.

This morning’s big news is Comcast’s takeover offer for Disney. Now the media has something to talk about besides job loss and deficits. CMCSA is offering 14 times EBITDA which is a big price and the value of about $28 per share is below where Disney was trading four years ago. But the markets are back in a takeover mood and the investment banks are scrambling to participate in the underwriting pie. While it is too early to say the sky is falling the merger of content in Disney with delivery in Comcast with 21 million cable subscribers is worrisome. The U.S. is would becoming a four provider country and the concentration of media power predicts a lessening of variety in offerings and political independence.

On an economic basis the merger is an ego trip for the Roberts family which controls Comcast. This combo will not increase Disney earnings rather the revenue will become hidden within the EBITDA of a company that never has earned any money.

Coke also reported earnings this morning and they were a disappointment and the stock is called lower.

Greenspan testifies to Congress today and tomorrow and we won’t be hanging on his every word but it will be interesting to hear his thoughts on the burgeoning deficit.

The merger stuff is just noise it has nothing to do with the economy or the overall markets. The DJIA will be higher at the opening because Disney is up $3 in pre NYSE trading and KO is only going to open $1 lower.

Our thoughts remain cash oriented and we are observers for at least this week.

So let the games begin.

10 February 2004 - Daily Comment

6:44am and we are off to Chicago today for business. We’ll be traveling for the next week and so our posts will be on a once daily rather than twice daily basis.

The markets yesterday were a non event and we are tempted to say that these trend-less days may continue for a while. But as soon as we say it... Whatever. We think that this market is event driven and there are just no driving forces to get it going one way or the other.

A good employment report is going to be necessary to move stocks to the upside and we think the markets are tentative enough that any untoward world event could initiate a more serious downturn.

We are not in stocks because we can’t find a theme that moves us to own stocks. We do own a few individual stocks for interest sake but we don’t have the desire to have a lot of money at risk since we think the risk/reward on the market as a whole is about even.

And so this week is a good week for our trip. Asia was lower overnight and Europe and the U. S. are flat. The dollar continues to sell off. Our guess for today is lower early then a rally and a flat close.

So let the games begin.

9 February 2004 - Evening Comment

10:16am and the paint is drying, the snow is melting and the markets are meandering. The DJIA is down 16 points after opening a bit higher.

Breadth is positive and new highs exceed 400 but traders don’t seem inclined to move stocks either way. One source is reporting that the data feed from the NASDAQ is not acting properly for many traders and that might be what has depressed volume.

Or it may just be that like us traders can’t find a theme for the markets. Most of the major companies have reported earnings except Dell due Thursday afternoon and now we are in the lull between reporting periods. The Bush/Kerry contest seems a stalemate at this point but with Bush not a “shoo in” as traders were expecting with Dean as the candidate a new unknown has entered the mix.

12:28pm and we picked up a few shares of CIEN and CBB for smaller accounts that didn’t own any and that will probably be the sum total of our activity for the week unless one of our stocks pops to the upside.

The DJIA is higher now and breadth remains very positive. Volume is light as it was on Friday. The American Stock Exchange is having trouble with its computers and that may be the reason for the lower volume since the Exchange Traded Funds listed on the ASE such as SPY and DIA are not able to trade.

3: 02pm and at the bell the DJIA was off 20 points at 10573. The S&P 500 lost 2 points to end at 1140 and the NAZZ dropped 3 points to 2060.

And tomorrow is another day.

9 February 2004 - Morning Comment

7:02am and after trudging through the snow drifts to arrive at the office we remember how fast snow gets old. We are ready for a trip to Florida . Such a trip is not in the cards but we are going to Chicago and Cincinnati on business this week and so after today our posts will be shorter and once daily in the evening.

Overnight Hong Kong was up big time. We don’t know what is going on there but HK has had a very strong move higher in the last month. Japan was lower but all of Europe is higher by 1% or more.

The possibility of Vodafone making a knock out bid for AT&T Wireless of $15 per share is the news of the morning. They would have to sell their 45% stake in Verizon Wireless to make the bid.

