Bud's Poem Page
Website Information

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

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

30 January 2003 - Morning Comment

6:02am and we received an email that made a good point about the Super Bowl and its commercials:

Congratulations on avoiding the latest drop in Sprint. But I think you have missed the point about the Super Bowl. As always, the real story is the commercials. In recent years, these have been used to roll out new products with supposed mass market appeal. This year, I recall seeing: a bunch of previously viewed commercials; a bunch of local commercials indicating (I assume) that the network didn't sell all its national time; a bunch of commercials for television shows; and only two dot.com commercials -- one for Monster.com and another for a different job-listing site. There were a bunch of national "roll out" commercials, but they were all for movies! All of which looked both violent and escapist -- there's a combination to make you cringe. I suppose it's fine that Hollywood is cranking out product (although I haven't heard that they are making any money, due to increased competition from other kinds of entertainment). But it doesn't reassure one that the economy is driving forward on the strength of our creativity and entrepreneurial verve.

AOL Time Warner wrote off $99 billion in 2002. That writes off the whole value of AOL. Where are the investment bankers and media gurus who spoke in wonderment of the synergies of the only three year old merger? They still have their jobs and in the case of the investment bankers are still collecting fees.

We are tempted by the AOL sell off, but the company is still priced at $85 billion including debt and while the price action over the past year makes this price level compelling for a trade, the value of a company that has never earned money is a question. Our guess is that it will move higher over the next few days and so we may take a flyer since all the news including the kitchen sink and toilet have been thrown in and Ted Turner is gone.

6:52am and our final comment is that the S&P 500 has to clear 890 by Friday's close to have an up January and thus predict an up year. Given yesterdays action we think the higher close by Friday is possible. And we do think that this year could be up no matter what happens between now and Friday. But we would remind that 1932 was an up year for the markets after the DJIA made its all time low in July. And so acting now on what is going to happen eleven months from now does carry some risk. We will wait.

And today we will be traveling, and tomorrow too, so you'll have to wait till Saturday to find out what is new.

The first look at Fourth Quarter GDP showed it up 0.7%. That figure is subject to further revisions. The markets had priced that almost recessionary number in already.

29 January 2003

8:12am and the stock futures continue to suggest a lower opening. Earnings results are in line for many stocks but it is our feeling that stocks are still valued too highly given economic realities. Increasing budget deficits that do not stimulate the economy are going to eventually be a further drag on the stock markets. Unfortunately, artificially low interest rates are allowing the deficits to increase without the corresponding discipline of higher borrowing costs. Low interest rates are also providing an opportunity for investment "professionals" to foist time bomb income products on investors who need income to support themselves since safe CDs and Treasury Notes no longer provide a living return.

This morning we heard the argument that a record $300 billion deficit is peanuts compared to the gross national product. That may be true but a $300 billion soon to be $400 billion deficit is a future claim on the resources of a generation that is not benefiting from the borrowing.

To hear Treasury Secretary Designate Snow say that a $40 million to $100 million severance package is the going rate for Fortune 500 CEOs is a sad commentary on the gap that has been created over the past twenty years between the CEOs and workers. And it is also demonstrates the disconnect between executive pay and pay for performance. Shareholders of CSX, the company that Snow ran for more than a decade, haven't made a dime in stock appreciation during the period he ran the company.

8:51am and the DJIA is down 110 points. Verizon is up $1 on the back of a brokerage recommendation. Who are the folks rushing in when the stock market is saying take your time? The markets have stabilized at the level of Monday's close and as we said earlier we don't foresee any large movement until…

9:11am and we forgot to mention that the Fed is meeting today. But with interest rates where they are there isn't much left that the Fed can do. We guess they could lower margin rates but that's a non starter. Anyway the Fed announcement comes at 1:15pm.

9:34am and AOL sold its entire stake in Hughes Electronics. It received about $700 million and will use that money to reduce debt. The shares are being reoffered at $9.90. That creates a nice overhang of GMH in the market and we will be interested to see how the stock acts. We think it will be heavy for a while.

9:53am and we have to leave to go the funeral of the woman who owned our farm for fifty years. We'll be back about 1pm or just in time to read the Fed announcement.

12:56pm and we are back from the funeral and the markets are trying to rally. The DJIA is down but 28 points and the NASDAQ and S&P 500 are up. Volume is light but if the Fed says something positive in a few minutes the rally may get some legs under it. Until then we share the following missive with you from a reader of our website.

On your snowy walk, did you talk
to yourself about
impending Iraqi carnage??
You didn't doubt
there'd be 100,000 in the wreckage!!
'cause of oil-reeking schemes
and dubya dreams --

But did you wonder, or maybe ponder
that perhaps the same round number
forever now do slumber
at the feet of their creator --
dispatched at a time
when he felt quite sanguine
i. e., their benevolent, mustachioed dictator ??

Our response: Thanks and you used sanguine too. You are way ahead of us. But do two wrongs make a right? If you're on the right they do but if you are like us you're left in deep doodoo.

1:20pm and the WSJ is reporting that Chairman William Esrey and President Ronald LeMay will step down from their posts at Sprint. Both FON and PCS are down over 15% on the news. Esrey built Sprint but his leaving may be the result of having cancer. Their resignations make a takeover more probable, but it may be a take under rather than at a premium. So we will sit and watch as we are with the markets.

The Fed is leaving rates unchanged and sees balanced risks.

2:05PM and it feels like we are going to rally into the close. A nice rally today and a follow through rally tomorrow and Friday will help the January barometer show a positive close. Psychology is 90% of the current market environment.

Interest rates are at 41 year lows. That's three years before we started in this business. What we know is that if the economy does recover and the stock markets move higher in response, there is going to be a lot of weeping and gnashing of teeth by folks who own 5% bonds.

3:02pm and the DJIA closed in positive territory up 22 points at 8110. The S&P 500 gained 6 points to finish at 864 and the NASDAQ ended at 1358 up 16 points.

And tomorrow is another day. We will be traveling tomorrow and Friday so we will have a morning post tomorrow and then a week-end roundup on Saturday. Since we are all in cash and won't be doing any trading in the next two days we don't think we'll miss much.

29 January 2003 - Morning Comment

7:05am and the stock futures are, depending upon whom you read, saying that war is right around the corner, there wasn't enough economic stimulus in the speech, or…

Futures are down about what the stock markets were up yesterday so we are back to Monday's close. Until the Iraq crisis comes to a head we would guess that the DJIA will float around the 8000 level. But that is only a guess and since we are 100% cash we don't really have a vested interest.

Our current strategy is to wait and watch.

28 January 2003

8:27am and SBC reported earnings that beat the numbers but also reported a 3% drop in revenues and forecast a similar drop this year. AT&T Wireless reported higher revenues and the hopes to be cash free neutral by year end. Proctor and Gamble reported in line earnings. The stock futures say the markets will open higher and then we will see.

8:37am and the OTC folks marked up their stocks to handle the rush to buy at the opening. After four years money managers who have lost half their and/or their clients' money-and that includes the big boys and girls at the mutual funds-still have to rush in and buy at the first sign of a rally. When will they learn, when will they ever learn?

We left money on the table over the past few weeks as we usually do, but the way to make money for the past for years has been to sell euphoria and buy despair.

We are 100% cash. The battle in Afghanistan is a precursor of the little conflagrations that are going to erupt around the world when the U S invades Iraq. And if the Special Forces, who are well trained and very committed, can't secure the oil wells before Saddam contaminates the wells and then blows them up the main objective of the War for Oil will be lost before the war begins.

9:38am and several clients have asked why we sold PCS yesterday at a loss in most accounts. We did so because we remembered last year when we stayed too long at the party with Rite Aid at $4 and AT&T Wireless at $10 and didn't sell them in early January because they hadn't bounced enough for us. The truth is that PCS bounced to $5.25 a week ago and we missed selling on that bounce. Luckily we caught the bounce in many other stocks so the scratch loss in PCS is bearable.

Moreover, we are disturbed by the slowness of Sprint reporting its earnings for the year. We know the lateness has to do with the selling of The Yellow Pages for $2 billion plus. But we think that sale is setting up a huge charge off and maybe worse than expected subscriber numbers for PCS. We were heartened by Fitch Rating Service confirming the BBB rating of Sprint senior debt. But the stock markets have not been kind to the telecom stocks that have reported this month and we have no reason to believe the markets will be kind to Sprint or Sprint PCS.

Finally the Supreme Court muddied the wireless waters yesterday by ruling 8/1 that the FCC was in error when it reclaimed wireless licenses from NetWave and sold them to other wireless companies. The licenses were for NYC and other major cities.

11:20am and breadth is flat while up volume exceeds down volume. Overall trading is light and stocks seem to want to move higher but without conviction. The wireless stocks are getting hit and the telecoms that were green yesterday are red today.

1:02pm and the stock markets are meandering higher in light trading. We are having a beautiful winter snow, the first of the year, and we can't resist taking the afternoon off for a walk. The DJIA is higher and seems to be anticipating Bush's speech tonight and the expected media pronouncement of the speech as "bold" and "forthright". We will be at a wake.

At this time the DJIA is up 91 points. We expect a carry over of any rally today in the early trading tomorrow. Then we don't know.

And tomorrow is another day.

28 January 2003 - Morning Comment

6:56am and as the war drums beat on CNBC and all the media we stop for a moment to pray that someday someone will decide on a better way. The comparisons of Saddam to Hitler are as laughable as the comparisons of Bush to Roosevelt, either Roosevelt, but the media has to work with what it is given and so we will soon kill 100,000 Iraqis to liberate them from the evils of Saddam.

The US is trying to persuade the world to join in this crusade by shaming and name calling. It seems to us that the folks in Europe and Russia who have had millions of relatives killed and maimed over the last 100 years might have a better idea of the need to avoid war than we in the US who just enjoyed a century of relative peace and prosperity and who have no experienced knowledge of the ravages of war with in our country. As bad as Oklahoma City and 9/11 were, and they were tragedies, they were not war.

