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

27 February 2008

We are going to Chicago tomorrow to visit clients and accountants. We will return on Monday March 3 and the next post will be that night.
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Thoughts

Asian markets were higher Wednesday but European bourse indexes are under pressure at midday. Oil continues to sport a $100 handle and Gold is up $15. Treasuries are rallying and stocks look to open lower today on negative news from Fannie Mae and a report that Durable Goods orders were down 5% (core down 1.7%) in January. The dollar hit a new low overnight at $1.50 to 1 euro. It’s the wrong time for a trip to Europe.
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It was no surprise but Fannie Mae says it lost $3.6 billion in the fourth quarter as home-loan delinquencies mounted. It also expects more losses this year. Fannie Mae is the largest U.S. buyer and backer of home loans. The fourth-quarter loss contrasts with a profit of $604 million in the last three months of 2006. Fannie Mae reported Wednesday the late 2007 loss was equivalent to $3.80 a share. FNM also eliminated the dividend to conserve capital which is something none of the major banks or brokers has done. It is the right step. Fannie’s price is at a 12 year low.
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FNM opened at $25 down $2 then jumped to $29 as shorts scrambled to cover on the supposedly positive news. We took the opportunity to sell the shares we owned for a plus scratch at $29.25. We were happy to sell at that price after being down $4 per share at the opening this morning.
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Investors Intelligence has 42% bulls versus 41% the week before but interestingly bears have jumped to 37% from 33%.
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In the perspective department, it has been reported that Citi’s proprietary trading desk (the banks money) lost over $100 million in one days trading on fifteen separate occasions in 2007.
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The Republic of Turkey is selling 30 year bonds at a 7.3% yield. Fannies Mae is paying 8% to borrow at that maturity.
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The major stocks measures opened down about ¾ of 1% on Wednesday morning and reversed rapidly to the upside when the FNM larger mortgage news was reported.
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The rally is getting old in the tooth and to raise cash we are trading out of BMY, GE and Chico’s. We have a scratch profit in BMY and a scratch loss when the dividend is included in GE and a 6% one day gain in CHS. GE and BMY did not participate in the four day rally. We cut our UNFI position in half with a scratch gain and plan to hold the rest. We also sold Verizon for a 10% one week gain after a roller coaster ride with the stock. We think we will have a chance to repurchase the four eliminations lower.

We are left with a concentration in tech CSCO, INTC, SYMC, BRCM, DELL. And there are the stocks we are hoping to hold for the long pull- UNFI, GM, F, TLB, CWTR, S and CAB.

DELL announces sales and earnings Thursday (tomorrow) night.  Last quarter the street didn’t like the earnings and the shares dropped precipitously. The action after this announcement will be interesting.
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Retail earnings announcements begin in earnest next week.
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European bourses indexes closed fractionally lower as did Mexico and Brazil. Oil was down $1.10 at $99.78. Gold closed $14 higher at $964 and Treasuries were strong into the close with the two-year at 1.98% and the ten-year at 3.84%.
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The DJIA closed up 10 points at 12695. The S&P 500 lost 2 points to 1380 and the NAZZ gained 9 points to 2353 as Google and Apple closed higher for the first time in four days.

Breadth was 5/4 negative and volume was moderate.

New lows exceeded new highs by 10 on the NYSE and 30 on the NAZZ.

Today was a tie between the bulls and bears.
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26 February 2008

Thoughts

Asian markets were higher overnight as are European bourse at midday. Gold is down another $7 and Oil ahs a $99 handle as the trading day begins. Treasuries are weaker again this morning on the PPI. Stocks look to open the day slightly lower.
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Producer Price Index for January up 1% and core PPI was up 0.4%.Year over year PPI up 7.4%. Core PPI was up 2.4% year over year. Inflation is in the number.
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Google is down another $15 this morning in the pre-opening as the momentum boys and girls look for greener pastures. The trading gurus we read are suggesting that the momentum kids are moving to commodity and ag stocks with their GOOG money.
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A financial blog we read yesterday reinforced thoughts we had been having that the rating agencies didn’t predict that MBIA and AMBAC were going to get in trouble from insuring CDOs and SIVs so why should anyone trust their judgments now. That is an excellent rhetorical question and the answer is that this market is certainly an emperor’s clothes market. The market sees what it wants to see when it wants to see it. And we aren’t complaining about the rally that has occurred because of the markets myopia. But to use a tired metaphor this rally may be built on a house of cards.
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Deutsche Bank downgraded GM this morning but kept Ford as a buy. DB is worried about GM’s 49% ownership of GMAC. We don’t see that as a problem. More folks are downgrading Fannie.
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Google and Apple are now down enough (35% and 45% respectively) from their highs that December/January margin buyers are in trouble. Also with the absence of the downtick rule the hedge fund shorts smell blood and are piling in.
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With the pullback this morning in stocks we are adding Broadcom to many accounts. BRCM makes chips and stuff for the cell phone industry and has delayed the introduction of a new type of chip. That has caused earnings to flounder and the share price to be cut in half in the last six months. With $4 per share in cash and no debt and selling at $19.50 we think it is a good if volatile addition. We are intent on concentrating on the tech sector since we think it offers value and positive risk/reward.

Shares in chip maker Broadcom Corp. hit a long-term low Tuesday February 19 as a UBS analyst saw delays in the company's new cell phone chips. Analyst Uche Orji said recent checks suggested that the company's expected gain in making chips for Nokia cell phones may not kick in until the second quarter of 2009, and not in 2008 as the market initially believed. Orji lowered his price target to $35.50 from $39. In a separate note, Orji predicted that the company would make gains against Texas Instruments in the wireless chip market. Broadcom's production delays only postponed the inevitable, he said. Broadcom shares fell $1.04, or 5.2 percent, to $18.96. Earlier in the day, shares hit $18.91, their lowest point in almost three years.
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In keeping with our tech theme we are going to sell Pfizer for a plus scratch and buy an equal amount of Symantec. That raises a bit of cash to offset somewhat offset the BRCM purchase.
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Oil tops $10 at 11am. The DJIA is up 100 points.
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We bought small of Cabella’s, Chico Fas and Liz Claiborne in our large/aggressive accounts. We sold the Blackstone we bought yesterday for a quick $1 per share gain. It was an anchovy. And we sold at $36.75 the initial purchase of Verizon that we bought at $36.67. That leaves us with a good holding of VZ at the $34 level. We also are selling AT&T for a scratch to $2 per share profit. Both stocks are 10% higher than their lows of two weeks ago. The sales raise cash in accounts which is prudent given the sharp three day rally.
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With the rally this morning the S&P 500 and the DJIA are now higher on the month. The two stock measures have not posted a monthly gain since October.
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Gold reversed its early morning drop to gain $12 and close at $962. Oil closed at $100.93. Treasuries firmed and the two-year closed at 2.04% and the ten-year at 3.87%.

European bourse indexes closed 1% to 2% higher across the continent as did Mexico and Brazil.
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The DJIA closed up 115 points at 12685. The S&P 500 gained 10 points to finish at 1382 and the NAZZ jumped 18 points to 2345.

Breadth was over 2/1 positive and volume was moderate.

New highs crossed new lows on the NYSE (92/65) but were still in the minority (65/85) on the NAZZ.

The bulls won the day and are now even for the month.
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25 February 2008

Thoughts

Last Friday we commented that the bears won the week. Actually the major market measures were higher on the week because of Friday’s late afternoon rally. By the by, the NAZZ is down 13% year to date and the S&P 500 is down 8% with the DJIA down 7% as the trading week begins.
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Asian markets were higher overnight except China and European bourse indexes are up 1% at midday. Oil has a $98 handle and Gold is up $3 in the early going. Treasuries are flat as are U.S. stocks futures.
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Genentech received approval to sell Avastin for late stage breast cancer and the shares are 10% higher.

The WSJ has a negative front page article on Goldman Sachs and there hasn’t been an announcement on the AMBAC deal that was rumored Friday and was the catalyst for the last half hour rally. The news on GS and the lack of news also are negatively impacting the financial stocks.
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Lowe’s reported disappointing earnings but the stocks are trading higher after opening lower as the retailers being to report their sorry tales for their year end 2007.
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Existing-home sales fell for the sixth month in a row during January. Home re-sales fell to a 4.89 million annual rate, a 0.4% decrease from December's revised 4.91 million annual pace, the National Association of Realtors said. The median home price was $201,100 in January, down 4.6% from $210,900 in January 2007. The median price in December was $207,000.
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Many European bourse indexes closed over 1.5% higher on Monday. Brazil and Mexico were also up.
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We sold Tiffany when it popped $1.60 on takeover rumors. Our guess is that retailers are not going to be taken over during a recession. Since we bought it as an anchovy we are going to sell for a trading gain.

With Goldman Sachs placing a sell on Fannie and Freddie to go with Mother Merrill’s sale advice on Friday we decided not to be heroes and eliminated our FRE holding for a scratch gain in our large accounts. We are keeping our FNM holding for now at least.

We are replacing the FRE with Blackstone Group. BX is the famous IPO of last year of the buyout firm. BX is currently priced at half its IPO price and 60% off its high. Since Blackstone is perceived to be connected to the sub prime stuff. Although they deny it we view it as another back door way to play the financials.
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Gold ended down $7 at $940. Oil touched $110 in the morning trade but finished at $99.20 up 40 pennies. Treasuries gave a bit of ground with the two-year closing at 2.12% and the ten-year at 3.91%.
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Google has been trading under $500 all day and Goldman has also been down all day. Apple is off $3 at $117 and acting like it is heading to $100. The failure of these mo-mo stocks is necessary to get a bottom. That they are failing with the overall market measures holding is confounding but positive.
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S&P made positive comments about MBIA and AMBAC at 1:15pm. MBIA has been removed from S&P's credit watch listing.  AMBAC has had its AAA rating reiterated, but it remains on S&P's negative watch list. And stocks rallied 100 points on the DJIA in a two minute time span on the news.
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Dell reports sales and earnings Thursday night. At its current price, Dell is trading at 7 times enterprise-value (EV) to four-quarter trailing cash from operations, and 8 times EV to free-cash-flow. Balance sheet cash has grown from $8 billion in October '06 to over $12 billion as of Oct '07, or $5.50 per share.
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The DJIA closed up 190 points at 12570 continuing Friday’s recovery. The S&P 500 rose 19 points to 1372 and the NAZZ gained 25 points to 2330. Apple closed up and Goldman Sachs rallied back to almost unchanged but Google closed on its low at $486 down $14 on the day.