The markets were confusing last week and we don’t have a feel for where stocks are heading which is why we have returned to the haven of cash.

With the futures are higher and a big cash bid in the wings we would guess higher this morning and a higher close.

So let he games begin.

6 February 2004 - Evening Comment

7:58am and after initially dropping on the non farms payroll number the stock futures have stabilized and are now back in the plus column. Since this morning’s numbers can be interpreted many ways, we will have to wait for a couple hours to see how the trading goes.

8:48am and the DJIA opened higher but is now lower. A few tech stocks are popping but in the main stocks are calm. Volatility is increasing and volume is moderate. We have to go get our snow blower fixed so we’ll be back in a couple of hours.

12:35pm and our snow is now blowed and we are back to the grind. In our absence the DJIA moved higher and the NAZZ staged a rally on the back of Erickson’s surprise earnings and a recovery reaction to the sell off of the last three days.

We remain content with our limited exposure to stocks. The employment number was worse than advertised. Of the 116,000 new jobs 75,000 were supposedly in retail. Retail stores higher before the holiday not after. But to smooth the numbers there are adjustments made to the figures and it is our guess that most of those supposed hires were not real. Manufacturing and white collar business jobs continued to evaporate.

Treasuries are higher on the employment report and so are stocks. That can’t last for long.

2:19pm and in the last hour the DJIA is moving higher and is now up 85 points while the NAZZ is up 40 points.

Reflecting on the first month we are pleased with our returns. We realized yesterday morning that we don’t have a theme to keep us in stocks as we had at year end. We are hoping to catch one or two more 8% market moves this year from correction levels. And we will continue to look for fallen angels in the large cap area. In 2003 we got more bang out of year end buys than we did this year but a profit is a profit and stocks were moving from much higher levels this year so we were inclined to take profits more quickly.

3:02pm and The DJIA closed up 96 points at 10591. The S&P 500 was up 14 points at 1142 and the NAZZ finished 43 points higher at 2063.

And tomorrow is another day.

6 February 2004 - Morning Comment

7:37am and we are getting a late start because our snow blower quit on us and we had to make our path to the office the old fashioned way.

Non Farm Payrolls were up 112,000 in January which is less than the bulls were hoping for and more than the bears were wishing for. And so the stalemate may continue. The unemployment rate dropped to 5.6% and job growth was the fastest in three years, but that isn’t saying much.

We have reduced positions in accounts to two beta plays, TLAB and CIEN and three investments, XLE, RSTO and CBB. We don’t have any ideas for now and so we are watching. Overnight Hong Kong was up big-time and Europe is also higher. U.S. futures are higher for the moment.

The payroll number is not enough to set of a buying stampede and so we would guess up then down for the day with a lower close.

So let he games begin.

5 February 2004 - Evening Comment

7:32am and first time claims for unemployment rose 17,000 to 356,000. We don’t know what that means for tomorrow's employment report. The stock traders are counting on a plus 150,000 or more jobs report to get the bull move back on track. Our guess is that when the Bushies really need those figures the Labor Dept will provide them through the use of hedonics. Hedonics is adjustments to bring numbers into line with what the folks offering them want. This can be done by having 300,000 leave the labor force and adjusting the underlying numbers accordingly.

8:45am and stocks opened slightly higher. RSTO came in with good January sales numbers and the shares are higher so we are using the opportunity to reduce positions. We became over invested in the stock when we bought at year end and in the New Year when the shares moved lower. That violated a rule and usually when we violate a rule we are sorry. But this move this morning will enable us to get the RSTO holdings more in line on a dollar basis with are other low priced stocks.

PCS is moving higher this morning on a Smith Barney upgrade. Smith Barney downgraded FON which is the other letter stock associated with Sprint. Our guess is that Smith Barney/ Citigroup is going to handle the recombination of the PCS and FON and they want to get FON’s share price down and PCS’ share price up to not cause too much disintermediation when the recombining is announced. Our guess is .75 shares of FON for each PCS share which would work out to about $12 per share. Since nothing is written in stone and there will also be a large arbitrage play shorting Sprint and buying PCS we think the trading price of PCS while the combo is announced will move to about $10. Our reason for selling PCS last week is that we don’t know when the combo will occur but we are guessing nothing will be happen till after the AWE auction is complete. FON wants to pay as little as possible for PCS and the AWE valuation will provide on good price metric on PCS.