If the world had contained Hitler the way the world has contained Saddam there would have been no second world war. So the Chamberlain references are bogus. But we are but a small voice in a sea of sanguinity when it comes to the human mistake of war and so we are managing accounts with the realization that war is coming. And we are thankful that our children are too old and our grandchildren are too young to be include in this folly of misguided patriotism. And isn't that the case with the Bush children, and the Chaney children and the DeLay children and the Hastert children and the children of all the other chicken hawks screeching for Saddam's head on a platter.

We are obviously exasperated by the call to arms. Sanctions have worked, are working and will work. We thought the downfall of Russian Communism would mark the end of the need for bogeymen to support a wasteful defense industry. We greatly underestimated the financial and political power of that industry. Now the US is selling its latest technology to its new friends in the former Eastern Block. The US is doing that not to arm them for a non existent threat. The US is doing it to justify the next level of weaponry which will have to be developed to fight the level of weaponry we are now selling to maybe allies around the world.

And the beat goes on.

With stocks down seven out of the last eight days we expect a rally leading into tonight's State of the Union address. We won't try and play a rally. If we get a good down day today we may play it for a flip tomorrow.

27 January 2003

6:15am and one thing we have been wondering about is how the advent of trading in futures on individual stocks has been affecting the stock markets. That trading started in September and the list of eligible stocks has been expanded. The list includes IBM Amgen JP Morgan and most of the DJIA stocks. The effects of this trading where margin requirements at 20% and the stocks can be shorted on downticks add a new and we think untested element to the trading equation. Individual stocks can now be raided in market sell off. This is just one more step in making the stock markets into the casino markets of the 1920s.

Some folks have been postulating that Friday's action was setting today up for a 1987 type week. We didn't get that feel. But for those who think the worst is over we would remind that back in 1929 the markets crashed and then rallied and the actual bottom in the stock market wasn't made until the summer of 1932. That was four years after the April 1929 crash.

Now we learn from CNBC that the Super Bowl Theory does not apply to new old NFL teams and the indicator is neutral since the Raiders which are a true old AFL team did not win.

6:30am and a major bear, David Kotok of Cumberland Advisors, is on CNBC saying the US economy will keep tanking as money migrates to the Euro from the dollar. Since all the money managers watch CNBC we would guess some bulls are starting to sweat, if bulls can sweat. The futures are indicating a heavy down opening this morning. It should be an interesting day. We still want to get out of our PCS position.

7:42am and the WSJ reports that Mickey Drexler is going to run J Crew. Mickey is the fellow who made The Gap and left under a cloud late last year. Mickey made a lot of money for us over the years but unfortunately or maybe fortunately J Crew stock is not publicly held.

8:45 and the DJIA is 78 points lower and the S&P and NASDAQ are both off 1%. The telephone stocks are the only green on our machine and they are only pennies higher after last weeks 10% and more sell off in most of them.

9:36am and existing home sales were up 5.6% for December. This news put a little bid in stocks, but the mini rally quickly faded. The markets are waiting for Hans Blix to speak at the U N in a few minutes.

11:09am and after listening to Hans Blix for a few minutes we decided that war is inevitable and so we eliminated our position in PCS at $4 and sold our trade in Lucent at $1.86 for a 15 cents per share loss including commissions. The Model Portfolio and almost all accounts are 100% cash. The Model Portfolio page has been adjusted to reflect the current value of $491,640 which is entirely interest bearing cash. The Model Portfolio is up 6.8% for the year.

12:36pm and we have to head off for an afternoon meeting. As we end our day the DJIA is down 120 points and the S&P 500 is off another 1.25%. The NASDAQ is now in negative territory for the year and is down 1% for the day. There should be a rally either tomorrow before or Wednesday after the State of the Union speech. Our inclination is to count our blessings and stay sidelined unless we get a very large sell off in the next few days.

And tomorrow is another day.

27 January 2003 - Morning Comment

6:10 am and the following comment from James De Porre on Friday afternoon on the www.thestreet.com website is most probably true and if so very scary. We had surmised that the sell off on Friday and all of last week was a fear of war and this comment starkly states that it is a FEAR of NO War that has the markets in turmoil because businesses can't plan and execute. Going to war to prevent economic fall out in the US is just one scary thought.

"There is some speculation that today's weakness was caused by the possibility that the weapons inspectors will be given more time to do their job. The possibility that a resolution would be further delayed is not a happy thought for businesses and individuals who have put plans on hold while they wait for something to happen. I'm sure the Bush administration is very concerned about the economic fallout of delaying action, and that will likely be a motivating factor to move ahead as quickly as possible."

In another vein we thought it might be interesting to continue the discussion of the word sanguine by adding the definition of the word

\kon-san(g)-GWIN-ee-us\, adjective:
Of the same blood; related by birth; descended from the same parent or ancestor.

This word was the word of the day for Saturday January 25 on www.dictionary.com.

The saying as goes January so goes the year as applied to the stock markets has all the bulls hoping for a rally this week. The DJIA closed below its December 2003 low on Friday and also traded below its December 2003 intra-day low. The one positive is that Tampa Bay a new/old NFL team won the Super Bowl in convincing fashion proving that defense is usually better than offense in football and we would say investing. The Super Bowl theory says that when an old NFL team wins the stock markets will finish up for the year. Even with this negative scenario we think the markets are setting up for one more tradable rally before the "sell in May and go away" period arrives. The timing is dependent on what happens with Iraq but we are feeling more positive about a rally as the markets tank. Right now there is still too much bullishness and since we timed our cash raising perfectly several weeks ago we aren't in a rush to get back in. And when we do we will do so with fewer stocks and less money. We want to build on our gains for the year, not give them back.

24 January 2003

7:30am and CMS, the former Consumers Power, an electric utility originally in Michigan and now many other places has eliminated its dividend. Whenever there has been a crisis in the electric utility industry over the past 25 years CMS has been at the forefront of those utility companies taking it on the chin. The elimination of its dividend will certainly be followed by a few more utilities. We traded the SPDR Utility package over year end and made a nice two week profit. But we are of the opinion that it will take another year for the utility crisis to reach a head and so we don't plan on revisiting utility stocks or the SPDR Utility Trust until next year end.

This morning the US dollar is weak as Russia and China have announced that they want to hold fewer reserves in dollars. Folks on CNBC are disparaging the Euro with the question "who would want to keep their money in Euros?" Well folks who have over the past year have made a bundle versus the dollar.

The WSJ has a story of a hedge fund that blew up last week losing the entire $300 million in the fund in seven days. For the record the fund was up 18% in 2001, and 78% in 2002. As they say, past performance is no indication of future performance.

9:04am and the DJIA is down 130 points. We are buying some DIA at $82.50 for a trade on the theory that sometime today the DJIA will trade back to even or above. War talk is permeating the trading floors and everyone seems to be as expert as we are on what is going to happen. Uncertainty always roils markets and that is the reason we are in cash. But uncertainty and volatility create trading opportunities from which we are trying to benefit.

AEP which is the old American Electric Power is going to cut its dividend. As we said above on CMS there are more utilities to follow.

10:10am and the DJIA remains mired down 150 points. Rumors of Iraq troops preparing for chemical warfare and the White House jawboning on Iraq's refusal to allow interviews with scientists is creating fear in the stock markets for the first time in a while. Even so, there is no panic and that is not good for folks looking for an end to this sell off. We bought some Lucent at $1.97 in larger trading accounts since the stock reported a lower than expected loss yesterday and has been up all day. Obviously speculators are buying the stock but the market action suggests a potential for a decant percentage gain in the next rally.

10:56am and stocks have made a new low with the DJIA down 205 points. The NASADAQ is off 40 points and the S&P 500 is down 22. Breadth is 3/1 negative and down volume exceeds up volume 4/1 on the NYSE and 5/1 on the NASDAQ. Not looking good for our DIA trade but there are a few more hours in the trading day. The problem is that the 100 point rally from these levels will still leave us down 100 points for the day. This is the sell off we thought would come yesterday and then the rally would occur. We don't think it can happen today because it is Friday.

11:50am and stocks are sitting on their lows for the day. We have traded this sell off because it is war related and not related to the economy. Many gurus expect a resolution of the imbroglio by Tuesday when Bush gives his State of the Union speech. But we don't think there will be a resolution/or war next week. And we expect a relief rally that keeps the DJIA in range of 8200 to 8700 till the war starts. We still will probably close out our DIA trade today and others may do the same thing, but if we do we may put it on again next week.

12:11pm and at the rate the stock markets are dropping we are going to be down 1000 points before the war starts. All the gurus are saying the DJIA will go up 500 points when the war starts. That will still leave us 500 points short of last Tuesday's close.

1:51pm and entering the final hour of trading we have closed out 2/3 of our DIA trade at $81.75. We don't know what the last hour will bring and so we are waiting to close out the last 1/3. We are down about 45cents per share on the trade having added to the position at $81.50. We still think that stocks will come back toward even in the last half hour and so we have the last 1/3 in to sell at $82.50 for pride if nothing else.

2:39pm and breadth is 3/1 negative and down volume exceeds up volume by a 5/1 margin on the NYSE and 9/1 on the NASDAQ. New lows exceed new highs on the NYSE for the first time this year. We are closing out our TLAB trade from yesterday at a 20 cents per share loss because of the lousy market action. We may return to TLAB or move on to something else next week. PCS has been down all day and since we like it long term and it is not a large position in any account we are going to hold it for now.

2:49pm and we closed out the DIA trade for a 55 cents per share loss.

3:02pm and the DJIA closed down 238 points at 8131. The S&P 500 lost 26 points to finish at 862 and the NASDAQ dropped 45 points to end at 1343.

For the year the DJIA is down 2%, the S%P is down 2.5% and the NASDAQ is unchanged. The Model Portfolio is up 7% and is 97% cash.

And tomorrow is another day.

24 January 2003 - Morning Comment

7:23am and the DJIA futures are lower while the NASDAQ futures are higher suggesting (da!) a mixed opening. The trading action would suggest another up day but the weekend would suggest caution. Monday is the big day at the UN although we think it will be garbled. So our guess for today is up another 50 points on the DJIA at the close after a 100 point down move sometime during the day. We are in cash and our only action for today will be to look for a way out of our remaining PCS position. All the telephone stocks were hit yesterday when they announced earnings and we want to be on the outside looking in when PCS does.

