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

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

30 July 2003 - Vacation Comment

7:15am and we are off today for the rest of the week.

When we went to sell our ELN holdings yesterday a more committed seller with over 2 million shares to sell showed up and knocked the price down to $4.10 and we thought we'd wait for another day.

But since we were in the selling mood we did sell our AOL for even and DUK for a 20cents per share loss. We sold the AOL basically because we were even and think we'll have a chance in the fall to buy lower and we sold the DUK because their earnings come today and because with the back up in Treasury bond yields we think the dividend stocks may come under pressure.

So we still have ELN to sell but since we are now 99% cash and ELN is a 1% or less position in most accounts we'll probably wait and hope for close to even before we sell.

And so as we take a few days off the Model Portfolio is at a value of $518,300 and up 12.6% for the year. The S&P 500 is up 13.2%. We are content to let the markets fluctuate for the next month before heading lower. Our trading nerve just isn't present and so the time off will be useful.

Our next post will be Monday, August 5.

And tomorrow is another day.

29 July 2003 - Vacation Comment

7:15am and the DJIA closed down 20 points yesterday while the NASDAQ rose 5 points. We are going to sell our Elan position today if we have a chance. It will involve a loss but we thought we would see a bounce in the shares after last week's sell off and we just don't want to overstay our welcome with trading ideas where the underlying company can file bankruptcy.

In yesterday's news AT&T accused MCI of cheating T and other phone companies out of hundreds of millions of dollars over the past ten years by routing U.S. Government phone calls thru Canada to avoid access charges. MCI's response was that such disputes among phone companies are common in the industry. Again we ask the question, who is MCI's friend in Washington who keeps protecting it.

And not to be outdone, JP Morgan and Citigroup yesterday agreed to pay $135 million and $120 million respectively to the SEC for not doing anything wrong but just to settle that darn old Enron matter. Floyd Norris in the NYT this morning said the legal action was a warning shot to other banks that if they engage in fraud the will be punished. We would guess that the cost to both banks of the legal settlement was less than the profits they made with the inside information they had on Enron's workings and the realization that working on the legal edges with companies is what modern day banking is all about. Norris also says that Citi unloaded some of its bad Enron loans to institutional investors before the collapse. Now that's a great way to build a business. But we would bet that those institutional investors still deal with Citi because the money they lost was OPM (other people's money). And by settling with the SEC both banks prevented the release of information that would have hurt their claims in the Enron bankruptcy case.

By the way both C and JPM closed higher on the day.

And that leads us to another question, why are Bernie Ebbers of MCI and Ken Lay still not charged with even jaywalking?

The thirty-year Treasury lost 1 3/8 points yesterday and even the five-year was down over ˝ point. That is a lot of pain for folks who are long Treasuries. The Treasury 3% due 2/08 that we have traded twice this year around par has lost 2 full points of value in the last month as its yield moved from 2.10% to 3%. The ten-year was expected to find support at 4.25% but it closed yesterday at 4.28%.

This morning the ten-year is at 4.35% so it looks like the next stop is 4.50%. All of a sudden the supply issue of Treasury issuance to cover the burgeoning deficit has moved to the fore. Some gurus see the rise in yields as a threat to the stocks rally. There is always a reason. We think stocks are expensive and that bonds aren't yet cheap enough. Over the past ten years the markets have gone to excess and we think that will be the case with bonds now.

And tomorrow is another day.

28 July 2003 - Vacation Comment

7:16am and Japan was up big over night and Europe is higher. The analysts are playing catch up and today Disney was raised by SoundView to outperform from neutral.

It is interesting how our emotions and the emotions of "the street" change from day to day in these times of uncertainty. We are hoping that our three weeks of semi-vacation gives us a clearer perspective on what is occurring around us.

Over the week end we tried to get a handle on our outlook for the markets after Friday's large move higher in the afternoon. The move came out of nowhere, just like the down move on Thursday and it is that kind of non predictable action that muddles the brain. We don't think there is much conviction either way and any small buying or selling pressure can have a larger effect than normal during the summer vacation months. It looked on Friday that even though stocks were strong that there was very little liquidity in the marketplace. By that we mean that it would have been difficult to sell a large block of stock at the last sale price even thought the DJIA was up 150 points. There will be a carryover of the positive action this morning and then the test will come after the obligatory pullback

But the purpose of our vacation is to ignore the hour to hour stuff and just observe. We need a rest from trying to trade the markets since we seem to have lost our edge. And so we will be in and out today and won't have the final numbers for you. In fact we are writing today in the morning and have no idea where stocks or bonds are going today. We do care but we want to observe for the next few weeks. In the long run we don't think it will cost us any profits and will be healthy.

And tomorrow will be another day.

25 July 2003 - Closing Comment

7:32am and the June durable goods orders increased 2.1%, up 1.4% less transportation. This number is a measure of manufacturing activity. With it above consensus the bonds should sell down since it implies the economy is getting better and stocks should rally.

And that is what is happening. The Treasury ten-year was at a 4.15% yield when the number was announced; the yield is now 4.20%.

So will this number move the 2.1 trillion in money funds to stocks?

Now the casino is waiting for existing home sale numbers at 9am to give a second stage boost to the higher opening at 8:30am or so the bull scenario goes. We shall see.

9:02am and existing home sales were up 4.7%. That should be a help to the casino bulls. We sold our trade in SBC at $23.55 for a 10cents per share loss. We bought as a short term trade and don't think it will work in our time frame.