Breadth was 2/1 positive but volume was only moderate so the bears are still in the game.

There were 80 new lows on the NYSE and 75 new highs.

The bulls won the day.
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Washington's Birthday 22 February 2008

Thoughts

Asian markets ended Friday lower with Shanghai giving up 3.4%. European bourses are mixed to lower at midday. Gold is up $2 in the early going and Oil has a $98 handle while Treasuries are flat.
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Motorola has replaced its finance chief. Paul Liska succeeds Tom Meredith, the director who served as interim financial chief and won plaudits from Wall Street for helping Motorola make better use of its ample cash while its main cell phone business plummeted.

We are wondering whether the better use of the ample cash that won Wall Street plaudits may soon lead to a write-down for investing in SIVs and CDOs. Just wondering.
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Mother is not being nice. Merrill Lynch cut Fannie Mae and Freddie Mac to sell from neutrals. This is after both stocks are already down 60% ($40) from their 52 week highs of $70.
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It’s snowing in NYC so that means the world is at a standstill. It is sort of like rain in Chicago affecting the price of beans and corn.
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Down is up. The December Producer Price Index, PPI, was adjusted from down 0.1% to up 0.3%. And November was adjusted from up 0.4% to up 0.3%. These adjustments are the result of the revising of season adjustment factors which are used to make the numbers meaningless. There was a lot of trading that occurred because of that negative number in December and there are no re-dos in the trading.
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United Natural Foods cut its profit target for the year on Thursday, saying the benefits from buying a competitor are materializing more slowly than expected. United Natural Foods now expects to earn $1.12 per share to $1.14 per share for the year, versus the previous forecast for profit of $1.40 per share to $1.45 per share. United Natural bought Millbrook Distribution in early December. Based in Leicester, Mass., Millbrook has $300 million in annual revenue. The company said it expects Millbrook to squeeze the company's profit by 10 to 12 cents per share this year. The bargaining leverage with manufacturers and cost savings have yet to materialize, the company said. United Natural affirmed its forecast for sales growth of 19 percent to 22 percent, implying sales of $3.27 billion to $3.35 billion. Analysts expect sales of $3.31 billion.

On that news a Piper Jaffrey analyst went from buy to neutral on the shares and they are down $7 in trading today. We are using the collapse to re-establish position in the stock at $17.50 which we sold at $24.60 a few weeks ago. The shares may go lower but we our comfortable owning the stock at these levels which are 50% below the 52 week high and at a four year low. As the press release reported UNFI expects sales growth of 20% over the next year. Earnings will come around and the shares are priced at 14 times 2007’s disappointing earnings.

United Natural Foods distributes natural and organic foods, and related products in the United States. It offers grocery and general merchandise, produce, perishables and frozen foods, nutritional supplements, bulk and food service products, and personal care items to natural products retailers, and supernatural chains comprising natural foods supermarkets and conventional supermarkets. The company also distributes its products through food service, international, and buying clubs. United Natural, through its subsidiary, Natural Retail Group, Inc., owns and operates natural products retail stores. As of July 28, 2007, it owned and operated 12 natural products retail stores located primarily in Florida. In addition, its other subsidiary, Hershey Import Company, Inc., specializes in the international importing, roasting, and packaging of nuts, seeds, dried fruits, and snack items. The company was founded in 1978 and is headquartered in Dayville, Connecticut.
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We have stocks that we are watching in addition to the stocks we own and as news on individual companies and/or the markets as a whole cause stocks to sell off as with UNFI this morning we are going to use the drops to establish or add to positions. As we have been saying, the problems in the economy are known and are being dealt with in some manner. It may not be a manner which works initially but eventually the pendulum gets extended and begins swinging in the opposite direction. In market miasmas such as the present we can only look for values and buy them and keep a cash position on hand for security and buying power.
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Apple hit $205 in mid December. Today it is trading at $118. That is called a correction from a parabolic rise.
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Shares in chip maker Broadcom hit a long-term low Tuesday as a UBS analyst saw delays in the company's new cell phone chips. Analyst Uche Orji said recent checks suggested that the company's expected gain in making chips for Nokia cell phones may not kick in until the second quarter of 2009, and not in 2008 as the market initially believed. Orji lowered his price target to $35.50 from $39. In a separate note, Orji predicted that the company would make gains against Texas Instruments in the wireless chip market. Broadcom's production delays only postponed the inevitable, he said.

Broadcom shares fell $1.04, or 5.2 percent, to $18.96. Earlier in the day, shares hit $18.91, their lowest point in almost three years. BRCM has $4 per share in cash and no debt on the books and is down from a 52 week high of $44.

With the shares at $18.90 we are buying small amount on our large accounts.  If you wish to know how nutty things were in 2000 we observe that BRCM sold at a price of $180 in March of that year.

We also added Freddie Mac, Microsoft and Tiffany to those accounts.

We would like to re-purchase MSFT in more accounts but we don’t have a handle on what the Yahoo imbroglio means to the intermediate term share price.
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Google finally broke $500 to the downside this afternoon. The momentum stocks are breaking down with GOOG off 33% from its high and AAPL down 40% from its high. We don’t know what a proper valuation is for either of those stocks but AAPL is back to 24 times growing earnings and GOOG is at 30 times growing earnings so at least the share prices are more reasonable at these levels but probably still not low enough to tempt value investors.

First Solar is nuttily overpriced at $210 which is 100 times earnings and up from its 52 week low of $50. FSLR is down from $280 but still needs to get under $100 per share to show that the mo-mo traders have been broken. The momentum traders need to surrender before a bottom can occur. (See our BRCM 2000 comment above)
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European bourses closed lower on Friday. Brazil and Mexico also lost ground.
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Oil ended at $99 up 80 pennies and Gold lost $3 to $946. Treasuries dropped as sotcjks rallied into the close with the two-year ending at week at 2.06% and the ten-year was 3.81%.
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Standard and Poor's Ratings Services cut its rating for GMAC Financial Services, saying steep losses at the lender's mortgage arm are hurting the rest of the company's business.

S&P downgraded GMAC's credit to "B" from "BB+." The new rating implies GMAC's credit is "highly speculative," compared with the previous rating of "non-investment grade." GMAC lost $2.3 billion last year because of massive losses at ResCap, the company's mortgage business. ResCap recognized steep losses on mortgage debt as flagging home prices forced a spike in unpaid home loans. GMAC also announced plans this week to combine 20 offices in North America into five regional offices and cut about 930 jobs.

S&P emphasized that its rating for GM, which sold a 51 percent stake in GMAC to Cerberus Capital Management last year, was not affected by the cut.
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CNBC is reporting that a deal to rescue AMBNAC will be announced on Monday or Tuesday. That has given a bid to stocks in the last half hour of trading. Coincidence?
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The DJIA rallied from down 125 points at 2pm to up 98 points at the bell at 12380. The S&P 500 closed up 10 points at 1353 and the NAZZ rose 3 at 2303.

We’ll call it the CNBC Friday Feel Good from Charlie Gasparino rally.

Breadth was 2/1 negative at 2:30pm but flat at 3pm on the NYSE and volume was light.

New lows expanded to 150 on the NYSE and 210 on the NAZZ on the morning sell off.

The bulls won the day in the final half hour with the major measures closing positive and internals moving to neutral from very negative. For the week the bears remain in control.
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21 February 2008

Thoughts

Asian markets were higher overnight and European bourses are also up over 1% at midday. Oil is $99.50, Gold has tacked on another $8 in the early going and Boone Pickens is short oil at $100 predicting it will drop 15% in the next few months. Heck it can and has dropped 15% in a few days in the last year. Treasuries are weaker on the short end and firm on the long end as the trading day begins. U.S. futes are indicating a higher opening.
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Jobless claims were as expected at 349,000.
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Contraction in U.S. Mid-Atlantic factory production accelerated in February as manufacturers pulled back in anticipation of an economic downturn, according to the Philadelphia Federal Reserve. The regional central bank said Thursday its business activity index stood at minus 24.0 this month, down from an already weak minus 20.9 in January, which had been its worst reading since the 2001 recession, and well below forecasts.
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Two hours into the trading day and the rally has faded with the major measures now all lower.
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We wrote the following in answer to a client’s questioning of our recent trading:

Thanks for the comments. We know that the double dose of the accounts dropping in value coupled with the lousy real estate market is a strain.

And we too are adjusting to the fact that for the first time since 1990 we missed avoiding a large down move in the markets.

That we are not alone in having surrendered gains this year is small comfort since we have been proud of the fact that for the most part in our career we have been able to avoid losses in uncertain markets.

The in and out trading we are doing is similar to the trading we were doing in the uncertain markets of 2000 to 2003. The difference is that then we avoided the down turn and traded the minor rallies to our advantage. Because we avoided the downturn in those years by trading, we think clients were not as aware of the trading we were doing then as they are now when our usual year end trading was the cause of our not avoiding the downturn.

But as in 2000 to 2003 we think the willingness to react by trading is a necessary component of surviving. We don't know what is out there. Because of low commission and the penny spreads on stocks buying and selling and moving in/out of stocks as the spirit moves us is easy and relatively cheap to do.

If these were normal times we would say that the financial press is blowing smoke as it sometimes does such as when it predicted the demise of IBM in the mid 1990s. But when large firms like Citi and Mother Merrill can get it so wrong we have to be cautious.

We do own a few stocks like Talbot's and Sprint that we have decided to keep positions in no matter what because they have 5 times the upside from these levels as downside. And we would like to own Cisco and GE and those types of stocks when the recession/market collapse ends but we are treating the Ciscos as anchovies as we adjust our market exposure. we have also taken on a few stocks with 4% dividend yields (T, VZ, BMY, PFE) and our hope is to hold them unless we realize a better than dividend yield trading profit from them in the minor market moves we are trying to take advantage of while the malaise runs its course.