23 January 2003

7:35am and 52% of American families own stock. And most of those families (60% of families) own the stock in tax free accounts. Thus polls showing that 49% don't favor tax free dividends while 42% do make some sense. And when folks realize that Aunt Nellie will get $1000 tax free and save $150 in taxes while Bill Gates will get $97 million tax free and save $40 million in taxes we are willing to bet that even fewer will favor tax free dividends at this time. If there were not a federal deficit as far as the eye can see then folks probably wouldn't care how much Gates received tax free.

Unemployment claims were up 18,000 for the most recent week.

Japan was up 2% overnight and Europe is slightly higher.

8:40am and we are getting a lift at the opening. Techs are higher on the back of "good" news from Texas Instruments and Qualcomm last night. The DJIA is up 40 points. Oops it's only up 8 points now. A good trading scenario would be a sell off of a couple of hundred points this morning and then we could get a good two to three day move.

11:03am and after being down 50 points the DJIA is trying to stage a rally. The RBOCs (SBC, BellSouth) reported lousy earnings and drops in revenues this morning and are under pressure. This placed Sprint and Sprint PCS under pressure and we bought a few more share at $4.08 in accounts. That pretty much fills us up with that stock. PCS acted well yesterday and we think it has a chance to pop back over $5 on a two or three day general market rally.

11:45am and its nice to know that according to a WSJ/NBC poll 61% of Americans agree with us and don't think the Bush stimulus package will do much good. We are a bit worried to find ourselves in the mainstream on this issue. We may have to rethink our position.

1:36pm and we bought TLAB at $7.88 in larger accounts for a trade. It's down from $9.50 last week and announced revenues that disappointed last night. But since the earning's news is out and we are guessing on a short rally we are taking a flyer. The DJIA has crossed to positive territory and breadth and up/down volume statistics are positive and improving.

2:08pm and we decided to sell the PCS we bought yesterday at $4.16 and today at $4.08. We sold the shares at $4.40 and including the total round trip 5 cents per share commission we made a better than scratch profit based on the size we bought. We are nervous about PCS subscriber numbers and since Cingular had a net loss of subscribers as announced today we would rather be mostly on the sidelines when PCS announces. We still own a bit of stock in accounts and if PCS pops later today or early tomorrow we may sell that stock.

3:02pam and the DJIA closed up 47 points. Since this morning at 7:15am we predicted up 75 points we win no cigar but take credit for a good guess. The S&P 500 gained 9 points to finish at 887 and the NASDAQ jumped 28 points to close at 1388.

And tomorrow is another day.

23 January 2003 - Morning Comment

7:15am and the stock markets have been down for five days in a row. Thus a relief rally is due and the stock futures are suggesting an up opening. If we don't exhaust the rally in the first hour of trading we may try and play a rally in our larger accounts by buying DIA at the $82.10 level if stock markets sell off this morning after the initial rally. The DJIA is now down for the year and the S&P 500 is flat with the NASDAQ up about 2%.

AMR Corp (American Airlines) announced a huge $20 per share loss for the year. It's interesting that CNBC continually has Robert Crandall, the ex CEO of AMR, on TV to expound on the airline industry. He left a couple of years ago but we think he deserves some blame for the fiasco the balance sheet of AMR has become. Yet he is treated as a guru. Thankfully we don't have to listen to Steven Wolf the ex CEO of both the bankrupt UAL and USAIR tell us his views of the industry. He is home happily cashing his winnings from the option/bonus pool and congratulating himself on getting out in time. Why do the media give the incorrect impression that government workers and teachers are slackers when we have so many true slackers and ne'er do wells running corporations and making big bucks?

Enough ranting. The stock markets should be interesting today and we look forward to the action. Our prediction is that the DJIA will close 75 points higher for the day.

22 January 2003

Because folks don't read our posts every day we are going to repeat our performance numbers for a few days.

Over the weekend we were compiling our Winter Lemley Letter and we wanted to share the following from the letter because the numbers surprised us.

Over the last five years ended 12/31/02 the Model Portfolio has outperformed the S&P 500 by over 110%. We remind that past performance is not an indication of future performance and we are certain that our relative performance going forward will not match our record over the past five years. But we plan on giving it the old college try.

For the record the Model Portfolio finished 2002 up 7% for the year while the S&P 500 was down 22%. For the five year period ending 12/31/02 the total return of the Model Portfolio is plus 108%. The total return of the S&P 500 for the same five year period is minus 3%.

7:55am and the financial writers are upset that Elliott Spitzer is going after hedge funds that issue negative reports on stocks they are short. Seems to us it wouldn't make sense to be long a stock on which one issues a negative report but then that's just our country way of thinking.

Earnings reports don't seem all that out of line this morning and maybe after the initial sell off the markets will rally. But then someone will start talking about war on CNBC and pouf will go the rally.

So our guess is that down 100 DJIA points up 75 points and then slow erosion into the close down another 125 points. It's fun to trade with phantom money.

9:03am and we present what will be the final word on the word sanguine. From an erudite reader we received the following explanation:

"With respect to sanguinity... As I recall from studying the history of medicine -- and as you know I am a trained historian so stand back -- the concept comes from Hippocratic medicine, in particular the work of Galen in the first century AD. The Hippocratic corpus supposes that human health is governed by the balance in each body of four essences or humors, which are associated with four physical substances: phlegm, blood, yellow bile (or choler) and black bile. Each humor was associated with one of the principle Aristotelian elements of air, water, earth and fire, and also with one of the four seasons and so on.

A preponderance of one humor or other was supposed to create a characteristic temperament -- more phlegm makes one phlegmatic, more black bile makes one melancholy, more yellow bile makes one choleric and more blood makes one sanguine. Treating disease meant restoring the balance by trying to increase the opposite humors.

As I recall, blood is associated with air and creates a buoyant personality -- a sanguine, confident person, or, in extreme cases, an airhead.

Feel free to refer obscure historical questions my way."

9:07am and the DJIA is off about 50 points. So far so good on our scenario for today. Now we need the rally phase. We are taking no action.

9:21am and Eastman Kodak is laying of another 2200 folks. And Goodyear is planning on cutting 700.

10:02am and we the people decided to trade EK down $3.25 on bad news. We have been reading our press clippings. As soon as we bought EK the stock headed south again. So much for hubris. Now we are praying for some sort of rally to rescue us from our greed.

11:56am and we are out of our EK trade for a 70 cents per share loss. Ouch!! Our PCS trade is doing nicely so hopefully we will come out ahead in the end. In retrospect it is not smart to try and catch falling knife stocks in markets like this. And EK is certainly that kind of stock. Many institutional types have been buying it for a turnaround and every few quarters it manages to disappoint.

The DJIA is down 34 points and still may stage a rally. The S&P and NASDAQ are in positive territory and the DJIA would be too if EK weren't down $4 per share.

1:08pm and it is amazing to us that the perceived wisdom on investment websites and CNBC is that we have only a few more weeks to wait for the resolution of the Iraq situation either through abdication or more likely a swift successful war. The stock pundits are concentrating on determining what stocks to buy for the rally that will ensue. On www.thestreet.com Jim Cramer says its time to buy. Since he's down 18% in his managed portfolio over the last year and 90% invested we don't know whether his advice is hope or reality. There is something in our psyche that creates difficulty in profiting from the death of thousands of humans and so we hope the rally comes from either Saddam leaving or Bush deciding to be a statesman instead of a warrior. The reality is that the tea leaves suggest that war will come. And we are sure that Saddam will lose or disappear to Osamaland. We think the powers that be want the current generals to take over in Iraq so there is no disruption in the country. If there is general turmoil then the cheap oil scenario may not materialize. And if Afghanistan is any model, the pacification of the various groups is not going to be the cake walk a large market rally would suggest.

3:02pm and the DJIA repeated its action of yesterday and closed on its lows of the day. At the bell the DJIA was down 124 points at 8318. The S&P 500 lost 9 points to finish at 878 and the NASDAQ dropped 4 points ending at 1360. By the way if you read the 7:55am post you'll see that we predicted the DJIA being down 125 points so we win the kewpie doll for nearest to the pin today.

And tomorrow is another day.

22 January 2003 - Morning Comment

6:56am and Europe is lower by about 2% on the heels of yesterday's lousy US markets. JP Morgan announced a loss of pennies a share this morning which was in line. Like Citigroup, JPM took a large billion dollars plus write-down, the better with which to manage earnings going forward; unless of course they make some more dumb moves in the next quarter, which isn't out of the realm of possibilities.

Stock futures are indicating a down opening this morning and then we should see a rally attempt. The S&P is down over 4% in the last four days and is due for a reflex dead cat bounce at the least. We own PCS and that's it and if we get a pop in it we won't own any stocks.

We can't get a handle on the war nor on the stimulus package and so we are going to watch from the sidelines. If war begins we may try to trade the rally for a day or two but with the stimulus package as currently proposed we have no great hopes for any upward change in the economy.

21 January 2003

Over the weekend we were compiling our Winter Lemley Letter and we wanted to share the following from the letter because the numbers surprised us.

Over the last five years ended 12/31/02 the Model Portfolio has outperformed the S&P 500 by over 110%. We remind that past performance is not an indication of future performance and we are certain that our relative performance going forward will not match our record over the past five years. But we plan on giving it the old college try.

For the record the Model Portfolio finished 2002 up 7% for the year while the S&P 500 was down 22%. For the five year period ending 12/31/02 the total return of the Model Portfolio is plus 108%. The total return of the S&P 500 for the same five year period is minus 3%.

And in the first three weeks of January we remain on course. And we are 97% cash. The only way the stock markets are going higher in the near term is if Saddam takes a hike. If he does the stock markets will stage a huge short covering get me in rally and we will miss it. But we will gladly miss such a rally if it is the result of avoiding war. And the reality is that as the rally occurs the same old economic problems will remain and the non stimulus stimulus package will still be on the table. So we would expect a strong two or three day short panic covering rally followed by an equally strong sell off when reality replaces euphoria.