9:45am and stocks are higher. Breadth is almost 2/1 positive and the retailers are higher on good January sales numbers. But January is the time of sales not profits and so we don’t think the higher sale numbers mean much. The stocks markets have the feel of walking on egg shells and we wouldn’t be surprised to see a flat or lower close going into tomorrow’s much anticiapted employment report.

12:26om and the major measures are moving higher. We have reconsidered our investment posture this morning. It had been our plan to sell our low priced stocks into the rise in the New Year. For the most part we stuck with that plan although in some cases we sold only partial positions.

We were holding the half positions in the hopes that those shares would move higher. But since they haven’t we are going to sell the Q, and CHTR holdings that we acquired in December. Both have 10% profits in them. We are selling because they have begun to act heavy and the year end pop for these two stocks may have run its course.

We are also selling the RFMD that we recently purchased for 50 cents per share loss. We were guessing last week that the rally had a bit longer to run. We were wrong. This loss only reduces the profit we realized from the first trade in RFMD over year end.

We also were able to complete the reduction of the RSTO in most accounts. The loss on that sale was substantial but we are now at an equity exposure in that stock with which we are more comfortable. We traded out of the CIENA position we bought yesterday but we are going to hold the shares we bought last week. For now we are also holding the TLAB. TLAB and CIEN are high beta stocks and we are taking a chance that tomorrow’s report will be good and we will get a pop across the board that will allow us to sell. We are also holding CBB and XEL along with RSTO for the longer term.

We have never caught a top but since mid December our Model Portfolio is up 8% and we are happy with that and are content to lock in those gains. With today’s sales our cash holdings are comfortable.

2:22pm and stocks are trying to rally. www.minyanville.com mentions that the Brazilian stock market is down 14% in the last 7 trading days.

3:02pm and the DJIA closed up 30 points at 10495. The S&P 500 rose 3 points to end at 1130 and the NAZZ was up 8 points at 2021.

And tomorrow is another day.

5 February 2004 - Morning Comment

7:20am and we were thinking last night that when our stocks are going higher we never own enough, and when our stocks are moving lower we wonder why we didn't sell all of them at the top.

Yesterday was a down day with no redeeming action except that it was down. If a real correction is going to cure the excesses there will probably be a few more days like yesterday.

The jobless report comes in a few minutes and that will determine the early morning trading. The Asian markets were mixed and Europe is higher as are U.S. stock futures.

Our guess is higher early then a pullback and a rally into the close.

So let the games begin.

4 February 2004 - Evening Comment

7:08am and it looks like a batten the hatches day. Ciena is $1 per share lower on their announcement last night of lower revenues for the quarter. Cisco is trading lower also. We are going to stick with the high beta tech stocks because we think we get more bang for the buck and because new traders and investors have short memories and are driven by greed more than fear. But with the tentative call by Cisco we would like to see some dust settle first.

7:12am and we see from the news that General John Ashcroft is in Bali, Indonesia for a terrorism conference. That’s a good place to be if he is going to discuss the terrorism conducted by the Indonesian government on the Timorese and other folks in the archipelago who want their autonomy. Somehow we doubt that will be the subject of the conversation.

In the how times change quickly department, Bush had Kofi Annan to the White House for tea yesterday and asked him to make some sense of the government turnover in Iraq. We surmise that the UN will get its US dues payment this year.

7:52am and the WSJ has a story about a 29 year old hedge fund manager who spent $160,000 on a car to treat himself to something nice. His hedge fund was up 40% last year. Hedge funds often use 10 to 1 and more leverage as we have often stated. But at just 2 to 1 leverage or with normal margin account exposure all that manager had to do was buy the S&P 500 and he would have been up 48%. La La Time has returned.

9:02am and stocks are lower across the board. There is some buying in defensive types like the drugs, but breadth is negative. Volume is relatively light and traders seem to be waiting to see if a rally develops and the tenor of that rally.