The desire to make back what we lost and earn some money is juxtaposed against our distrust of the folks who have so screwed things up. The financial system is the backbone of our economy and the folks running it have for the most part botched it and sapped or confidence in it.

We don't know the timing of what the future holds but unless we are the Roman Empire in 400 AD we would guess that time of uncertain length will eventually provide the opportunity to recover our losses and return to positive results.

We are comfortable with our present holdings and market exposure. We are walking a fine line between minimizing risk and growing account values. We will survive the turmoil but willingness to trade is core to our strategy.
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Europe closed higher on the day. Brazil and Mexico were lower.
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Oil ended down $1.74 at $97.96. Gold gained $10 to $948. Treasuries firmed as stocks sank and all maturities closed higher on the day with the two-year at 1.98% after trading at 2.08% earlier in the day.
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On November 15 Google was at $750. Today it closed at $500.
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The DJIA tanked in the last hour to close down 150 points on the day at 12280.  The S&P 500 lost 18 points to end at 1342 and the NAZZ dropped 27 points to 2300.

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

There 75 new lows on the NYSE and 120 new lows on the NAZZ.

The bears are back.
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20 February 2008

Thoughts

An inflationary CPI number when traders think the Fed needs to keep cutting ahs the major market measures down 1% in futures trading before the opening. Gold has backed off $4 and Oil is trading with a $99 handle as Treasuries rise in yield. Stagflation seems to be in the air and the bears are on the prowl.
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Hewlett Packard announced very good numbers last night but that good news for bulls has been lost in the morning push lower.
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January CPI was up 0.4% and year over year it was up 4.3%. Core CPI was up 0.3% in January and 2.4% year over year. Traders are guessing that the Fed is not going to like those numbers.
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Investors Intelligence ahs bulls rising to 41% form 37% and bears falling to 33% form 36% in the latest week.
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Asian markets were down 2% to 3% overnight and many European bourse indexes are over 1% lower at midday.
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In the Oops Department:

Credit Suisse on Tuesday when it announced that pricing errors by traders on asset-backed securities would result in write-downs of $2.85 billion. The write-downs, which will knock $1 billion from first-quarter earnings, come a week after Credit Suisse announced fourth-quarter results that indicated that it had been relatively unscathed by the turmoil in the credit markets and had limited exposure to the sub-prime crisis, which has caused large losses at other banks. The chief executive of Credit Suisse, Brady W. Dougan, described the mispricings as “very disappointing,” but said they most likely were “an isolated incidence.” The mispricings came to light last week during a review as part of a $2 billion bond sale. The traders involved have been suspended. Mr. Dougan said an internal review would determine how much of the write-downs were linked to the pricing errors and how much was a result of deterioration in the credit market. The bank is also reviewing whether it may need to restate its 2007 results.
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Another reason for the morning sell off:

KKR Financial Holdings, a publicly traded affiliate of buyout firm Kohlberg Kravis Roberts, has delayed repayments to some of its short-term debt holders and will try to restructure the agreement that governs the instruments. Shares of KKR Financial were sinking 18% to $11.90 in pre-market trading Wednesday. KKR Financial, a specialty-finance company, said in a filing with the SEC that it has asked for more time to make payments to holders of the non-recourse secured liquidity notes that were issued by two of its asset-backed conduit facilities.
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With AT&T and Verizon both down over $5 per share in the last two days we are adding more shares to accounts. The yields on these two stocks are 4.3% and 5% respectively and a Credit Suisse analyst changed the rating to neutral this morning on the stocks from overweight which is part of the reason for the further drop. Moreover all the naysayers are coming out of the woodwork to explain how these two companies are going to lose their hold on the American public the same way NTT DiComo did in Japan. They and the  analyst are wrong.

The trader thinking is that the slowing economy and price wars are going to inhibit earnings growth at these companies. We think that most folks view cell phones as a necessity and not a luxury and while there may be some short term effect from the recession these two companies at these prices- which are 30% below three month ago highs- are attractive. AT&T and Verizon have the best nationwide coverage and that is why folks use their phones. We are happy to have the chance to get back into VZ after it ran away from us to the upside when we were trading it over the past two years.

We are also adding Bristol Myers with a 5% yield and Pfizer with a 5.55 yield to accounts.

To fund these purchases we are selling the SPDR Retail for a negative scratch and the SPDR Tech for a 60 pennies loss. The XLK was a 10% position so the 60 pennies amounts to dollars but the stocks we are adding are down more on a gross basis in the last two days than the gross loss on the XLK in each account.
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In the Fed minutes released today the Fed stated that it hoped decisive interest rate action would ease concerns. The minutes also disclosed that there was a previously unreported conference call on January 9.
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At 1pm stocks are in positive territory as today’s market activity ad movement mirrors yesterdays’ action.
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Federal Reserve officials cut their forecasts for economic growth this year by about a half percentage point and raised unemployment projections after the housing recession and financial-market turmoil deepened. Fed policy makers now expect U.S. gross domestic product to increase by 1.3 percent to 2 percent in 2008, compared with the 1.8 percent to 2.5 percent they predicted in October. The fourth-quarter jobless rate will be between 5.2 percent and 5.3 percent, up from a range of 4.8 percent to 4.9 percent in the last forecast.

The estimates, a median range of projections by governors and regional-bank presidents, informed the Federal Open Market Committee's decisions to lower interest rates twice last month in the fastest easing of monetary policy in two decades. The quarterly forecasts were released today as an addendum to minutes of the Fed's Jan. 29-30 meeting in Washington.

Inflation, excluding food and energy, will run at 2.2 percent this year, compared with 1.7 percent to 1.9 percent projected in October. Total consumer prices will rise by 2.1 percent to 2.4 percent; the FOMC projected an increase of 1.8 percent to 2.1 percent three months earlier.
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Oil touched $101 and closed at $100.75. Gold gained $13 to $943. Treasuries were flat and European bourse indexes closed negative by over 1% on the day as trading on the continent ended before the U.S. markets rallied. Mexico and Brazil were open longer and closed over 1% higher.
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The DJIA gained 90 points to finish at 12430. The S&P 500 gained 12 points to 1360 and the NAZZ regained the 20 points it lost yesterday to close at 2330.

Breadth was 2/1 positive and volume was about the same as yesterday.

There were 90 new lows on the NYSE and 150 new lows on the NAZZ made during the mornings drop.

The bulls finally won a day.
*****

 

19 February 2008

Thoughts

U.S. markets are opening higher this Tuesday. Oil has a $98 handle in the early going. Asian markets were higher overnight and European bourses are also up over 1%. Treasuries are weaker and Gold is up $20.

There is no obvious reason for the pop higher this morning. A catalyst may be that Wal-Mart reported better than expected earnings. Foreign markets were higher on Monday and Tuesday so there may be a catch up factor involved.
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Bill Gates said that Microsoft will not raise its $31 bid for Yahoo.
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Verizon is offering unlimited U.S. calling for $99 and AT&T has matched it with a $100 per month plan. Both are lower as the specter of unlimited calling and a price war unnerve traders. We are buying both on the sell off at $36.60. The 4% plus yields are attractive. The price wars are inevitable and since the average monthly bills for both are under $60 there is room to battle over prices. The fixed price unlimited calling day has been in the cards for many years.
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After opening 150 points higher the DJIA is giving back its gains and at the  two hours mark the DJIA is up 50 points with 5/4 breadth after being 3/1 to the good in the first half our of trading.
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We are using the pullback to re-establish positions in Cisco, Intel, GE, and Dell in the accounts in which we bought GM last week. We are also buying a position in Fannie Mae (FNM) which is down from $76 to $29 and is yielding 4.2%. With its implicit government guarantee FNM is a more cautious way to trade the banking/mortgage imbroglio. Finally, we are also buying the SPDR Retail Trust (XRT) in these accounts.

Because we are returning to individual stocks that we want to hold/trade we are going to replenish our cash by selling our SPDR Financial (XLF) for a scratch.
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European bourses closed mostly higher. Mexico and Brazil were lower.
*****

Oil ended at $100.20 up $4.40. Gold gained $24 to $930. Treasuries were lower in price with the two-year back up at 2.03% and the ten-year at 3.87%.
*****

Entering the final hour of trading stocks have surrendered all their gains and the major measures are negative. A lower close will not be a happy occurrence for bulls.
*****

At the bell the DJIA was down 12 points at 12335. The S&P 500 was down 2 points at 1348 and the NAZZ lost 15 points to 2306 as Google was down $20 on the day, First Solar dropped $8 and Apple lost $3 among the momentum names.

Breadth was 5/4 positive on the NYSE and 5/4 negative on the NAZZ and volume was moderate.

New lows were 85 on the NYSE and 130 on the NAZZ.

The bears won the day.
*****

 

15 February 2008

Markets are closed Monday for the Presidents Day Holiday.

Thoughts

This morning the bad news is in control with the Empire State Manufacturing Index which measures manufacturing in the New York area coming in at a minus 11.5 which suggests contraction. Countrywide is also reporting record foreclosures in January. FGIC the monoline insurance company that insures tax free bonds (the good business) and CDOs (the bad business) has told the NY State insurance commissioner that it wants to split into two lines of business. This announcement comes after Moody downgraded the company’s financial standing.