7:59am and in the morning post we mentioned that Citigroup had beaten its earnings expectations by a penny. We neglected to mention that those earnings were down 37% year over year because of a $1 billion plus charge to settle various stuff arising from Enron and lousy investor advice of the last few years. The charge also gives a nice reserve with which to mange future earnings reports. And the game goes on. And Ford beat estimates but still managed to lose $130 million for the quarter. So is the glass half full or..?

Housing starts were up 5% which was more than expected and that has placed a bid in stocks. Johnson and Johnson announced earnings a penny better than expectations. Amazing how that penny better gets around town.

EchoStar is discussing sale of itself to News Corp. If the Alien buys the Dish Network we will have to switch to Direct TV which is GM Hughes satellite offering.

Erratum 1&2:

  1. After much discussion we have arrived at the conclusion that sanguine does in fact mean bloody. But not bloody in the sense of a terrible occurrence. Originally the bloody meaning was used to suggest a ruddy complexion as a sign of health. Over the years the meaning of the word has evolved to suggest optimism and not the pessimism we were suggesting when we used the term last week.
  2. In our discussion of Bill Gates and tax free dividends we understated the amount of dividend income Gates will begin receiving from Microsoft. The correct amount according to the NYT is $97 million per year, not the measly $80 million we suggested. Also we think the dividend payments will successfully avoid the cap on executive pay where penalty taxation occurs when yearly pay exceeds a certain figure.

BP Amoco announced that it is cutting 1000 jobs in the United States this year.

The WSJ reported Monday that economists now see 0.5% growth in GDP in the fourth quarter and that a few economists actually are predicting contraction in GDP which would of course signal the dreaded double dip recession scenario that is probably Bill Clinton's fault.

10:43am and the markets are lower after a feeble rally attempt at the opening. There is no oomph in stocks and with the constant war talk it would take a brave bull to get fully invested at these levels. Even the good earnings are not that good they are just better than bad. Harley Davidson has been a bull favorite and a bear favorite short and the bears are winning today. HDI announced good earnings but was unable or unwilling to give positive guidance going forward. On an anecdotal basis we have seen five Harleys for sale by the side of the road in the 80 miles between our farm and Madison. This is the first year we have seen more than one in that span. Moreover there are about twice the number of late model cars and trucks by the side of the road for sale than we usually see.

Sprint PCS Wireless is down 25% from Thursday last and so we are buying some for a trade in our larger accounts. Stocks have been punk for three days and we are at the 894 support/look out below level on the S&P 500 and we are betting this market isn't going to make it easy for the bears either and so we think we may get a pop. We like PCS since it is the only stock we kept although we must admit we tried to sell it at $5.20 last Thursday and missed by a few pennies. Now we are buying a chunk at $4.16 for a trade. PCS share price is off $1 in two days and it looks to us like a significant buyer showed up at $4.15.

12:02pm and the stock markets are trying to rally. With President Bush talking the talk of war it is difficult for stocks to gain a foothold. We continue to expect a non war settlement and a rally to follow that will fail but getting from here to there is a matter of time and patience.

12:46pm and the wonder is how the market is going to finish the last hour. Our guess is that the markets head back to even. Since we don't have much cash riding on the outcome we can make that bet. Bad and neutral news is still causing stock to sell off while good news is being ignored. For that reason we are trying to sell the rest of our CTS holdings and our OATS. Although we only have small amounts left there is no bid and that too is a sign of a weak market.

2:20pm and in the final hour we are having a sell off with the DJIA now down 140 points. So much for our morning guess. But there is still time left for the bulls to do something. Maybe.

3:02pm and maybe not. The DJIA closed off 143 points at its low for the day at 8443. The S&P 500 dropped through important support at 894 to end the day at 888. And the NASDAQ gave up 12 points to close at 1364.

And tomorrow is another day.

21 January 2003 - Morning Comment

7:12am and stock futures are muted suggesting a flat opening. Two Americans were killed in Kuwait this morning and coupled with the war talk permeating the media we think the talk of war will overcome the slightly positive earnings announcements this morning. 3M, Citigroup and Ford all beat the analysts' estimates by pennies. But as with the action last Friday when earnings from Microsoft and IBM couldn't turn the markets higher we don't think this mornings news from lesser players will do the trick. 894 on the S& P is a support level that can't be broke without a waterfall down. We shall see.

17 January 2003

8:02am and the word from JP Morgan is to buy GM and short Ford Motor. Not now. You must wait till February to do this, or at least the end of January. Now that is the kind of advice that should be flushed or laughed at. The analyst thinks that GM will sell off at the end of January after running up this month. We don't really have a problem with that. That is a buy at lower levels suggestion. But why not short Ford now when it is up 30% from its' lows. If GM is lower at the end of the month the odds are that Ford also will be lower. One buys stocks at lower levels, one shorts stocks at higher levels. Whatever!

The Big Bill Gates Giveaway

The 16 cents per share dividend that Microsoft is going to pay means $80 million tax free per year to Bill Gates if the Bushies pass their dividend plan. Now there is a fellow who really needs a tax cut. Remember that Bill Gates takes a very small salary and gets his income from selling MSFT stock. When he sells stock he is taxed at the maximum 20% tax rate and pays no FICA or even the 1.45% Medicare premium that all taxpayers pay no matter how high the income earned. We don't resent the money Gate has; we just think he should pay taxes like the rest of us.

Now the point can be made that Microsoft has already paid taxes on the money that Gates will receive in dividends. But MSFT's effective tax rate after adding back in depreciation and other offsets is about 18%. So the reality is that even if one makes the argument that Gates is paying his part of Microsoft's 18% rate a tax free dividend would still save him 20% off the top rate of 38% on earned income. That's a "kewl" 16 million in taxes. Not to mention all the free plane rides and Super Bowls and other goodies that corporate executives receive that Jane and Joe worker pay through the nose for if they could afford them.

You say Gates could sell stock and pay the same 20% rate since the maximum capital gains tax rate is 20%. True but then he would be giving up ownership and appreciation potential on the stock he sold. And with the Bushies plan to make the elimination of the estate tax permanent that part of the tax plan is worth $30 billion to the Gates family. Yes, the Gates family will save $30,000,000,000. And none of this stuff will stimulate the economy now, although we are sure it will stimulate multimillion dollar political donations. It's ludicrous that a couple of million dollars in donations can create such huge tax giveaways.

8:39am and as the stock markets opened GE announced that earnings for the year were down 21% because of a $1.9 billion charge at its reinsurance subsidiary. That's called kitchen sink earnings as in; if earnings are going to be bad throw in the kitchen sink too. For the first quarter earnings will be down 5% to 10%. Excluding the power systems division earnings will grow 10%. But as the game is played these days we think it is still true that overall earnings are the scorecard and they will be down. Could Jack Welch's legacy be falling apart? If we blame Clinton now for all bad things in government doesn't that same illogical conclusion apply to Welch?

9:02 am and The University of Michigan Consumer Sentiment number came in at 83 versus 86 last month. Traders love to trade off this nonsensical number if nothing else is happening to catch their eyes. This morning there is other stuff happening so this negative is just being added to the mix.

We have been raising cash because many individual stocks and indexes and averages have failed at their resistance levels. Moreover, good and neutral news is being treated like bad news in the market place.

9:31 am and CNBC is reporting that the University of Arkansas will begin a class on the Clinton Presidency. And so what news clip do they show to demonstrate the news. Well of course, they use the clip of Clinton hugging Lewinsky in a crowd.

9:35am and Richard Grasso, Chairman of the NYSE is on CNBC announcing the introduction of the NYSE Composite Index for trading. Just what the markets need is a new index to trade and hedge and short on down ticks.

10:19am and as they say, the stock markets are consolidating at lower levels. Breadth is 2.5/1 negative and down/up volume is 3/1 on the NYSE and 4/1 and the NASDAQ. With the stock markets closed Monday, and the Iraq rhetoric heating up we don't think that stocks have the bull conviction to mount a rally ahead of the holiday weekend.

12:54pm and the DJIA is down 131 points and breadth figures are becoming more negative. We are trying to reduce our OATS holdings.

1:22pm and the IMF has issued the cheery Friday afternoon missive that states that Venezuela and Iraq threaten the world economy.

3:02am and we sold most of our Wild Oats at $9.80 to raise cash. At the close the DJIA was down 111 points at 8586. The S&P 500 was down 13 points at 903 which is below an important support level at 909. The NASDAQ lost 48 points to end at 1376.

The DJIA is up 3% for the year. The S&P 500 is up 2.6% and the NASDAQ is up 3.3%. The Model Portfolio is up 7% for the year and is 97% cash.

We own 1500 Sprint PCS and 500 CTS in the Model Portfolio. The rest is cash. Cash is King. We will post the updated Model Portfolio over the weekend.

The markets are closed on Monday.

Our next post will be Tuesday Morning.

And tomorrow is another day.

17 January 2003 - Morning Post

7:01am and today is the day of the wolf full moon. Right now our dog Pooper is on terrorist/kidnapper parole around the perimeter of our farm howling at the moon as it sets in the western sky. We don't know whether that is a portent of today's stock market action but the stock futures are lower because the traders didn't' like the news from Microsoft and IBM.

Microsoft is going to split the stock and pay a 16 cents per share dividend on the pre split stock. What does that mean? We don't know and we will let traders sort that news out. MSFT is trading $3 per share lower in the early going. There was also something in IBM's news that traders didn't like.

Yesterday while we were sitting in the car dealership waiting for them to not fix our brand new Volvo we watched CNBC. Since we never watch CNBC with the volume turned on, we concentrated on the tape. And the tape did not look healthy to us. So we sold the rest of our Elan at $3.69 except for tag ends and we eliminated Rite AID at $3.05. We made $1 per share on both on many accounts which works out to a 50% gain. We missed a profitable year end trade in Rite Aid last year by hanging around to long and we didn't want to wait too long this year. We also sold PCS in some large trading accounts. We now have three stocks left and we would like to reduce Wild Oats and eliminate CTS n the next week. We may or may not hang with PCS.