9:41am and with today’s action we are selling the Lucent we bought several weeks ago for and 8 cents per share lost. We bought it for a continued pop in tech stocks but given today’s tech action and the fact that LU is up over 100% since 12/31-but not for us- we are exiting.

11:19amd and the NAZZ is down 30 points while the DJIA is up 5 points. Breadth is 2/1 negative and every rally attempt is being met by selling. We added a few shares of CIEN at $6.06 to our aggressive accounts but are waiting for the dust to settle to decide if we want to add more to our other accounts. We are also bidding on XEL at $17.10 to add for its dividend and for a move to $20 over the next year.

12:25pm and Merrill Lynch added GPS to its focus list and the shares are trading lower on the day. That is how punk this market is. Usually a Merrill focus list posting in a stock like GPS would be worth at least $1 per share to the upside.

2:32pm and the major measures don’t reflect some of the crashes occurring in individual stocks. Those that went up the fastest after year end are coming down the same way. Breadth remains over 2/1 negative on the NYSE and 3/1 negative on the NAZZ.

3:02pm and the DJIA closed down 35 points at 10470. The S&P 500 lost 10 points to finish 1125 and the NAZZ dropped 50 points to end at 2015.

And tomorrow is another day.

4 February 2004 - Morning Comment

6:52am and Japan was down big time overnight and Europe is also lower. Cisco met expectations but John Chambers was cautious going forward and traders took that as a cue to do some selling.

We noticed yesterday that along with our stocks a group of the large cap stocks that had been leaders higher like Ford and GM are surrendering a goodly percentage of their gains.

So it is apparent that there is a rotational correction at least occurring and the question now is how far it will go. With our sale of TWX yesterday and our continued chipping away at RSTO we have cash position in most accounts back to our bear market safety levels. That doesn’t mean we won’t surrender gains in any large sell off but we are positioned to take advantage of a sell off if we so desire. For now we are inclined too watch the action and pick at stocks but not make any major commitments.

Stocks are going to open lower and then we’ll see. Congratulations to our boy John Kerry on his wins last night, now it is time for him to batten down the hatches as the yahoos on the right begin to take pot shots at him. All is fair in war and politics in the new world of the new century.

So let the games begin.

4 February 2004 - Evening Comment

7:45am and Paul Krugman makes the point in this mornings NYT that 2 years ago, which was after 9/11, the Bush Administration projected a deficit for fiscal 2004 of $14 billion. Now they are projecting $521 billion for 2004. Oops.

8:38am and stocks are opening lower without any panic. Treasuries are higher and traders are trying to sort out the implications of the “ricin” scare. Our take is that the reality of the ‘ricin’ is akin to the anthrax trouble of two years ago which most experts now feel was the work of a domestic individual with no al-Qeda connections. We would expect that the “ricin’ is providing a good excuse to take some profits.

9:22am and stocks have shaken off the early lethargy and now are trading on individual stories. PCS is off a little on their earnings and revenue reports this morning. PCS is eventually going to be folded into FON and we think that combination will be purchased by the new MCI. The old WorldCom was in merger negotiations with FON when the whole house of cards tumbled down. But we think at these lowered but still full prices that a combination of the three makes sense.

12:21pm and our mind is meandering with the stock markets. Boring describes today’s action. We repurchased a chunk of CHTR for our trading accounts at $ 4.55. We sold a portion of our holdings a few weeks ago at $5.30. We are also adding a few share of XEL at $17.35 to new accounts for the dividend yield and gradual move above $20. And we continue our efforts to sell RSTO at $3.70 or higher.

3:02pm and at the close we sold our TWX position for a 40 cents per share loss. The shares have been acting punk since TWX announced earnings, and as we said yesterday we want to raise cash to have more available to commit to the higher beta issues like CHTR.

At the bell the DJIA was up 6 points at 10505. The S&P 500 was up 1 point at 1136 and the NAZZ gained 3 points to 2066.

Cisco announced higher revenues than expected after the close but the stock is trading a bit weaker. CIEN preannounced lower revenue and it too is a tad weaker.