With that news the major market measures are trading down 1% in pre market futures trading. Best Buy lowered guidance because of slow January traffic and since that is the premier electronics retailer slowing news is affecting the markets negatively. Today looks like a bad news is bad news day.
*****

OPEC is suggesting that it may cut production since there is a surplus of oil in the system because of slowing economic activity. So of course oil prices are rising this morning. We have been saying all along that there is plenty of oil in the system and that 20% of the price of oil right now is due to speculative activity by traders and not real economic pricing. Oil prices rising when OPEC says there is a surplus is an example of what we are suggesting.
*****

Citi calling the kettle black is warning that UBS may have to write down an additional $19 billion on top of the $12 billion it announced yesterday.
*****

Asia was higher overnight and European bourses are fractionally lower at midday. Gold is up a couple of dollars and Treasuries are flat in the early going.
*****

Citigroup has barred investors in one of its hedge funds from withdrawing their money, another black eye for the financial behemoth's troubled foray into new types of investments. Citigroup suspended redemptions in CSO Partners, a fund specializing in corporate debt, after investors tried to yank more than 30% of the fund's roughly $500 million in assets. To stabilize the fund, which had an 11% loss last year, Citigroup last month injected $100 million. The fund's longtime manager, John Pickett, has left, following a bitter dispute with Citigroup executives and complaints from investors that he put too much money into a single investment that went bad. Alternative-investment products such as hedge funds are a relatively small business for Citigroup, which has about $2.4 trillion in assets. Citigroup's more than 80 alternative products held $61.9 billion in assets as of Sept. 30, of which about $11.5 billion represented Citigroup's own capital. Still, the turmoil at CSO Partners is an embarrassment as Citigroup tries to dig out from billions of dollars of losses on mortgage-related investments. Citigroup's new chief executive, Vikram Pandit briefly ran the alternative-investments group, and some of the funds he oversaw have been struggling. A large Citigroup hedge fund called Falcon Strategies suffered a 30% decline last year as its bets on the credit markets backfired. Old Lane Partners, a hedge fund now run by Citigroup that was founded by Mr. Pandit and other former Morgan Stanley executives, has shown lackluster performance, posting a 1.8% loss in January. As hedge funds boomed earlier this decade, investment banks sought to get a piece of the action. They bought stakes in existing funds and started some of their own. They hoped to grab some of the cash pouring into these funds from large institutions -- and rake in lucrative management fees. Investments banks also wanted in-house alternative-investment products to offer to their wealthy individual clients.
*****

Intel was weak yesterday after Goldman Sachs removed it from its buy list saying that chip sales might be slowing in the economy.
*****

Paul Krugman on Auction rate securities from the NYT:

A decade ago, during the last global financial crisis, the word on everyone’s lips was “contagion.” Troubles that began in a far-away country of which most people knew nothing (Thailand) eventually spread to much bigger countries with no obvious connection to Southeast Asia, like Russia and Brazil.

Today, we’re witnessing another kind of contagion, not so much across countries as across markets. Troubles that began a little over a year ago in an obscure corner of the financial system, BBB-minus sub prime-mortgage-backed securities, have spread to corporate bonds, auto loans, credit cards and now — the latest casualty — student loans.

Indeed, this week the state of Michigan suspended a major student-loan program because of the sudden collapse of another $300 billion market you’ve never heard of, the market for auction-rate securities.

Why has a crisis that began with loans to a limited group of home buyers ended up disrupting so much of the financial system? Because, ultimately, it’s more than a subprime crisis; indeed, it’s more than a housing crisis. It’s a crisis of faith.

I know that sounds dramatic. But, let me talk about what just happened to auction-rate securities.

Like many of the financial innovations that are now being called into question, auction-rate securities are complicated deals that seemed to offer something for nothing.

They seemed to offer the borrowers — typically local governments or quasi-governmental agencies, like the Port Authority of New York and New Jersey and the Michigan Higher Education Student Loan Authority — a way to borrow long term without paying the relatively high interest rates investors usually demand on long-term loans.

At the same time, they seemed to offer investors an asset that was as good as cash — readily available whenever needed — but paid higher interest rates than bank deposits.

The operative word in all of this, of course, is “seemed.”

Auction-rate securities seemed as good as cash because they involve regular, well, auctions, held as often as once a week, in which investors wanting out sell their positions to investors wanting in. In principle, it was always possible for auctions to fail for lack of enough willing buyers — but that wasn’t ever supposed to happen.

Meanwhile, these securities seemed like a good deal for borrowers despite the fact that they contain a penalty clause: if an auction fails, the interest rate the borrower pays jumps up. (The Port Authority, which had a failed auction last week, just saw the interest rate it pays leap from 4.3 percent to 20 percent.) You see, there weren’t ever supposed to be failed auctions, so the penalties weren’t supposed to be relevant.

Now, what wasn’t ever supposed to happen has. In the last few weeks, a series of auctions have failed, leaving investors who thought they had ready access to their cash stuck, even as borrowers find themselves paying penalty rates.

The collapse of the auction-rate security market doesn’t reflect newly discovered problems with the borrowers: the Port Authority is as financially sound today as it was a month ago. Instead, it’s contagion from the broader credit crisis.

One channel of contagion involves monoline bond insurers, the specialized insurance companies that are supposed to guarantee debt. These companies insured buyers of local government debt against losses — but they also guaranteed a lot of sub prime-related investments, which makes everyone wonder whether they’ll actually have the money to compensate losers in other markets.

More important, however, is the way the ever-widening financial crisis has shaken investors’ faith in the whole system. People no longer trust assurances that fancy financial instruments will function the way they’re supposed to — after all, they know what happened to people who thought their sub prime-backed securities were safe, AAA-rated investments. Why, then, should they believe that auction-rate securities are as good as cash?

And loss of trust can be a self-fulfilling prophecy. Now that new investors won’t buy auction-rate securities because they no longer believe that they’re as good as cash, those securities become a much worse investment.

Needless to say, all of this is bad for the economy. I like to think of what’s happening as a sort of minor-key reprise of the banking crisis that swept America in 1930 and 1931. Frustrated investors who can’t get their money out of auction-rate securities aren’t as photogenic as angry mobs milling outside closed banks, but the principle is the same. And so are the effects: would-be borrowers can’t get credit, and the economy suffers.

One simple measure of the seriousness of the credit problem is this: although the Federal Reserve has sharply cut the interest rate it controls over the past few weeks, the borrowing costs facing many companies and households have actually gone up.

And the financial contagion is still spreading. What market is next?
*****

European bourse indexes closed over 1% lowed across the continent. Brazil and Mexico were also down over 1%.
*****

Oil closed up 26 pennies at $95.72. Gold dropped $4 to $902 and treasuries were flat on the short end a bit better on the long end with the two year at 1.92% and the ten-year at 3.77%.
*****

The DJIA closed down 25 points at 12350.  The S&P 500 was up 1 point at 1350 and the NAZZ dropped 10 points to 2322.

Breadth was 2/1 negative and volume was moderate for an options expiration day.

New lows expanded a bit with 120 on the NYSE and 140 on the NAZZ.

The bears remain in control.
*****

 

Valentine’s Day 14 February 2008

Thoughts

Asian markets were very strong overnight with Japan, Hong Kong, Taiwan and India all up over 4%. European bourses are better by up to 1%. Treasuries are flat, Oil is up 50 pennies with a $93 handle in the early going and Gold is down $1 at $905.
*****

Jobless claims were down 10,000 to 348,000.
*****

From Bloomberg:

UBS the large investment bank/broker won't buy auction-rate securities that fail to attract enough bidders, joining a growing number of dealers stepping back from the $300 billion market, said a person with direct knowledge of the situation.

The second-biggest underwriter of the securities, whose rates are reset periodically at auctions, notified its 8,200 U.S. brokers of the decision yesterday, said the person, who declined to be identified because the announcement wasn't publicly disclosed. Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Citigroup Inc. allowed auctions to fail as mounting losses from the collapse of sub prime mortgages causes capital markets to seize up.

Bank of America Corp. estimated in a report that 80 percent of all auctions of bonds sold by cities, hospitals and student loan agencies were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction-rate bonds that are scheduled for bidding daily.

Auctions are failing as confidence in the creditworthiness of insurers backing the securities wanes, and as loss-plagued banks seek to avoid tying up their capital. More than 129 auctions failed yesterday.

UBS was the second-biggest underwriter of municipal auction-rate debt after Citigroup in 2006 according to Thomson Financial. UBS posted a $12 billion write-down today and said $30 billion of other sub prime mortgage stuff that isn’t doing so well either.

Auction bonds have interest rates that are determined by bidding that typically occurs every seven, 28 or 35 days. When there aren't enough buyers, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at a level spelled out in official statements issued at the initial bond sale.

Until recently, UBS and other banks that collect fees for running auctions have stepped in with their capital to prevent failures when bidding falters. These firms have grown unwilling to commit their money to auction-rate securities after suffering at least $133 billion in credit losses and mortgage write downs stemming from the sub prime mortgage collapse.

Auctions began stumbling three weeks ago when banks failed to drum up enough demand for auction rate bonds sold by borrowers including Georgetown University and Nevada Power. Since then, auctions have failed for frequent and well-known borrowers, such as Port Authority of New York and New Jersey and New York State’s Metropolitan Transportation Authority.

The failures show the widening impact of the bursting of the U.S. housing bubble, which has caused rising defaults on home loans and threatened the credit ratings of the insurance companies that guaranteed structured securities -- such as collateralized debt obligations tied to mortgages -- against default. The waning strength of some bond insurers has caused investors to trim their exposure to debt backed by companies such as Ambac Financial Group Inc.'s Ambac Assurance Corp., concerned that it may be difficult to sell such debt should insurers' problems grow worse. That has hurt borrowers such as the Port Authority, whose auction debt soared to 20 percent on Feb. 12 from 4.3 percent a week ago even though there is little risk it will default on its debt. Local governments are obliged to pay the high rates until either the auctions start attracting more buyers or they modify the bonds to some other kind of variable-rate debt or a fixed interest rate. Bankers and borrowers have been working on conversion plans for several weeks.
*****

A Chinese facility that hasn't been inspected by the U.S. Food and Drug Administration made the active ingredient in much of the widely used Baxter International blood-thinner that is under investigation after reports of hundreds of allergic reactions and four deaths among the drug's users, the agency said yesterday.
*****

Auto loans at least two months delinquent hit a 10-year high in January, said Fitch Ratings, signaling the continued spread of consumer weakness to debts beyond homes and credit cards. The firm said 0.77% of U.S. prime and sub prime auto asset-backed securities were more than 60 days behind on payments, with the rate jumping 12% from December and 44% from a year ago. Sub prime delinquencies topped the 4% level for the first time since late 1997, reaching 4.03% last month, up 10% from December and 43% from a year earlier.
*****

With the major measures down 1.5% we are initiating trading positions in many accounts in WB at $33.65, XLK at $22.97, XLF at $26.75 and QQQ at $44.15. We also bought GM in accounts at $25.88 to own unless….
*****

Europe closed mixed and Mexico and Brazil were lower.
*****

Oil ended up $2.10 at $95.38. Gold gained $3 to $912. Treasuries were weaker on the long end with the two-year unchanged at 1.92% and the ten-year up 12bps to 3.81%.
*****

We sold the QQQ for a 5 pennies loss at 2:10pm. We purchased the QQQ when they were down 2% on the day and the major measures were down 1%.  But heading into the last hour of trading Moody’s downgraded FGIC, one of the monoline insurers, and although the move was expected it added some uncertainty to the markets. With that news we had more market exposure than we wanted to hold overnight with the QQQ and the move up in the major measures that began in the last hour was not as dynamic as we thought it would be.
*****

With the markets moving down to the lows of the day moving into the close we had the opportunity to get out even on the WB even and we did. We can always look at it tomorrow.
*****

The DJIA closed down 155 points at 12376. The S&P 500 lost 19 points to 1348 and the NAZZ dropped 40 points to 2333.