Looks like an interesting day is ahead. Japan was higher overnight and Europe is lower with the DAX off 2%.

15 January 2003

7:08am and a client asked what the significance is of mentioning the layoffs at K-Mart and Boeing in our daily posts. Our purpose is to give affirmation to our current "Cash Is King" philosophy by identifying layoffs that are currently being announced. It is our belief that a meaningful recovery cannot take place while layoffs continue at large corporations across the spectrum. Coupled with rising national, state, and local deficits which will lead to more layoffs, it seems to us that the recovery is going to be delayed.

Last night Intel announced that it was cutting its capital expenditure budget for 2003 to $3.5 to $4 billion which is a 20% reduction from last year. That may help INTC maintain margins and earnings in the short term. But cutting that budget means that they either have been very lax in the past in controlling their research spending or they are going to hurt their new product cycle.

DuPont just announced disappointing earnings and trouble making earnings growth going forward.

8:05am and one of the things that amazed us about last November's election was the amount of money being spent by folks running for governor in various states. None of the candidates were going to raise taxes or cut services. The losers are the ultimate winners because they don't have to face what is an impossible problem. Hope must truly spring eternal the hearts of political folks.

The December Producer Price index fell 0.3% versus a consensus estimate of a gain of 0.1%. Inventories rose 0.3% in November. The markets are not focusing on these numbers since we are in earnings season and earnings are ruling market movements.

8:55am and the stock markets have moved lower in early trading. We are going to trade Intel in large and aggressive accounts at the $17.56 level for a day or a few days. The news on the stock was positive and we continue to expect one more up move in stocks before the roll over. INTC is a good proxy for techs and its news is already in the price. We are also going to trade Applied Materials from the $14.50 level. It's down in sympathy with the reduction in INTC's reduction in its capital expenditures. But Tom Kurlak points out on www.thestreet.com that the reduction in the cap/ex budget is related to the purchase of land and buildings and not equipment. These are one or two day trades at the most.

9:15am and Investors Intelligence has the number of bulls at 50% while bears are back to 27.2%. That's a negative for the markets.

9:29am and the DJIA is down 100 points. We are finally getting some volatility in the markets and so we are probably going to reach a decision point in the next few days as to whether we break out or roll over. We are in the roll over camp and we may be being a little cute with the Intel and AMAT but we are in for the trade.

9:42am and we retract our sanguine attitude toward the markets since sanguine implies optimistic. We are sanguine about our ability to discern trends in the market but our outlook toward the markets is cautious. Thanks to our proofreader for catching that error in yesterday's post.

12:06pm and as they say, stocks are consolidating at lower levels. The DJIA is off 130 points and the NASDAQ is down 1.5%. Breadth is 2/1 negative and down volume exceeds up volume by a 3/1 margin. We don't think today is the day that stocks roll over but we have no vested interest and if things start looking dicey we will eliminate our two trades.

12:58pm and we have decided to ease out of both our INTC and AMAT trade. Hopefully we'll get out of INTC even and out of AMAT with 10 cents per share loss. We don't like stocks sitting on the lows for the day for several hours. That's lousy action.

1:25pm and we sold the Intel at $17.55 and the AMAT at $14.46. In this punk market cash is the better part of valor.

A client sent us a small pamphlet published by the Chicago Tribune in 1944 that shows the endowments of various Universities in 1942.

The Harvard Endowment totaled $145 million and its largest holding was $9.5 million U.S. Treasury bonds yielding 2.5% and due in 1972. The University of Chicago had $77 million in its endowment. Yale had $100 million and its most valuable stock holding was 6400 shares of AT&T. Yale had 6.4% of assets in railroad bonds, 14.4% in utility bonds, $2.1 million in U.S. Treasury bonds and 29.2% in common stocks. Preferred stocks composed 15.7% of the endowment. Stanford's endowment was $30 million, Johns Hopkins' $28 million, Dartmouth's $20 million and Cornell was $34 million. Princeton's endowment was $31 million and its largest single holding was $1.1 million of US Treasury 0.75% notes due in 1944.

Times have changed and so have investment philosophies.

1:54pm and entering the final hour the markets are mired at lower levels. The bulls need to mount a rally into the close. IBM and Microsoft announce earnings after the close tomorrow. We are selling some CTS and Goodyear Tire. Goodyear has not bounced after year end and since we don't think earnings this quarter will be anything to write home about we would rather take our loss raise the cash and revisit the stock later in the year. With CTS we are continuing to reduce the position. We have a much kinder feeling for this stock but it is in the process of recovery and like Wild Oats is subject to wide price swings. We sold some OATS shares at $10.04 for an 80 cents profit or loss depending. We sold some CTS at $8.12 for a $1 gain and we sold most of our Goodyear position for $7.02 for a $1 to $1.50 per share loss.

3:02pm and the DJIA closed 120 points lower at 8723. The S&P 500 dropped 13 points to 918 and the NASDAQ gave up 22 points to finish at 1438.

We are heading to Madison Wisconsin tomorrow to eat sushi, see a movie and relax.


And tomorrow is another day.

15 January 2003 - Morning Post

6:57am and Intel slightly bettered expectations last night. But Intel gave no indication going forward of how business would be, probably because like most of us they have no idea. The stocks markets are mixed on the news. Japan was up slightly overnight and Europe is a bit lower.

It looks like the markets are going to wait for more news to decide on a course of action.

14 January 2003

7:56am and today is Katie's 59th birthday. That number doesn't seem as formidable as it did twenty years ago. Just goes to show that everything is relative.

Last night we were reading that states face a combined budget deficit of $80 billion this year. Since states can't finance their shortfalls with bonds, those deficits mean job cuts and tax increases. The budget problems of the states are one reason for our sanguine outlook on the stock markets. With the Federal deficit ballooning and the states' funding problems we would expect continued layoffs at the state level and the reduction of funding of Medicaid and child insurance programs. These difficulties will affect the national recovery and not in a positive way.

Élan jumped yesterday on news that it had repurchased $400 million of its bonds at a 25% discount to par. Since the bonds have been trading at a 75% discount to par some hedge fund made a nice killing if the reports are true. We suppose it is good that the company paid 25% less than it would have to, but we don't like the fact that some investment house and hedge fund made more money on the deal that the company saved. Also, the company has not confirmed the reports of the repurchase. Elan has been saving itself from its mountain of debt by selling drug patents to raise cash to repay debt, and as a result its revenues are going to drop from over $1.8 billion to less than $600 million by year end. Its' share price has dropped from $40 to $4 but that level still values the company at over $2 billion if debt is included. And so we are sorely tempted to take our 50% to 100% one month profit before the markets head south again. We have to keep reminding ourselves that we are singles hitters and not home run heroes.

9:31am and it is rumor time in America. The markets rallied after a rumor that the UN inspectors had been asked to leave Iraq proved false. But there isn't much steam in the rally and we aren't going anywhere till after the Intel and Microsoft IBM and GE earnings come in this week. According to the technicians we follow the markets are nearing extreme overbought condition. Since techies are in control of the markets for now, that overbought condition is a warning.

When we were talking of state budget deficits, we neglected to mention the under funding of pension plans at many large corporations. This too will act as a drag on the economy unless the stock markets rally. And rallying the stock markets seems to be the main way the Bushies hope to get the economy moving forward. Only problem is that many past stock market players are tapped out or disinterested.

11:04am and now the Bushies are going to revive a bold initiative with North Korea. Bush says that he was getting ready to offer oil and food to North Korea when the US discovered the nuclear program. Say what? That statement is a misstatement of the facts but the Bushies never seem to let facts get in the way of spinning to get out of brouhaha of their own making. They are much better than the Clintonites when it comes to spin. Rhetoric aside, a solution without war is positive for the world and the markets also. We hope the Bushies can devise a bold initiative for the Iraq situation short of war. Watching Bush on CNBC this morning was a reminder of the fact that poll numbers show Americans think he is decisive on foreign affairs but not so hot on the economy. At some point the Iraq thing will calm down and the economy will need to be addressed. The sooner the better for both.

Stocks are edging higher after meandering most of the morning. Volume is light. We haven't done anything today and probably won't.

12:46pm and it looks like all the action today is going to happen after the closing bell at 3pm when Intel announces its numbers and future look. For now, the markets are marking time though there seems to more green on the screen than earlier today. We are watching the paint dry.

1:55pm and K-Mart is letting 35,000 people go.

2:36pm and Boeing confirms it will cut 5,000 more jobs in 2003.

3:02pm and stocks popped in the last 15 minutes of trading and the DJIA closed up 56 points at 8843. The S&P 500 gained 5 points to finish at 931. The NASDAQ closed 15 points higher at 1461.

And tomorrow is another day.

14 January 2003 - Morning Post

7:35am and retail sales were flat ex autos. Word from London says Hans Blix reported that the UN inspectors have founds several cases of importation of weapons related materials by Iraq. That news and retail sales news has stock futures lower.

Intel's earnings come after the close today so trading should be muted.

13 January 2003

7:41am and the big news is that Steve Case is resigning from AOL Time Warner. That has pumped AOL up $1 in early trading. Duke Energy is predicting punk earnings and is off $2 per share. With Repubs backing away from the dividend exclusion stalking horse and the bad news on Duke which is 8% of the XLU we might see SPDR Utility move lower. The rating on IBM and Intel were raised and that is putting a bid in tech stocks.

8:59am and the stock markets have opened higher but those moves up are being met by selling. We'll have to see how stocks can handle the selling. The final hour today will tell the tale. We are tempted to take more money off the table but are holding off for now.

9:45pm and the rally has faded and stocks are heading lower. Breadth is mixed and volumes is moderate

10:56pm and as the markets continue to trade at slightly lower levels we reduced by half our position in Elan by selling stock at $3.50. ELN probably can sell much higher if it reduces its debt and discovers a promising drug but we don't think either event will occur in the next month. We want to continue taking money off the table even though we own only a few stocks. The Iraq situation remains a tinderbox and the stock markets have had a good run since October. Since October 9th the Model Portfolio is up about 15% and we want to lock in the profit and look to get back in on any significant pull back. But for now it is time to enjoy the reduced stress level that is the result of the reduced exposure to market risk.