And tomorrow is another day.

3 February 2004 - Morning Comment

6:52am and ricin in the Senate office Building mail room trumps all the technical stuff and places an early damper on the stock markets. The dollar is weaker on the news and gold is up $7 in the early going.

Yesterday’s action was a non event and today’s will be too until after the close and Cisco’s earnings come. They are expected to be good and will be since CSCO still has inventory that it wrote down to 0 several years ago that it is now selling. That cost makes for nice margins. But the big news will be what CEO John Chambers has to say about his outlook going forward. That news will affect trading overnight and into Wednesday morning.

Of course the ricin thing would be huge news but the Martha Stewart trial is going on and Kobe missed his court date and Janet Jackson and Justin Timberlake shocked American mores. Talk radio and pundit TV are experiencing Christmas all over again

We continue to look for an exit on half of our RSTO and may let the TWX go. We would like to concentrate on the high beta telecom stocks we own. Even with only 30% or less in stocks we tend to move up and down as the S&P does because of the high beta of the companies’ shares we own.

All the major markets are down including Japan. The only shares higher were Hong Kong.

For today we would think down early and the guess.

So let the games begin.

2 February 2004 - Evening Comment

6:54m and we have just a few comments on the Super Bowl. The pre-game and half-time show are seen around the world and they presented an interesting picture of American life and entertainment values from which CBS and the NFL are now trying to run. CBS and MTV, which produced the show, are owned by the same company, Viacom, which also owns Infinity Broadcasting which pretends to be the pillar of moral righteousness and politically correct patriotism. Yes, Virginia, republicans are more often than not the purveyors of political correctness. The FCC led by Michael Powell, son of the Secretary of State if you are wondering how he got his job, is now going to investigate the half time show, your government dollars at work. We expect the Congress will get into the act with Congressional hearings and hopefully President Bush will appoint a commission headed by William J. Bennett to also study the failure of the Janet Jackson's garment.

Once they let the game begin it was a barnburner. We don’t know who got the MVP but the quarterback for Carolina should have even though his team lost.

AOL and Time Warner certainly didn’t get their money’s worth for the advertising dollars they spent.

And from http://tbogg.blogspot.com we found the final final comment:

Of course, nothing was better than this line (read in voice-over) from the Claims ad:

Although a rare occurrence, men who experience an erection for more than 4 hours should seek immediate medical attention.

7:24am and one of our favorite headlines from this Morning:

Bush to Establish Panel to Investigate U.S. Intelligence. Our comment: coming the day after that Super Bowl show and all the ads for Cialis who can argue?

By the way the panel that is to investigate won’t report their findings until after the election. Maybe the Bushies will try again to get Kissinger to head this commission.

7:45am and December Personal spending was up 0.4%, personal income was up 0.2%. Personal debt rises along with government debt.

The WSJ is reporting that there are allegations that Halliburton overcharged $16 million for meals for our soldiers at a base in Kuwait last year. On top of the gasoline overcharge allegations there seems to be a pattern. But the larger question is what kind of dopes are making decisions at that company when they have to know their company will be under intense scrutiny because of its past and some say continuing relationship with VP Cheney.

9:34am and stocks opened higher but after about 9:01am all the major measures headed lower in light trading. The retrenchment may have been the result of economic numbers released then. Construction spending was up 0.4% versus 0.7% last month which was a revised lower number itself and the ISM number was 63.6 versus a Bloomberg guess of 64.

There is not much selling pressure and it looks more like a lazy Monday morning than a resumption of the sell off, for now.

Cisco and Sprint earnings come tomorrow night.

11:20am and breadth is now positive and the major stock measures have all moved into positive territory. Volume remains moderately active.

12:42am and the major measures remain higher with the DJIA up 66 points. There doesn’t seem to be much conviction in this rally and it may be program related. We are taking the opportunity to sell our HPQ holdings for a nice $1.80 plus per share gain. We have redeployed some money recently in lower priced shares that we think will offer more ‘beta’ or bang for the buck and we don’t want to own HPQ into its earnings announcement which will come in the middle of the month. The HPQ sale also raises a goodly chunk of cash. We are working on selling the RSTO position down but there are no buyers in the stock today which is another reason we want to reduce holdings.