Breadth was 3/1 negative at the bell and volume was moderate.

There were 85 new lows on the NYSE and 105 lows on the NAZZ.

The bears are back.
*****

 

13 February 2008

Thoughts

Asian markets were mixed overnight with Hoang Kong up 1%, India up 2% and China don 2%. European bourses are mostly lower at midday giving back some of yesterday’s gains and Gold is down $4 with Oil unchanged at $92.78 in the early going. Treasuries are flat.
*****

January retail sales were up 0.3% which was better than expected. Ex autos retail sales were still up 0.3%.
*****

Investors Intelligence had 37% bulls and 35% bears in their latest report. The large bear population and lowered bullish group should be a positive for the markets.
*****

Panera Bread wrote down $1 million of its investment in Columbia Strategic Cash Portfolio. Panera has $25 million in the cash fund and can not liquidate it. Colombia Strategic Cash Portfolio had been run by BankAmerica and was designed to provide more yield than pain vanilla money funds. The $12 billion Columbia fund (at one time it had $40 billion in assets), which closed late last year, was an alternative (higher risk, higher-yielding) money-market fund run by Bank of America; the bank blamed sub prime-related holdings for the losses. Bristol Myers took a $250 million write down on the same kind of failed money management and fired its treasurer. There are other companies out there who haven’t yet confessed.
*****

Goldman Sachs continues to be under selling pressure this morning at 10AM and is approaching the $175 mark down from high of $250 last fall. To go higher the markets need Goldman.
*****

We have also been looking at the PowerShares QQQ Trust as a trading vehicle. We like the distribution in this trust a bit better than the SPDR Tech Index. The top 10 Holdings: Microsoft 6.70%, Apple 6.55%, Qualcomm 5.18%, Google 3.83%, Cisco 3.59%, Intel 2.97%, Amgen 2.79%, Oracle 2.77%, Starbucks 2.56%, Comcast 2.52%. Total: 39.46%
*****

Gold ended the day unchanged at $912. Oil was up 50 pennies at $93.25 and Treasuries were slightly better. Mexico and Brazil were higher while European bourses closed mixed.
*****

1380, 1405 and 1430 are upside resistance levels on the S&P 500 going forward.
*****

The DJIA closed up 175 points at 12550. The S&P 500 gained 18 points to 1366 and the NAZZ rose 55 points to 2375.

Breadth was 2/1 positive and volume was light.

There were 80 new lows on the NYSE and 90 new lows on the NAZZ. A rally tomorrow my move new highs over new lows.

The bulls won the day.
*****

 

Lincoln's Birthday 12 February 2008

Thoughts

Warren Buffet has proposed to re-insure municipal bonds. This, in effect, would assure that the municipal bonds insured by the monoline insurance companies AMBAC, MBIA and FGIC would maintain their AAA ratings. The re-insurance plan would actually hurt the insurance companies by reducing the profits they receive from fees for guaranteeing the bonds. Unfortunately the insurance companies don’t have the capital to maintain their AAA ratings which is necessary to insure the bonds.

Buffet reported that one insurance company has rejected his proposal and he hasn’t heard from the others. Buffet is not doing any favors for the insurance companies but we are sure that the municipal bond holders would be delighted.

And while nothing may come of this it does show that there are solutions to problems if and when companies will fess up and bite the bullet and pay for their mistakes. The Fed and the SEC need to be involved (and probably are) in the process to move it along.
*****

Asian markets were higher last night except Shanghai which reopened and lost 1.5%. European bourses are up 1% and more at midday. Gold is $2 lower and Oil is also. The IMF, International Monetary fund said it will begin selling gold in April. Treasuries are flat.
*****

GM lost a ton of money but with a tax benefit it reported a few pennies per share earnings. GM announced that it is going to offer buyouts to 76,000 union members to hire lower cost replacement workers. And so goes industrial America.
*****

Sprint added an activist investor to its board. Ralph Whitworth’s hedge fund owns 2% of Sprint.
*****

They must have had their fingers crossed when they guaranteed support:

Standard Chartered Bank’s (a large UK bank) plan to provide $7 billion of backing to a structured investment vehicle fell through on Monday as deeper losses in the underlying assets forced it to appoint a receiver for the SIV. Standard Chartered said Whistlejacket, a SIV it manages and sponsors, had breached its capital note net asset value of 50 percent due to a fall in the value of its assets, leading to a so-called enforcement event that requires the appointment of a receiver. The bank had announced on Jan. 31 that it planned to provide $7.15 billion of liquidity to support Whistlejacket in an effort to prevent a fire-sale of assets as short-term funding matures. That now remains a threat. Standard Chartered said it will discuss alternative liquidity arrangements with the receiver and said the assets held good long-term value. These are the SIV vehicles that many money funds (not ours) hold and can’t get out of and are hoping ……
*****

In the first three hours of trading the DJIA advanced 200 points on the back of the Buffet rescue plan and oversold condition in the markets. Some momentum names like First Solar and Apple didn’t participate in the rally nor did Goldman Sachs (earnings estimates were dropped by Credit Suisse this morning).

We bought the SPDR Financial yesterday before the full impact of the AIG problems were know and were under water with it the rest of the day. As this morning’s rally begins to fade we are selling our four trading positions from yesterday and going back to cash to await another maybe better entry point. We made a bit of a profit on all four trades which of course beats a loss.

Standard Chartered walking away from its SIV is more important than the markets seem to recognize. Because it is a British bank we presume that the U.S. traders don’t place much importance on the news. We are not that cavalier and if the Buffet news had not been front and center we think the default would have been the big story.
*****

France, England and Germany all closed 3% higher today. We guess European traders are taking the Standard Chartered non action in stride also.
*****

From Reuters: Luxury builder Toll Brothers says a member of its founding family is trying to walk away from an agreement to buy a new condominium.

The daughter of Vice Chairman and co-founder Bruce Toll informed the company last month that she and her husband "did not intend to make settlement" on a $2.47 million home they had previously agreed to purchase, the company said in a regulatory filing.

Toll Brothers went on to say that it intends to pursue its rights under the agreement of sale with Toll's daughter, Wendy Topkis. A company spokesman was not immediately available for comment on the filing, which was made public on Friday. The company, hard hit by the U.S. real estate slump, said last week that it sees no signs of improvement in the depressed housing market. It estimated a 22 percent drop in home-building revenue for its fiscal first quarter, ended Jan. 31. In its filing with the U.S. Securities and Exchange Commission, Toll Brothers said it has a policy of providing home purchase discounts to immediate family members of company employees. The contract with Topkis was reached prior to fiscal 2007, it said. The location of the condo was not disclosed.
*****

Treasuries closed a bit weaker today. Gold was down $16 to $910 and Oil dropped $1 to $92.59. Brazil and Mexico closed over 1% higher.
*****

The DJIA closed up 133 points at 12373. The S&P 500 was up 10 points to 1349 and the NAZZ closed flat at 2320 as the momentum stocks sold off into the close.

Breadth was 3/2 positive and volume was moderate.

There were 90 new lows on the NYSE and 110 on the NAZZ.

The bulls won the day.
*****

 

11 February 2008

Thoughts

Asian markets were lower overnight with Hong Kong of 3.6% and India down 4.7%. China has not reopened yet.

European bourse indexes are mildly lower at midday and Gold is up $7 at $925 while Oil ahs a $91 handle which is lower. Treasuries are firm in the early going.
*****

Yahoo rejected Microsoft’s $31 bid and wants $40 and is reported to be re-opening talks with Time Warner about some combination with AOL. The soap opera continues. A $33 price may end it.
*****

Effective February 19th, the Tuesday after options expiration on Friday, and the Monday February 18th President’s Day holiday Altria and Honeywell will be removed from the Dow Jones Industrial Average. Both are at their recent highs. Maybe that is a market call. Bank of America on its low and Chevron are being added. And so an unmanaged market indicator is being managed. Only GE remains from the original DJIA.
*****

AIG the large insurance company is off 12% this morning to a new ten year low after it reported in an 8K filed with the SEC that its auditors have some issues with AIG’s derivative pricing. AIG reported it would need to alter the way it values credit default swaps involving collateralized debt obligations. CDOs are funds that contain slices of bonds, some of which are backed by mortgages. The insurer said auditors found it "had a material weakness in its internal control over financial reporting and oversight" regarding how it valued certain credit default swaps.

Bloomberg reports on the AIG story:

American International Group Inc., the world's largest insurer by assets, said auditors found a ``material weakness'' in how the company values its credit- default swap portfolio. The stock fell the most in 20 years.

The contracts declined by about $4.88 billion in October and November, according to data in a regulatory filing today. The drop was confirmed by company spokesman Chris Winans. AIG had said in December that the value of the ``super senior credit derivatives'' fell by about $1.1 billion in those two months. The stock retreated 11 percent to $45.16 as of 10:19 a.m. in New York Stock Exchange composite trading.