12:06pm and trading has slowed as the DJIA has moved into positive territory. This week IBM, Microsoft and many other companies will be announcing earnings and the markets are waiting to hear the news. Also, the major averages and indexes are approaching resistance levels and it is going to take a bunch of positive news to provide the oomph to pierce those levels.

12:21pm and the departure of Steve Case from AOL may signal the beginning of the end of the end of the internet bubble. With the market action of the internet/computer/new age stocks over the past month when the speculative money and end of year end selling provided a dead cat bounce from which we benefited, Case's resignation is an affirmation that the bubble has burst. The only problem is that speculators and hedge funds haven't heard the bell ring or rather, to not mix metaphors, the bubble pop. And until they do the stock markets are going to remain range bound and ripe for trading but not investing.

1:50pm and CNBC is flogging Case leaving AOL for all it's worth. And the company is not worth much now, nor is the story. It's like, "Now you tell us. Why didn't you tell us this info three years ago?" And we are sure the other media outlets will be telling us what we knew three years ago. And what we knew and what the media is now telling folks is that AOL was all hype and no substance. Listening to these folks reprise the way Steve Case flummoxed Wall Street and "sophisticated investors" and media folks is entertaining but not educational. Soon we'll learn that GE cooked the books too, and won't we all be surprised. But we won't learn it on CNBC since all the CNBC talking heads have their retirement plans tied up in GE stock and their salaries paid by GE honchos.

2:01pm and Joe Lieberman has joined the presidential race as a different kind of Democrat. That's true since all his positions are Republican.

Entering the final hour the DJIA is slightly higher while the S&P 500 and NASDAQ are lower. Trading is muted and breadth is mixed.

2:55pma and CNBC is reporting that a Connecticut money manager was kidnapped over the weekend. We have placed Tubber and Pooper our fearless dogs on perimeter parole around the farm in case this type of kidnapping becomes epidemic or endemic as the case may be.

3:02pm and Elan just kept moving higher after we sold share at $3.50 this morning. ELN closed at $4.09 per share up 81cents per share. We had a tiger by the tail and didn't know it. At least we have a nice position left and we'll mull our options with the rest of the holding overnight. We think Elan is moving on a short covering rally. We know it is stupid to be short a $3 stock but folks do it all the time.

The DJIA closed up 1 point at 8785. The S&P 500 lost 1 point to finish at 926 and the NASDAQ edged 2 points lower to close at 1446.

And tomorrow is another day.

13 January 2003 - Morning Post

7:21am and we are keeping bankers hours this week. As we turn on CNBC the talking heads are discussing how much a boost to the markets the commencement of war with Iraq will give. That's a nice subject for a Monday morning. Let's kill a couple of hundred thousand Iraq citizens so we can make a few bucks in the stock market.

Gold is down a down and stock futures are higher this morning and the mood seems to favor a continuation of last weeks rally. We'll see.

10 January 2003

6:49am and a story in the NYT this morning suggests that the only corporate dividends that would be tax free would be dividends on after tax profits. That means a corporation would have to pay taxes and that only the money remaining after paying taxes that is paid out in dividends would be tax free. That requirement would exclude the dividends of many utilities since through the wonders of depreciation many utilities report no taxable income. Glad we sold the XLU the other day because utility stocks should go down on that news. And that may be why Goldman Sachs lowered its ratings on utility stocks two days ago.

7:03am and 19 years and 15 days ago we started the Model Portfolio with $50,000. At that time we said we hoped to provide a return of 10% per year. A goal of a 10% return was a bit of a stretch in those days but as we entered the go/go years of 1986 and 1987 and the late 1990s such a goal seemed modest at best. Now that we are in the year 2003 and the S&P 500 has suffered a 50% retrenchment and wiped out five years of gains, if one goes back and measures the return on the S&P 500 over the last 19 years we would guess that it has been less than 10%. The return of the Model Portfolio over the 19 years has been 12.5%.

7:30am and there was a loss of 101,000 jobs in December versus a hope of up 33,000 and November was revised from down 40,000 to down 88,000. The average work week was down 0.2%. That data is not good for stocks, but is good for bonds. Stock futures have turned lower. It's comforting to be in cash.

9:01am and the markets are slightly lower after dropping sharply at the opening. Stocks are holding well given the bad jobs data. The bulls aren't going to give up easily.

10:30am and Vice president Cheney has emerged from his secret location to commend President Bush as the re-incarnation of Franklin Roosevelt. We remember a time when comparing a Republican president to Franklin Roosevelt would have caused a riot.

The DJIA continues to languish in positive territory and volume has slowed a bit. Tech stocks have kept a bid in them and breadth is positive.

10:49pm and JC Penney is slashing 2000 jobs at its catalogue operation.

1:26pm and owning but a few stocks and awaiting a market pullback we have been surfing the web looking for plans for a grape arbor. In our contest for best advice on our plumbing problem the following is the hands down winner.

You are under a curse which has the house under evil. You must acquire the saliva of a vampire bat. I will check to see what you do with it and let you know. In the mean time, do not eat any meat of warm blooded animals. And this is important, do not smoke or let anybody smoke within the house. It will help to eat only organic produced food and of course keep that hose in the hole. I did not know you had a water softener. Also send $25 to the Republican Party and you will receive a mouse pad with a flag printed on it.

2:02pm and the markets are meandering at slightly higher levels. The last hour will tell the tale. Treasury bonds have given back all their morning gains.

3:02pm and the DJIA closed up 6 points at 8781. The S&P 500 was unchanged at 927 and the NASDAQ gained 10 points to close at 1448.

For the year 2003 the Model Portfolio is up 7.3%. The DJIA and S&P 500 are both up about 5.5% and the NASDAQ is up 7.8%. The Model Portfolio as of today has been posted. The Model Portfolio is 95% cash and 5% stocks.

And tomorrow is another day.

10 January 2003 - Morning Post

6:24am and the stock futures are indicating a higher opening. We sense a move by analysts to try and catch the moving train by upping their outlooks without changing their ratings. An example is the call by Lehman to raise to neutral its opinion of telecom equipment industry while not changing the ratings on individual stocks in the industry. With yesterday's rally it's obvious we left money on the table when we sold earlier this week but that is usually the case.

The Model Portfolio is up 7% for the year and is 96% cash. We haven't and don't buy the argument that one has to stay in stocks because bonds and cash don't have a yield. Our investment in stocks in the last quarter of 2002 was to catch a recovery move off the bottom and our 15% and more return in many accounts since October 1 is evidence that we accomplished our goal.

But since there has been no change in the economic outlook and because war is still a 50% or better threat, we have retreated to the sidelines to observe events.

The stock markets will open higher today and then we'll see how much fire power the new bulls have. Asia was mixed but Europe is higher.

9 January 2003

6:11am and Pam Olson, assistant Secretary for tax policy is on CNBC explaining how in the interest of fairness retained earnings by companies are now going to be used to reduce capital gains taxes when folks sell stock. This is tied to the dividend exclusion policy. As we have said the tax break won't survive or will be reduced to $5000 per family.

AOL Time Warner is taking a $10 billion write-off and so we presume the AOL component of the deal has been written down to zero. This occurrence reaffirms our belief that we are better able to assess a situation sitting out here in the boondocks than the million dollar investment hotshots in NYC. But then we always knew that, it's just nice to have confirmation.

6:25am and Europe looks a bit weaker this morning and US stock futures are indicating a mixed opening. Now that we have taken most of our money off the table we can enjoy the show. If we do decide to participate before next October it will mainly be through the use of the SPDR Trusts like the Utility Trust (XLU) and the Technology Trust (XLT). There is also and Energy Trust (XLE) that invests in energy stocks and the Financial Trust (XLF).

7:31am and claims for unemployment were down 19,000 to 389,000 and that has put a bid in stocks. Treasury bonds are weaker on this news.

9:02am and the DJIA is up 100 points on good volume this morning. Breadth is positive and up volume exceeds down volume by over 2/1.

11:17am and our Diamond Club plumber came and placed the hose from the water softener back in the floor drain and solved our water on the floor problem for today at least. We appreciate the folks who called to offer advice after reading about our water problem in the morning post, but no one told us to check the hose.

Stocks remain higher with the DJIA up 150 points. As we always do, we sold too soon. And we are continuing to sell too soon today by eliminating our Reuters trading position at $19.25 for a scratch to $2 per share gain. We are also reducing/eliminating holdings in Wild Oats and CTS. In the OATS sold at $10.30 we are scratching while on the CTS sold at $8.34 we are making up to $2 per share.

12:06pm and we read that Alcoa is going to slash 8000 jobs to increase earnings. Also since year end AT&T another 3500 job cuts and Cigna is letting 3900 folks go. Job loss is the reason the economy is in the tank and the stock market is in a bear phase. High paying union and white collar jobs are slashed and low cost service jobs are created. The economy is not going to recover until we begin reading about job creation. We are no where near that point in the cycle.

The DJIA remains 146 points higher and breadth remains 2/1 positive although most stocks are off their highs for the day.

1:17pm and Treasury bonds are dropping in price. The yield on the ten year is up 16 basis points today to 4.14%. The DJIA is holding its gain and Hans Blix, the UN arms inspector says there is no smoking gun. Tony Blair is getting heat from his own party in England to let the UN keep inspecting and so the stock markets are rallying on no war hopes. That's also why the Treasury market is weak. There may also be asset allocation out of bonds and into stocks occurring.

2:12pm and entering the final hour of trading stocks are on their highs for the day. Maybe this rally will hold which will set up an interesting tomorrow.

3:02pm and the DJIA closed up 180 points at 8775. The S&P 500 gained 18 points to finish at 928 and the NADSDAQ gained 37 pints to close at 1437.

And tomorrow is another day.