The next stock we would like to abandon is TWX. They blew a big chink of cash last night on Super Bowl advertising and we don’t think they got their money’s worth. They were the sponsor of the much maligned half time show and also ran about ten million dollars in ads for AOL 9.0 which were a total waste. We know that amount money is chump change for them but it isn’t for us and we don’t like to see that kind of waste rubbed in our faces.

1:04pm and just for fun we are reprinting an e-mail we received from a good friend and our reply (Kamerschen the fellow who purportedly wrote this is not known to us):

Sometimes Politicians can exclaim; "It's just a tax cut for the rich!", and it is just accepted to be fact. But what does that really mean? Just in case you are not completely clear on this issue, we hope the following will help.

Tax Cuts - A Simple Lesson In Economics

This is how the cookie crumbles. Please read it carefully.

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh $7.
The eighth $12.
The ninth $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."

So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes.

So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'?

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being 'PAID' to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Europe and the Caribbean.

David R. Kamerschen, Ph.D.
Distinguished Professor of Economics
536 Brooks Hall
University of Georgia

Our short reply:

Would that it were that simple. Republicans love to frame the issue in simple non applicable examples that sound so simple but obscure the realities. First of all the government hasn’t reduced the cost of the meal even with Republicans in power. In fact the Republicans have raised the cost of the meal and the restaurant owner has been going in debt just to feed the ten folks at the table. Moreover, the folks at the table are not eating the same meal. The four folks with no money never travel so they don't need airlines. They really don't get the same health care or fire or police protection or educational systems. Poor folks don’t get farm subsidies or investment credits. They are the folk who serve in the armed forces at paupers’ wages and die to keep the rich folks fat and happy and patriotic at home cheering them on. We could go on but if this guy really is a Ph.D. remind us not to send our grandchildren to school in Georgia. But then Georgia is the state that voted Senator Max Cleland a triple amputee Vietnam veteran out of office because he was soft on protecting the US.

2:01pm and entering the final hour of trading the DJIA is up 66 and the NAZZ is up 11. The S&P 500 is also up 11 points which gives rise to our theory today’s move higher till now has been the result of programs. Treasuries are lower.

3:02pm and the program traders must have gone home early because the markets reversed in the last hour, and the DJIA headed to down 20points before finally closing up slightly on the day. The S&P 500 never traded lower on the day.

At the bell the DJIA was up 10 points at 10498. The S&P 500 rose 4 points to end at 1134 and the NAZZ dropped 4 points to 2062.

And tomorrow is another day.

2 February 2004 - Morning Comment

6:22am and we are having a sleet and ice storm this morning. So there well be no groundhog shadows to worry about and winter should be over soon.

And now we have a market prognostication conflict. The markets perform for the year as they did in the month of January and with the DJIA eking out a 0.33% gain and the S&P up 1.72% and the NAZZ up 3.1 % this year should be an up year, except an AFL team won the Super Bowl because the kickoff kicker choked.

Today is also Candlemas Day in honor of St. Blaise who saved a child from choking. When we were kids we used to have our throats blessed and then we got hot cross buns for breakfast and classes began an hour late. The Carolina Kicker could have used that blessing yesterday.

Hong Kong and Thailand were down big-time overnight while Europe is mostly higher and U.S stock futures are slightly higher.

We have raised a good bit of cash and will sell a bit more on any rally. We want to reduce our RSTO holdings to more comparable levels with our other stocks. It is always easy to take profits. But for trading purposes stocks that don’t rally after year end suggest a longer time horizon to perform than we are willing to assume. And so this week we hope to cut the RSTO holding by half or more in most accounts.

For the year the Model Portfolio is up over 5% and we are pleased with those results. In the coulda woulda market a little more adroit trading on our part would have resulted in more of a gain but worry about spilt milk and open barn doors is counterproductive and we count our blessings and our present dollars with satisfaction.

For this morning we suggest a higher opening and also a higher close this afternoon. Friday’s employment report is the big number this week.

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.