AIG has lost about a third of its market value in the past year on concern that the U.S. housing slump will reduce earnings and the value of its holdings. The company has units that originate, insure and invest in sub prime loans or securities. AIG hasn't yet fully determined the decline in value of the swaps in the fourth quarter, the New York-based insurer said in the regulatory filing today.

``AIG is still accumulating market data in order to update its valuation'' of the portfolio, it said in today's filing.

The insurer said it believes it presently has ``procedures to appropriately determine the fair value'' of the portfolio for the yearend financial statements.

AIG's third-quarter net income declined 27 percent to $3.09 billion on losses linked to the U.S. housing slump.
*****

The tech guru we have been following and in whom we have confidence suggests that 1326 on the S&P 50 is an important support level and he expects it to hold with  a rally to 1400 in the next few weeks in the context of a bear market.

We would like to have some money in the markets for trading purposes at this time as a function of the testing of the January lows and a potential bounce higher and we are interested in tech and financial names where the percentage rebound potential is the greatest as seen in the January rebound off the SoGen lows. But we are leery of owning individual names because, lately, for every Yahoo there have been two AIGs and we have no confidence that elves are going to let us know which are which as they do for some of the big boys and girls. And so we are buying the SPDR Financial Index and the SPDR Technology Index in 10% amounts each in many accounts. The SPDRs give us diversified holdings for trading purposes. The XLK and XLF are an effective way to try and participate in a counter macro trend move. As a refresher these are the ten major holdings of each

XLK: Microsoft 10%, AT&T 9% , Cisco 6%, Google 6%, Apple 6%, Intel 6%, IBM 5%, Hewlett-Packard 5%, Verizon 5%, Oracle 3%.

XLF: BankAmerica 9%, Citi 7%, JP Morgan 7%, AIG 6%, Wells Fargo 5%, Goldman Sachs 4%, Wachovia 3%, American Express 3%, US Bancorp 3% and Morgan Stanley 2%.
*****

We are also repurchasing AT&T and GE at prices lower than where we recently sold. Both pay good dividends for downside support and have the potential to move higher in any pop.
*****

European bourse indexes closed lower. Gold was up $6 at $927 and Oil gained $1.84 to $93.75. Brazil and Mexico were higher and Treasuries closed flat on the short end to a few ticks better on the long end.
*****

The DJIA gained 58 points to close at 12240. AIG, which was down $5, accounted for a loss of 40 points in the DJIA. The S&P 500 rose 8 points to 1340 and the NAZZ was up 15 points at 2320.

Breadth was 5/4 positive and volume was light.

There were 120 new lows on the NYSE and 125 new lows on the NAZZ.

The bulls won a small victory today.
*****

 

8 February 2008

Thoughts

Many Asian markets remain closed for the New Year. Of those open, Japan was down 1% and India which was also lower. European markets are mixed at midday and Oil has an $88 handle while Gold is up $9 dollars. Treasuries are slightly lower. Stock futures are indicating a lower opening this morning.
*****

Thursday’s market were all over the place with the DJIA down 75 points at the open, up 130 points in the afternoon, down 20 points a half hour before the close and up 50 points at the finish.

Cisco earnings were fine but the company said orders had slowed in January and was cautious going forward. The shares sold off $2 in the after hours Wednesday night but then regained that loss to close basically unchanged for the day on Thursday.
*****

Jim Cramer, the gadabout market maven, wrote the following on his website:

This market is so hard because really smart people are getting it wrong every day. They are making big bets and getting it totally wrong. Do not feel bad if you are one of them who is getting it wrong. Don't be blind to opportunity, but do understand that I cannot recall a time when people have been getting it as wrong as they are now on a daily basis.
*****

Wheat traded over $10 this morning which is up from $4 a year ago. Some hedgers are probably in trouble. The commodity markets are not able to absorb the money available for speculation. Markets without controls are not free markets they are chaotic markets with no rhyme or reason.
*****

A story making the rounds is that the reason for the lousy retail sales numbers that were reported yesterday was because gift cards were not being redeemed in their usual numbers and that overall fewer gift cards had been sold this holiday season. That may be why Wal-Mart missed yesterday with only 0.5% same store sales growth versus an expected and forecast 2% growth for February. Wal-Mart is suggesting that folks are saving their gift cards to buy groceries and necessities.
*****

Exxon Mobil has won court orders freezing as much as $12 billion in petroleum assets controlled by Venezuela’s government in an escalation of a dispute over efforts by President Hugo Chávez to assert greater control over the country’s oil industry.

This contremps may set off another round of oil price jumps if Chávez decides to close down exports to the U.S.
*****

Dell has decided to stop selling most consumer computers powered by Advanced Micro Devices chips through Dell's popular Web site. The big computer company says it still plans to sell AMD-based machines in retail stores and over the phone. Dell's decision is a setback for AMD, which took years to convince Dell to modify its strategy of using only chips from Intel.

We sold the AMD we own for another loss. It is off our screen.
*****

Oil gained $3.65 to $91.76. Gold Gained $13 to $923. Treasuries recovered from Thursday with the two-year at 1.93% and the ten-year at 3.65%. European bourses closed mixed and Brazil and Mexico were a bit higher.
*****

The S&P 500 closed down 4% on the week.
*****

The DJIA was down 67 points on the day at 12180. The S&P 500 dropped 6 points to 1332 and the NAZZ was up 12 points at 2304.

Breadth was 3/2 negative and volume was moderate.

There were 90 new lows on the NYSE and 120 new lows on the NAZZ.

The bears won the week and are winning the month and the year too.
*****

 

6 February 2008

We have jury duty on Thursday and part of Friday so our next post will be late Friday night.

Thoughts

Asian markets were lower overnight with Hong Kong down over 55 and Japan down 4%; and European bourses are mixed to higher at midday. U.S. futures suggest a moderately higher opening. Gold is back to $900 and Oil has an $88 handle. Treasuries are firm.
*****

As we said yesterday, the market pullback on Monday and Tuesday came after a 50% retracement (150 point move higher on the S&P over the last two weeks ending February 1) of the original correction (1550 on S&P to 1250) from the October 9, 2006 highs. The sell off of the last two days retraced half of that 50% up move (we are now 75 points above the bottom the S&P made two weeks ago) and this morning the major measures are moving higher.

Now it is time to deal with the money we have - not with the money we used to have or the money we wish we had. The reality is that we need to work with our current resources to build them over time.

We are not heroes and so - as we have for the past eight years - we are going to raise cash on this move higher and get back to a hunker down position under 20% invested in large/aggressive accounts and under 40% in our smaller accounts. We would like to be long term investors but our intuition is telling us that now is not the time.

The market is trying to decide what to do with the information it has and the information it wishes it had. . Even though the major measures are higher this morning, the momentum stocks are under pressures and in the red. Apple is under $130 support and Google is back down through the $500 level.

We don’t think stocks are going to run away from us on the upside. And so we are using this morning’s 100 point rally to raise cash for breathing room to see how the next week or two into options expiration works out.

We began with Cisco which reports after the bell tonight. We are selling our large cap tech stocks and most other stocks with the hopes of returning at lower prices. Some of the stocks we are selling are stocks that we bought in the last few days, some for gains some for losses. That goes with the territory when we are in markets like the present one where psychology is the main mover of stocks. With the pullback of the last two days the market is now is no person land where only short term traders tread.
*****

Bear Stearns downgraded No 1 U.S. automaker GM to "underperform" and Ford to "peer perform."

In a research note to clients, analyst Peter Nesvold wrote that the "facts are changing at an accelerating rate; and when the facts change, we must change our view."

"Our downgrades reflect renewed concerns that both the propensity and ability of the automotive consumer to purchase vehicles is deteriorating at an accelerating rate," he added.

Last Friday GM reported a surprise 2.6 percent increase in January U.S. vehicle sales, while Ford said sales declined by 3.6 percent during the month.

High gasoline prices plus the U.S. housing meltdown have raised concerns that the U.S. economy may be headed for a recession, causing consumers to err on the side of caution and delay big-ticket purchases such as new vehicles. As a result, many in the auto industry have predicted a second straight year of lower sales.

Bear Stearns' Nesvold wrote that in the case of GM "we expect heightened incentives and continued market share losses for the foreseeable future into a fading product cadence and a declining '08 market."

On Ford, Nesvold wrote "the trajectory of the turnaround is encouraging... we simply believe it prudent to keep some powder dry until the macro horizon clears."
*****

Oil finished down $1.25 to $87.15. Gold was up $13 to $903. Treasuries were a bit lower with the two-year at 1.86% and the ten-year at 3.61%.

European bourse indexes closed mostly 1% and higher across the continent. Brazil and Mexico were lower.
*****

The DJIA closed down 65 points at 12200. The S&P 500 lost 10 points to 1326 and the NAZZ dropped 30 points to 2278.

Breadth turned 3/2 negative near the close after being 2/1 positive in the morning. Volume was moderate.

New lows were modest with 75 on the NYSE and 105 on the NAZZ.

The bears are in control.
*****

 

5 February 2008

Thoughts

The January ISM Non Manufacturing Index i.e., the service industries, was 41. The Non Manufacturing ISM Employment Index was 44. Fewer than 50 reflect contraction within the service industries which account for 75% of economic activity and so that report released at 8am has caused stocks futures to sell off 1% in the early going.

Asian markets were lower overnight ahead of the lunar New Year and Europe was mixed but is now lower at midday. Oil ahs an $89 handle and Gold is down $15 to $890. Treasuries are firm.
*****

A JP Morgan analyst downgraded Broadcom from "Overweight" to "Neutral" on its weak profit margins. JP Morgan analyst Shawn Webster said in a note to investors that he was putting his investments elsewhere until profit margins improve. Factors influencing his downgrade include economic difficulties and the company's limited market growth.

Webster said Broadcom's baseband investment was "massively" cutting into earnings as roughly 25 percent of the company's research effort is dedicated to baseband chips.

Baseband chips typically transform low frequency signals to a higher frequency for transmission in communication equipment. "We believe the company's focus on baseband chips leaves it exposed to execution missteps in its other lines of business," Webster said. He lowered his 2008 earnings estimate to 41 per share cents from 46 cents per share and his sales estimates to $4.24 billion from $4.29 billion. Broadcom shares fell $1.21, or 5.2 percent, to $22.22 Monday. Shares have traded in the last year between $20.52 and $43.07.