9 January 2003 - Morning Post

5:41am and we are early this morning because we have standing water in our basement. Having standing water in a basement in the middle of a winter drought with no snow on the ground is not a good sign. Luckily when the plumbers were here for the same problem two days ago we became a member of "the Diamond Club" which provides us with special service and discounts. We should have worried then. Whatever, we are sure the problem will be solved. And the plumbers will be able to buy diamonds with our payments since that's why we think they named the club the Diamond Club.

Back in the fall of last year we said we were buying to take part in a rally that would last through January and that we would sell in January since we still considered the stock markets to be in trouble because the economy shows no signs of improvement. In keeping with our scenario we have been selling the rally and The Model Portfolio is again a more comfortable 90% plus in cash. Since October the Model has gained about twenty percent and is up 14% for the one year and 9 days since 12/31/01. In the last nine days the portfolio has risen 7%. That's a good start to the year and since we still think we are in a bear market we have basically retreated to the sidelines to wait and watch. The value of The Model Portfolio including accrued dividends and after fees is $492,160. Nineteen years ago we started with $50,000.

8 January 2003

6:31am and Jeff Cooper who writes for www.realmoney.com is a technician who has been right on the market for the past four months. We thought you might enjoy his take on what the markets will do today. He has a private service for subscribers and also writes regularly on RealMoney.com. "Conclusion: It is not unusual for profit-takers to ring the cash register at a natural level. Moreover, a look at yesterday's Gann Square of Nine Chart shows that 930 S&P is a harmonic of the 870 swing low in as much as it is 180 degrees up and opposition from 870, a natural place for price to pause." Now you folks know our secret. It's the Gann Square of Nine Chart with its leaping lizard and crouching tiger chart formations that give us our trading knowledge. Actually the guy is very good but the gobblygook loses us. We only understand half of what he writes.

7:18am and in the "it never changes until someone yells loud enough" department the NYT has an article on its financial pages about two fellows from AT&T Broadband who are now running a bankrupt Adelphia Communications. They could receive up to $70 million for bringing the company out of bankruptcy. These packages are greater than the $20 million over three years that Michael Capellas is going to receive for bringing WorldCom out of bankruptcy. And so the pillage and plunder of the 1990s continues. And this kind of goofy pay scale is one reason why we think nothing has changed and cash even earning less than 1% is king and queen and prince and maybe even pope.

7:31am and we mentioned in passing yesterday the re-emergence of investor scams can't be far behind dividends being exclude from taxes. (We know we promised this morning not to mention this subject again, but we have to have our say.) We can only imagine the churning and dreaming that is going on the heads of Wall Street sales folks who create the products to sell to Jon and Jane Q public when they contemplate the wonders of packaging money for a fee to turn interest income into tax free dividends with 20% off the top for them for their efforts. When will we ever learn, when will we ever learn go the words of the old hippie peace song. We'll with Wall Street oiling the pockets of Dems and Repubs we haven't yet. Yes sir Senator, there is suckers born every day and two seconds after the dividend exclusion passes Wall Street will be out huckstering folks and separating them from their money. How, you ask. We'll let's set up a corporation and sell stock to the public. Then let's go out and buy a bunch of junk bonds yielding 9%. After paying taxes and taking our overhead we will still have 4% available to pay to shareholders as dividends. That idea may be too simple but be assured that Wall Street will figure out how to package this tax break and junk bonds will figure in the mix. And when the companies that issue the junk bonds go belly up so will the investors' money. And Washington will hold hearings and wonder what went wrong.

8:09am and Jack Welch must be feeling unloved because we are now being presented with 10 minutes of Jack on CNBC. The talking heads are laughing at his jokes, nodding at his wisdom and soaking up his great knowledge. Too bad we have the volume off.

8:14am and stock futures remain negative so we are looking for a down opening. And Jack is back. We think he owns a couple of million shares of GE which would translate into $3.2 million in dividends or a tax saving of $1 million. He needs the money though since he gave up all his retirement perks.

9:02am and stocks are lower across the board with the DJIA down 82 points. We are trying to sell more stocks but it is tough right now. We were able to sell most of our SPDR Utility holdings at 20.25 for a nice one week gain of $1 and more including the 20 cents per share dividend payable on January 15, 2003. This sale raises a significant amount of cash. If we catch a rally today we may be able to reduce positions in a few more issues. The Model Portfolio was up 9% for the year this morning and we are happy to raise as much cash as we can today.

11:41am and just saw on the CNBC screen that Money Magazine named Las Vegas as one of the ten best places to live in America. What does that say about Money magazine? And what does that say about America?

The DJIA is now down over 100 points and the NASDAQ is down 26 points. So much for our rally day thesis. In keeping with our raising cash theme we lightened up on Goodyear Tire at $7 in many accounts for a $1.25 cents share loss on our original purchase. We also reduced our position in PCS at $4.76 which is breaking even in many accounts. We sold our holding in Interstate Bakeries for at $16.20 for a 50 cents per share gain. We are letting a little OATS go at $10.15. Finally we sold part of our Elan holding at $2.90 at break even or a profit for accounts and we sold our entire JDSU holding at $3.05 for a 50 cents per share gain. We want to reduce the Elan position so we can more comfortably hold the rest.

2:09pm and stocks are heading lower. We are glad we sold early and avoided the rush. The DJIA is down 150 points and the NASDAQ is down 30 points. We guess its war worry time again. We'll see how the final hour turns out.

3:02pm and consumer credit contracted $2 billion in November instead of expanding $3 billion as expected. That could be one reason for the sell off. Another is that Alcoa was the first DJ stock to report today and it missed earnings estimates by 9 cents per share. At the bell the DJIA was down 145 points at 8595. The S&P 500 lost 13 points to close at 909 and the NASDAQ was off 30 points at 1401.

And tomorrow is another day.

8 January 2003 - Morning Post

6:18am and we guess it's better for the talking heads on CNBC to be arguing about who benefits from dividends than expounding on war with Iraq. But after only a day of the discussion we are weary and we promise not to mention dividend exclusions again except in the context of why we own the SPDR Utility Trust.

The stock markets paused yesterday and so if the last week's pattern holds stocks should have a nice up day today. We shall see. We have raised a good amount of cash but in a bear market we never can have enough unless we are 100% cash and so we will keep selling today.

7 January 2003

6:14am and we think the total dividend exclusion in the Bush tax stimulus plan is the throw away part when the deal making starts. It was added for the conservative wing of the party but the exclusion will be capped at $5000 when the final bill is written. It is our hope the SPDR Utility Trust moves another 5%-10% and then we will take our profit. We believe the markets are not going straight back to their March 2000 highs and because the market action is following our scenario as expounded in early December we are committed to taking most of our money off the table this week.

6:51am and the stock futures are creeping toward positive territory. We sold Brocade yesterday because we wound up with a larger position than we wanted and because BRCD has $550 million in debt. We sold AWE because it was a trade and we like our PCS position better. We sold SUNW because it is SUNW. We have no long term confidence in Tellabs and have been trading it for the last few months always for gains.

We sold Ford and Delphi as a pair for a profit and as we said yesterday we think auto companies robbed this year's sale last year by offering 0% financing. With the increasing budget deficit interest rates are going to rise and that will make 0% financing more difficult and expensive.

7:07am and Greg Valliere of Schwab Lobbyists in Washington DC is on CNBC softly spinning mom and aunt Nellie hoping for the dividend exclusion so that they can get some tax free dividends to replace low yielding C/Ds. They should be playing America the Beautiful as background music. Raising the value of stocks would be nice but that in and of itself is not going to cure the economy's woes. But all the soft spin going on today should raise stock prices for us and we will happily let the next guy or gal make a few bucks by buying our sales.

8:26am and please understand that we are taking no stand on a dividend exclusion per se. Rather our argument is that the major portion of the Bush stimulus package is a permanent tax cut that will take 10 years to play out. A stimulus package should work now not five years from now. And the argument that dividend exclusions will raise the stock market for any period of time is baloney. In fact like the difference in capital gains and regular income tax rates, we are sure such exclusion will be a boon for the tax shelter business ala the 1980s oil scams, annuities and real estate packages.

8:57am and stocks opened lower. The sell off is contained and we think we will get to the upside within an hour. We sold HPQ at $19.90 for an 85 cents per share trading profit. We again have some Elan in to sell at $3 to reduce position to more manageable levels. And we have CTS in to sell at $8.75 and will be selling EMC today as it rallies.

10:23am and we sold Lucent at $1.60 for a 23cents per share profit. We sold EMC at $7.42 for a $1.50 per share seven day profit and we sold Siebel at $8.61 for an 80 cents per share profit. Stocks did get to the plus side for a short time this morning but they seem to be anticipating Bush's speech and the resulting sell the news reaction. We are still in a sell mode and will let some of our remaining stocks go into any strength.

11:40am and the DJIA is off 14 points. Breadth is negative on the NYSE and NASDAQ and volume is lighter than yesterday. We sold SPDR Technology Trust for a $1.50 per share profit at $16.50

12:21pm and the Oracle of Washington is now speaking in Chicago. We heard that when Bush was talking with Daley an interpreter was needed. The stock markets are floating while listening to the speech.

1:55pm and stocks rallied with the DJIA up 50 points after Bush finished his speech. But stocks couldn't hold the gain and the DJIA is now down about 17 points. We'll see how the last hour goes.

3:02pm and the DJIA lost 33 points to close at 8740. The S&P 500 dropped 6 points to end at 922 and the NASDAQ gained 10 points to close at 1431. Volume was brisk. In the last hour we sold some Rite Aid at $3.02 to lighten positions. We made $1 per share on the trade. We also have been lightening our holdings in CTS and we sold some shares today at $8.76 for a $2 per share profit. We are hoping to sell some Elan tomorrow over $3 per share.

And tomorrow is another day.

7 January 2003 - Morning Post

6:04am and we had a good day yesterday and expect another one today. the stock futures are suggesting a lower opening which is a positive. After the close EMC pre-announced better than expected earnings for the quarter and jumped 50 cents per share over its closing price. Other tech stocks jumped on the news as short sellers were panicked into covering short positions.

We plan on continuing to raise cash as the rally proceeds today. President Bush is announcing his stimulus plan today and we are selling the news. Stocks may continue to move higher but we are up 4% to 8% for the year in most accounts and if the rally continues today we think discretion is the better part of valor.

6 January 2003

7:35am and over the weekend there was an item in a foreign paper, the London Independent that Vodafone was going to "put" its ownership of one half of Verizon Wireless to Verizon for $20 billion. The story then suggested that Vodafone would use the proceeds to buy the AT&T Wireless stake that NTT DoCoMo owns and purchase the rest of AWE. One of the reasons we have been leery of AWE is that DoCoMo has a put option on the shares it owns that would cost AWE $10 billion if it had to buy them. And so we use AWE as a trading vehicle because that put option worries us. This story had been denied by Vodafone but the story may create some action in the wireless stocks. Consolidation is going to come to the industry and we think PCS wireless which is still wholly owned by Sprint makes FON an attractive takeover candidate for WorldCom when it emerges from bankruptcy. WorldCom already tried once to merge with Sprint and we think the FCC will now allow a combination.

7:52am and the Wall Street Journal is reporting that the Bush tax plan will eliminate dividend taxation for individuals. That should give a real pop to our SPDR Utility holdings and is one of the reasons we bought them. While we should make money from talk of the elimination we doubt that the overall Bush plan will stimulate the economy. Like the market the economy moves on psychology and with the constant talk of attacks on the US we don't think the economy can get moving. But we react and we are not President so we'll just carp and criticize since that's easier than dealing with the problem. And, thankfully, dealing with the problem is not our problem.

8:29am and we just sent the following e-mail to Jim Cramer the ever present voice and face of www.thestreet.com.

Dear Jim
We read your comments with interest and find them useful. We manage $80 million and have for the past 18 years been a money manager. We trade only from the long side of the market (going to cash when we are nervous) and have been quite active the last four years. The record of our Model Portfolio which is an actual portfolio is +44%, +1%, +21% and +7% over that time.

Our largest current position is SPDR Utility (XLU) because at the end of last year when we acquired it we thought the Bushies would push to eliminate the double taxation of dividends. While that will benefit us and our clients and may pop the markets for a while it will do nothing for the economy. Deficit spending in times of crisis is justified. But the Bush folks are more interested in completing the conservative agenda than in actually stimulating the economy. Using a temporary suspension of a portion of the FICA tax as a tool of getting money to corporations and individuals is the most efficient way of stimulating but since it is a Democrat idea the Bushies won't consider it. Too bad for all of us. Ah well politics is politics.

We hope your record this past year will allow you to cut some slack for other folks who run money and may have had one or two bad years. Before this year we seem to remember you telling folks to leave managers who lose them money over a one year period.

Here's hoping for a prosperous year for both of us.

Bud Lemley

8:50am and the stock markets have opened slightly higher. We are selling some of our low priced tech stocks because we have the SPDR Technology Trust in many accounts. We are busy so we will post our sales later. As we said last month we want to raise cash on this rally.

10:44am and we sold Sun Micro at $3.61 for a scratch profit. We sold AWE for a 13% one week profit at $6.50. We sold Brocade at $5.02 for a scratch to 20% profit extricating ourselves from a position we bought only for the year end bounce. We sold Tellabs at $8.35 for a $1 per share profit. We eliminated our Carpenter Steel holdings at $12.40 because the stock trades too thin. We also rebilled our Walgreen trade from Friday. We mistakenly priced the sale at $32.50 when it actually was executed at $31.50. The profit was still $2.50 per share as reported. We sold at $6.65 the higher priced EMC we bought in December for a scratch profit but we are holding the stock we bought at $5.92

12:31pm and after a busy morning we have raised a good amount of cash. We sold the second leg of our Texas Instruments trade at $16.50 for a 75 cents profit. We eliminated Philippine Telephone at $5.30 for a $1 per share profit. We sold Real Network to at $3.91 for a scratch loss. We are trying to sell CTS, some Elan, and our trade in BKS above the market.

One guru is positing that hedge funds have been caught with their shorts on and this furious covering in the low priced tech stocks is being caused by hedge funds.

Our SPDR Utility holing is up another 90 cents today. Hopefully in the push into Bush's speech tomorrow we will get another 5% move and we can take some money off the table.

2:06pm and the DJIA is up 190 points. We sold our Ford holdings at $10 for a 25 cents per share loss and we sold Delphi Auto at $8.60 for up to a $1.50 per share gain.

We are selling as stocks rally because the rally was expected by us and we don't think the economy has changed. The Model Portfolio is up about 6% and we want to raise cash. We don't have much more to sell today but if the rally continues tomorrow we will sell more. We are selling the most speculative first when it comes to tech stocks. And we sold Ford and Delphi because we think the auto stocks borrowed from this year's sales last year with 0% financing.

3:02pm and we sold our BKS trade for a $1 per share profit. At the close the DJIA was up 170 points at 8771. The NASDAQ gained 34 points to close at 1421 and the S&P 500 was up 20 points at 929.

And tomorrow is another day.

6 January 2003 - Morning Post

7:20 am and stock futures are indicating a weak opening and it may take an hour our two for a trend to develop today. We hope everyone had a peaceful holiday season and now let's get ready to rumble.

3 January 2003

6:22am and the DJIA looks to open lower while the NASDAQ futures are higher. Overseas stock markets were higher overnight on the back of yesterday's strong US markets. Today will tell the tale of whether the markets are in the "up one day, down one day" pattern or whether the more bullish up two or three days in a row pattern will return. We will be selling into the rally as previously planned.

9:11am and the stock markets opened lower but after thirty minutes of trading edged into the plus column. The bulls are having a tough time moving stocks higher and we are continuing our sell regimen. Right now we are trying to sell our Tellabs position and are getting ready to eliminate Brocade if it moves a bit higher. We own more of it than we want to and the discipline is to sell into strength. We sold WAG at $31.50 for a $2.50 five day gain.

11:55am and breadth is negative and there is more down volume than up volume. Brocade backed off and so we pulled our sell order. Trading is still holiday light. We don't know if the bulls are just resting for this afternoon or if they have spent their wad. As we said yesterday next week will give a better idea of the trend. Stocks act like they would like to move higher. We sold more Tellabs at $8.10 in larger accounts but have decided to hold it in smaller accounts. We sold our Cisco at $13.70 for a scratch profit to raise cash. Our SPDR Technology holding gives us exposure to Cisco, Microsoft and Intel and IBM along with a bunch of other techs.

1:04pm and the DJIA got to the plus side about 15 minutes ago. We used the pop to sell half our trading holdings in Texas Instruments at $16.20 for a $1.10 per share two day profits. Stocks are now on the minus side again but a last hour rally would not surprise.

1:10pm and GM announced sales 36% higher than last December. Ford sales were up 13.5%. And the share prices of both stocks drop on the news. Guess folks did go to the auto mall and not the shopping mall.

1:27pm and Home Depot down $3.50 today on lousy December sales would be a great buy if it were December and not January. But early in the year is not the time to catch falling angels unless one predicts a roaring bull market. We don't and so we won't be buying HD although it will probably recover a bit next week if the stock markets move higher. HD is a big drag on the DJIA today.

2:45pm and we are leaving early to go pick up the cowboy. Stocks are about back to even for the day and the story will be next week as to whether the rally is a one day wonder or has some legs.

And tomorrow is another day.

2 January 2003

8:36pm and stocks are opening higher in moderate trading. Unemployment claims were higher than expected at up 13,000 but the markets are ignoring that news. The holiday week continues so there won't be much to hang a hat on until the middle of next week in determining what the actual trend is.

8:55am and trading has been halted in JP Morgan. This news may move a thin market. Maybe Harrison is leaving which would be a positive. A big loss would of course be a negative.

9:01am and the Institute of Supply Management index was 54.6 for December versus 46 in November and an expected 50. The stock market is rallying on that news. JP Morgan's news is about a settlement in a law suit against insurers in which JPM is seeking $1 billion to cover losses in the Enron blowup.

12:16pm and the DJIA is up 200 points. We are doing some selling as we promised and so we are busy and not posting as often.

1:16pm and try as we may we can't sell any size today and so we have given up and we are just watching our stocks go higher knowing that the rally is very thin. If the markets stay up for the rest of today the rally may continue into tomorrow morning and then we may have a better chance of doing some more selling. For now we have sold a bit of Ford at $9.90, Brocade at $4.54, Carpenter Steel at $12.70, OATS at $10.70, CTS at $8.44 and some Tellabs at $7.85. As we expected, we are getting the "end of selling" relief rally now and we want to raise some cash.

3:02pm and the DJIA closed up 264 points at 8606. The S&P 500 was up 29 points at 908 and the NASDAQ gained 49 points to close at 1384. Wow!

And tomorrow is another day.

2 January 2003 - Morning Post

8:17am and the grandkids are here again for a few days so there will be no morning posts till next Tuesday. We will be out tomorrow Friday as we attend riding camp with Tyler. We are in a watching mood.

1 January 2003

7:14am and we wish all a Happy and Peaceful New Year.

The 12/31/2002 closing value of the Lemley Letter Model Portfolio was $460,305 including accrued dividends and deducting fee payable. That value represents a positive return of 7.1% for the year 2002.

Other pertinent returns were the DJIA (16.76%), NYSE Index (19.83%), S&P 500 (23.37%) and the NASDAQ (31.53%). The Lehman US Government bond index was up 7.98%

The returns on accounts we manage varied between down 2% for some small accounts to over plus 10% for some of our aggressive trading accounts.

And today we start anew. Past performance is no indication of future performance.

January 2003 Thoughts

December 2002 Thoughts

November 2002 Thoughts

October 2002 Thoughts

September 2002 Thoughts

August 2002 Thoughts

July 2002 Thoughts

June 2002 Thoughts

May 2002 Thoughts

April 2002 Thoughts

March 2002 Thoughts

February 2002 Thoughts

January 2002 Thoughts

December 2001 Thoughts

November 2001 Thoughts

October 2001 Thoughts
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.