We are buying on the low. The shares are priced at 2.5 times sales. BRCM has no debt and $2 billion ($4 per share in cash). surely they my not executed but cutting a rating from basically buy to sell after the shares have dropped 50% doesn’t give a lot of confidence in this analyst’s views.
*****

Wachovia Bank was downgraded yesterday and sold off $3. We bought an initial position at $35.90 in our larger accounts and plan to add more lower. We have been trading the stock and will continue to do so. It has CDO/SIV/ Mortgage problems and the analyst who downgraded said they may cut their dividend.

WB has 100% upside plus good trading potential.
*****

Stocks are off 200 points on the early going. The move up in the markets from the January SoGen sell off low to last Friday was a 50% retracement of the move down from the October 9, 2006 all time high. Technically, 50% quick retracement of waterfall sell offs are considered to be hallmarks of Bear Market rallies and that is the reason for the heavy selling this morning as traders try to flip from the long to the short side of the markets.

We aren’t so sure that the bear market scenario will play out and are willing to hold what we purchased and add a few positions that we missed the last time around or traded out of in the rally. We will become concerned if the SoGen low doesn’t hold but we have a ways to go to get to it. Backing and filling is also necessary to test that low if stocks are going to hold and eventually go higher and we think that is what is occurring.
*****

Organic food maker Hain Celestial Group Inc. said Monday its fiscal second-quarter profit grew 10 percent, as higher prices helped offset increased ingredient costs.

For the quarter ended Dec. 31, Hain said its profit increased to $15.6 million, or 37 cents per share, from $14.2 million, or 34 cents per share, a year earlier. Excluding charges related to a review of its stock options practices and the cost of opening a new facility for its frozen meat-free foods business, Hain said it earned 43 cents per share in the latest period. Revenue grew 20 percent to $276.2 million from $230.2 million a year earlier.

Analysts polled by Thomson Financial expected Hain to earn 43 cents per share on $266 million in revenue. The company said growing "input costs," which include the expense of buying ingredients, shrank its profit margins by a significant amount but were counteracted by higher prices. Hain backed its fiscal 2008 forecast for profit of $1.38 to $1.42 per share on $1.03 billion to $1.05 billion in sales. Analysts expect a profit of $1.40 per share on $1.03 billion in revenue.

We bought shares yesterday and are adding more today. We have owned Hain and traded Hain profitably before the recent purchases.
*****

We bought Verizon back in many accounts today at $36.95 to hold/trade? And we bought Texas Instruments at $29.95 in our larger accounts for a trade.
*****

We are buying Eastman Kodak under $20. This is the first time in a few years that we have owned the shares but we think its financial position and movement from film to digital makes the stock attractive at these levels. EK is on a 25 year low and down from $30 earlier this year. The company has $10 per share in cash and is priced at one half of revenues.

On last Wednesday Eastman Kodak Company reported fourth-quarter earnings from continuing operations of $92 million, or $0.31 per share, on higher year-over-year revenues, reflecting the emergence of a new, more profitable company.

Kodak also met or exceeded all of its key financial commitments and strategic goals for 2007, most notably:

  • Delivering an 8% increase in digital revenue
  • Achieving digital earnings of $176 million
  • Net Cash Generation of $333 million
  • On a GAAP basis, for the total year, revenue declined by 3% and cash provided by operating activities from continuing operations was $352 million
  • Aggressive entrance into new markets and product categories, including the introduction of the KODAK All-in-One Inkjet Printing System, KODAK digital picture frames, KODAK InSite enterprise management software, and the KODAK NEXPRESS S3000 Digital Production Color Press
  • Completion of the company’s four-year corporate restructuring program
  • Achieving targeted cost model for the year and reducing full-year Selling, General and Administrative costs from 18.5% to 17.1% of revenue

“I am thrilled with our 2007 performance, as it is powerful evidence that a new Kodak has emerged and is producing solid, value-creating growth,” said Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company. “We delivered another strong quarter, and another strong year of earnings growth, and met or exceeded every important goal that we set for ourselves.

“In addition, we successfully entered the $50 billion consumer inkjet market and exceeded our first-year printer sales goal. What’s more, third-party data indicates that Kodak is enjoying a 30% price premium over the industry average. Clearly, our value proposition is resonating with consumers and they are willing to pay a bit more for a Kodak printer because they know they will save money every time they print. Consumer inkjet is just one of several new product introductions that are receiving positive customer response. The more I see of them, the more optimistic I am about their success.”

Kodak’s digital revenue grew 15% in the fourth quarter of 2007, driven by strong year-over-year increases in all key digital businesses, partially offset by a decline in snapshot printing.

The company achieved $146 million in digital earnings for the fourth quarter, driven by an expanded product portfolio, intellectual property arrangements, and operational improvements, resulting in strong full-year earnings performance across the company’s digital business units. For the full year, the company delivered $176 million in digital earnings, a $189 million improvement from the prior year, significantly outpacing a $30 million year-over-year decline in traditional earnings. Earnings from continuing operations before interest, other income (charges), net, and income taxes were $130 million for the quarter and a loss of $230 million for the year.

On the basis of generally accepted accounting principles (GAAP), the company reported fourth-quarter earnings from continuing operations of $109 million pre-tax, $92 million after tax, or $0.31 per diluted share, reflecting the impact of 19 million additional shares from contingently convertible securities. This compares with earnings of $111 million pre-tax, and a loss of $15 million after tax, or $0.05 per share, in the year-ago period. Items of net expense impacting comparability in the fourth quarter of 2007 totaled $28 million after tax, or $0.09 per share. The most significant items were restructuring costs of $68 million before tax and $44 million after tax, or $0.14 per share, net gains on sale of property of $116 million before tax and $89 million after tax, or $0.29 per share, impairment of an investment of $46 million after tax, or $0.15 per share, and various other tax-related items totaling $25 million, or $0.08 per share. In the fourth quarter of 2006, items of net expense impacting comparability totaled $158 million after tax, or $0.55 per share, primarily reflecting restructuring costs and tax valuation allowances.

For the fourth quarter of 2007:

  • Sales totaled $3.220 billion, an increase of 4% from $3.106 billion in the fourth quarter of 2006. Digital revenue totaled $2.262 billion, a 15% increase from $1.974 billion in the prior-year quarter. Traditional revenue totaled $951 million, a 15% decline from $1.117 billion in the fourth quarter of 2006.
  • Digital earnings for the fourth quarter improved by $5 million, to $146 million this quarter, from $141 million in the year-ago quarter.

Other financial details:

  • Gross Profit margin was 24.5% for the quarter, up from 23.8% in the year-ago period, primarily attributable to lower costs from manufacturing footprint reductions, intellectual property, and foreign exchange, partially offset by increased commodity costs and price/mix impacts.
  • Selling, General and Administrative expenses increased by $48 million from the year-ago quarter, primarily reflecting the company’s investment in advertising to support new products, including its consumer inkjet printing system. As a result, SG&A as a percentage of revenue was 16%, compared with 15% in the year-ago quarter.
  • Net Cash Generation for the fourth quarter was $1.132 billion, compared with $905 million in the year-ago quarter. This corresponds to net cash provided by operating activities from continuing operations of $1.046 billion for the fourth quarter, compared with $1.002 billion in the year-ago quarter.
  • The company’s debt level stood at $1.597 billion as of December 31, 2007, a $1.181 billion reduction from the 2006 year-end debt level of $2.778 billion.
  • Kodak held $2.947 billion in cash and cash equivalents as of December 31, 2007, an increase of $1.478 billion from the year-ago period.

Fourth-quarter segment sales and results from continuing operations, before interest, taxes, and other income and charges (earnings from operations), are as follows:

  • Consumer Digital Imaging Group sales for the fourth quarter were $1.730 billion, an 8% increase from the prior-year quarter. Revenues from digital products grew by 17%, driven by growth in Digital Capture and Devices, kiosks and related media, and consumer inkjet printers. Earnings from operations improved by $13 million to $76 million, compared with $63 million in the year-ago quarter. This improvement was driven by an expanded product portfolio, intellectual property arrangements, and operational improvements in the Digital Capture and Devices business, partially offset by costs associated with new product introduction activities in the Inkjet Systems business.
  • Graphic Communications Group sales for the fourth quarter were $998 million, a 7% increase from the year-ago quarter. Revenues from digital products grew by 12% to $891 million, driven by increased sales of digital plates, NEXPRESS digital color printing presses, and digital printing consumables. Earnings from operations were $33 million, compared with $47 million in the year-ago quarter. This earnings decline was primarily driven by higher aluminum and other costs, the impact of an intellectual property licensing settlement, and decreased sales and gross profit from traditional products.
  • Film Products Group fourth-quarter sales were $463 million, down from $559 million in the year-ago quarter, representing a decrease of 17%. Earnings from operations were $40 million, compared with $83 million in the year-ago quarter. These results reflect impacts from volume and mix along with seasonal production slowdowns in film manufacturing, some initial effects from the writers’ strike, higher silver costs, and the impact associated with new and renewed film agreements.

Other 2007 Highlights:

  • The company’s loss from continuing operations for 2007 was $205 million, or $0.71 per share, a $599 million, or $2.09 per share improvement, from the 2006 level. The favorable year-over-year change reflects a decrease in restructuring charges, as the company completed the final year of its corporate restructuring program. It also reflects greatly improved operational performance across all of the company’s businesses as well as reduced taxes and SG&A expenses versus the prior year.
  • All of Kodak’s major businesses showed improvement in earnings from operations on a full-year basis. Specifically, CDG earnings from operations improved by $148 million from 2006. GCG earnings improved from $100 million in the year-ago period to $116 million in 2007. FPG earnings from operations were $369 million in 2007, compared with $368 million in the previous year, and its operating margin improved to 19% for the year, from 16% in the prior year, despite a 15% decline in revenue.
  • Net Cash Generation for the full year was $333 million, compared with $365 million in 2006. This corresponds to net cash provided by operating activities from continuing operations of $352 million for 2007, compared with $685 million in 2006.

“Our corporate restructuring is now over and Kodak is revitalized and ready to grow,” said Perez. “We have a strong market position in a significant number of very promising digital businesses, a competitive operating structure, a powerful brand, and extremely valuable intellectual property. We are a new company with a strong emphasis on sustaining profitable growth, and the talent and resources necessary to achieve that goal. This positions us well for strong performance in 2008 and beyond.”
*****

European bourse indexes closed sharply lower on Tuesday with Many down 3% or more. Mexico and Brazil also are down. Treasuries were strong with the tow year at 1.91% and the ten-year at 3.59%. Gold closed down $17 at $890 and Oil dropped $1.65 to $88.33.
*****

The DJIA dropped 360 points to end at 12268. The S&P 500 was down 44 points at 1335 and the NAZZ lost 72 points to 2310.

Breadth was 4/1 negative on the NYSE and volume was moderate.

New lows were 75 on the NYSE and 100 on the NAZZ demonstrating that we are still within the range of consolidation and hopefully not more.

The bears are back. Nobody said it would be easy.
*****

 

4 February 2008

Thoughts

The Giants win means that the old NFL won which is good for the markets. By the way as soon as Patriot coach Belechek came on the field with that spiffy new red sweatshirt instead of the old ratty grey thing he always wears we knew that the Patriots were in trouble. He was tempting the gods of superstition by changing his usual uniform. He lost.

For what its worth- which is very little- according to minaynville.com the S&P 500 has rallied an average of 11% in the twelve months following the two previous super bowl wins by the Giants.
*****

Shanghai jumped 8% overnight and the rest of Asia was strong. We read a piece that mentioned that the Asian markets are the last bubble remaining to be burst.

European bourses are higher by 1% and more at midday and Oil has an $88 handle in the early going with Gold down $10 and trading under $900. Treasuries are a bit weaker.
*****

We are going to take some very short trading profits in accounts to raise some cash. The major measures have re-covered 10% of their 20% loss and we may be in for some backing and filling. We sold AT&T, Boston Scientific, DreamWorks, Palm, Texas Instruments, Schering Plough and Bristol Myers. We are using the BSX money to buy and equal amount of shares of Coldwater Creek- for fewer dollars, of course.

We also began re-purchasing Ford thus guaranteeing that it will go no higher for a while at least. Ford has been a soap opera for us for the past year but we do want to have exposure to it to go with our GM holdings. The Fed lowering interest rates should eventually have a positive effect on auto leasing and sales.
*****

European bourse indexes closed mixed to higher as they gave up much of their morning gains on the punk action of the U.S. markets. Brazil and Mexico are celebrating Mardi Gras.
*****

Oil gained $ to close at $89.86 and Gold recovered to close down $6 at $906. Treasuries were slightly higher in yield for the day with the two-year at 2.06% and the ten-year at 3.64%.
*****

The DJIA closed down 120 points at 12625. The S&P 500 lost 15 points to 1380 and the NAZZ dropped 30 points to 2382.

Breadth was 3/2 negative and volume was light.

There were 45 new highs and 52 new lows on the NYSE and 55 new highs and 65 new lows on the NAZZ.

The bears won the day but the light volume and new high/new low ratio should give heart to the bulls.
*****

 

1 February 2008

Thoughts

This month is beginning on a much more positive note than last month. Microsoft has made an offer to buy Yahoo for $31.50 per share.
Yahoooooooooooooooooooooooooo!!!

We sold this morning at $28.  We will let other folks make the last 10% on this deal as it will take a year to close. And MSFT may raise its price but the EU may quash the deal since their enmity toward MSFT is obvious and we are content with our $10 one week 50% profit.

We are buying MSFT in some accounts at $30.90 since we think the deal makes all the sense in the world for MSFT. And if the deal falls through all those shorting MSFT and pushing it down will have to cover.
*****

The January Employment report showed a loss of 17,000 jobs. But since the December report was revised upwards by 64,000 jobs and November report was revised downward by 55,000 we would take the January number with a good dose of salt.

Average hourly earnings were up 3.7%.
*****

As we posted last night Google’s great earnings disappointed its fans and the shares traded lower in after hours. How Google goes today will give a good idea of the tenor of the markets. Its share price finished the regular session yesterday at $560 traded as low as $500 in after hours before going out at $525 and is trading at $534 in the pre-market Friday.
*****

Motorola announced last night that it is considering alternatives for its various divisions. One consideration was reported to be selling or spinning off its handset division which has been a profit drag the last two years after being a cash cow for the previous years.

Motorola is trading higher on the news. We are going to sell the shares we bought yesterday for a $1 gain. We don’t understand why MOT would want to sell what was a very profitable division right at the time when a new phone is supposed to begin reestablishing market share. If the phone is good why sell?

The story is out and there is a 10% pop in the share price and we are selling MOT and buying Palm at $5.50 with the proceeds and so are increasing our cash to go with our YHOO sale.
*****

From CNBC we offer this story on Palm:

Palm continues to try and be noticed amid all the action in the wireless sector. The latest batch of rumors surrounds CEO Ed Colligan and his tenure at the company. They've been flying since the deal with Elevation Partners was announced and the private equity firm installed former Apple iPod superstar Jon Rubenstein as the executive chairman.

A series of key product delays and quality control issues dogged Palm: it became a take-over candidate, the highly hyped Foleo mobile companion device was scrubbed, the company kept posting disappointing earnings, Palm closed down all 34 retail locations last week. It all looked bleak for Colligan.

I have to tell you I've known Ed Colligan for years, dating back to his days at Radius. I've followed his career, I've interviewed him quite a bit, I've talked to folks who work with him, have worked with him, and I have found him to be a capable, engaging, energetic guy who commands the respect of his peers, knows what he's doing and is passionate about the opportunities ahead for Palm.

Ask him and he'll tell you that the smart phone market is only just beginning, that trying to pick a winner among all these big-name competitors when only 5 percent of the market has been tapped is a fool's chore. He makes a compelling case in a compelling way.

Palm is coming at the market completely differently than Nokia, Research in Motion and the company's brand new Nuviphone (very cool if you haven't seen this one) by offering smart phone status at dumb handset prices. And that's why the company's Centro is so important to Palm's future. Some might say Centro IS Palm's future.

No question Rubenstein's past at Apple could be the key to Palm's future as well. But discount the knowledge and history that Colligan himself brings to the party. Palm is having execution issues and the buck stops with Colligan. Who's to say that Colligan, working with Rubenstein, can't get these problems solved? The fact is, in this quarter-to-quarter Wall Street world, we all want instant results, drastic action, something that shows someone's in charge and getting the job done.

But none of us has the stakes in this game that Elevation Partners has. Hundreds of millions of dollars invested. And they seem more than patient, more than willing to give Colligan his shot, despite calls for his head and rumors that he's done.

So I went right to the source, and asked managing partner Roger McNamee whether there was any truth to the rumors that Colligan is being shown the door. It's a question McNamee and his team has gotten a lot lately. He tells me emphatically: "This rumor is ridiculous. Ed is our partner in the transformation of Palm. He's doing a great job! These people who think that closing the retail stores and killing the Foleo are signs of weakness have no clue how to make a company great. Ed is focusing Palm on all the right things. He and Jon Rubinstein are a tremendous team. Together, they are going to do incredible things. If there are any real stories I can help you with, let me know."
*****

We are going to repurchase more Sprint shares in smaller accounts. They are cheap and we should have held them.
*****

Asian markets were mostly 2% higher overnight and European bourse indexes are 1% higher at midday. Gold is up $10 to $932 and Oil is flat as are Treasuries as the trading day begins.
*****

RF Micro Devices had lousy earnings (which they pre-announced) and said sales would be lower this next quarter as China works off excess inventory. RFMD expects a new cell phone cycle to being in the summer quarter. The company is going to buy back $150 million in stock.
*****

The priced placed on Yahoo by Microsoft should have a positive effect on the AOL division of Time Warner.
*****

At noon Google is trading at $520 with the major measures unchanged to slightly higher.
*****

From Bloomberg comes word that Mother did some naughty things: Merrill Lynch agreed to pay Springfield, Massachusetts, $13.9 million to settle a dispute over collateralized debt obligations that tumbled in value. The money will reimburse Springfield for the cost of the CDOs, securities tied to home loans and other debts shunned by investors as losses on sub prime mortgages mounted. New York-based Merrill said it agreed to the refund after discovering the purchase was made without the city's consent. ``My focus all along has been to recoup these funds for the taxpayers of Springfield,'' Springfield Mayor Domenic Sarno said in a statement released last night. ``In my view, Merrill Lynch has now done the right thing.'' Local government agencies from Florida to Washington State have lost money buying securities such as CDOs that are backed by collateral no one wants. The market for CDOs has collapsed amid surging sub prime defaults that have hurt their credit ratings, making the securities difficult to sell. Merrill Chief Executive Officer John Thain said this week that the firm will cut back on packaging home loans and consumer debts into securities because demand for the products has eroded. Similar securities have also saddled Wall Street banks with at least $133 billion in credit losses and asset write downs, threatening to undermine the bond insurance companies that guaranteed the debts would be paid.
*****

General Motors reported a 2.6% rise in its U.S. light-vehicle sales for January and nudged up its production target for the first quarter, even as the U.S. economy struggles. GM's production last month was off 5% from year-earlier levels. January sales at Toyota and Ford dropped 2.3% and 3.9%, respectively.
*****

Gold popped in the morning and pooped in the afternoon closing down $19 at $909. Oil lost $2 to close with and $89 handle. Treasuries were firm with the two-year at 2.08% and the ten-year at 3.60%.

European bourse indexes closed up 1% to 2% and more across the continent and Brazil and Mexico were both 2% higher.
*****

The DJIA gained 92 points to 12743. The S&P 500 rose 17 points to 1395. 1405 is the next and very important resistance level. The NAZZ was up 24 points to 2413.

Breadth was 3/1 positive on the NYSE and 2/1 on the NAZZ and volume was active.

New highs (47) almost crossed new lows (57) on the NYSE more by new lows receding than new highs expanding.

And the bulls won the day and the week and are winning the month.
*****

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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