9:30am and the stock markets are sick. We read on www.minyanville.com which we highly recommend that their studies on durable goods orders have no relationship to actual economic activity. Which may be one reason the markets after a quick move higher are now off and ignoring that item?

10:34am and stocks moved into negative territory but then recovered so there is still hope for the bulls today. Breadth is positive on the NYSE and negative on the NASDAQ and volume is moderate.

1:29pm and we just lost about 50 lines of great thoughts by hitting the wrong button. It must be vacation time. Stocks have rallied and the major measures are up 1% while breadth is unimpressive and volume is light.

2:11pm and the thirty year bonds are closing at 5.13% which is the highest yield this year, and the stock markets are rallying with the major averages up almost 2%. Breadth is positive but not as it should be with a 150 point gain in the DJIA. And there are only the same numbers of new highs today as there were on a down day yesterday. Looks like the bulls are winning today's battle but we wouldn't be surprised to see today's gain reversed on Monday.

Europe closed lower on the day as did Japan.

3:02pm and the DJIA closed up 172 points at 9285. The S&P 500 gained 17 points to end at 998 and the NASDAQ rose 30 points to end at 1730.

For the year the DJIA is up approximately 11%. The S&P 500 is up 13.2% and the NASDAQ is 29% higher.

The Model Portfolio is up 12.7% and is 95% cash.

And tomorrow is our first day of a three week working vacation.

The Summer Lemley Letter is now posted.

25 July 2003 - Morning Comment

6:56am and we take this opportunity to announce that this is the last Morning Comment till the prince and princess leave the 26th of August. We know it will be hard for folks to forgo our words of wisdom but in our life our grand children are the grandest part. We will have our regular Evening Comment except for Wed, Thurs, and Friday of next week when we will be enjoying the wonders of Water World at Wisconsin Dells and watching the Cubbies win won for Tyler Bud. So if you wish you can wait till morning to read the Evening Comment in which case it would be the Morning Evening Comment.

After the market and world news of the last year we are looking forward to doing some non-market activities for a few weeks. We will continue to monitor events and of course client accounts. We took on a few positions yesterday to keep life interesting. They are all stocks that we have traded before and we are just trying to pick up a few cents profit from them to make up for the little interest we are not earning while sitting on cash. SBC and Duke Power have good dividends and AOL doesn't lack for news to keep up the interest. Elan has been and is a speculative buy.

This morning the WSJ has an article about AOL selling discounted subscriptions to large advertisers for them to sell at a higher price to employees. The take of the article is that such subscriptions amounted to 17% of announced subscription increases back in the year 2000. Now this would have been and interesting story if written then. Now it is useless news since AOL has already fessed up to doing a lot of on the edge things and as a result the value of AOL in the AOL Time Warner Complex is less than zero. And AOL still has 15 million or more subscribers who pay some amount of money by credit card each month. That is 15 million more paying subscribers that Yahoo has and yet Yahoo has a market cap of $20 billion. We use AOL and like the service and it is helpful when we travel to have the dial up. It also is a backup for our business out here in the "boonies" if our DSL or dial-up service goes down.

Our point is that all the bad news is out, and the real reporting on this stock should have been done in 1999 and 2000 when we were saying the merger was ridiculous. Now we are dealing with the results and wash out and are comfortable trading the stock with the hopes of having a position when the stock markets emerge from the long tunnel of the current bear market.

For this morning Europe is lower as was Asia but the U.S stock futures are indicating a slightly higher opening. Our rally scenario of yesterday collapsed and the bulls are going to have to make a stand today to keep any possibility of an up move over the near term probable.

So let the games begin

24 July 2003 - Evening Comment

8:26am and the jobless claims number of 386,000 was the first time in 22 weeks that the number was under 400,000. And the stock markets are going to take that as the all clear sign in the early going to move higher. When the DJIA is up after half an hour we will then find our how much steam the bulls have.

Our miasma regarding stocks arises from our inability to perceive any real change on the horizon in the economic health of the country. We don't know whether there is some adjuster in the jobless claims today to account for scheduled layoffs in the auto industry similar to the adjustments made in GDP that we think causes an overstatement of economic activity. But the numbers announced are the ones the boys and girls trade on for the day and so we'll see how far that jobless number can take the stocks.

8:50am and we are surprised that stocks have not moved higher. The DJIA is up 30 points but traders seem to be in no rush to buy stocks. We are taking trading positions in AOL at $15.65, BGEN at $39 and we are trying to buy Duke at $18.50 with a 6% yield to place around. We've been trading AOL and BGEN all year. The AOL and Duke will go into the larger and aggressive accounts and the BGEN is only for our trading accounts.

11:11am and Elan, the Irish drug company is off 30% today at $4.90 because the Crohn's Disease drug it was testing with Biogen isn't working. The drug is also being tested for MS and that testing isn't affected. We've traded ELN before and we think the speculation is worth the risk at this level. We bought it in accounts where we owned Rite Aid several weeks ago.

We are not going whole hog here. The AOL and ELN in many accounts are reasonable position trades because both have sold off in the last week. And both are stocks we would buy in any sell off. Of course if the stock markets head south these two will go with the flow too but the total purchases are less than 3% of cash reserves. We own the BGEN to trade.

The DJIA is up 50 points and if traders can get the S&P 500 above 1000 there may be a bigger rally this afternoon. We expected three up days this week with today being the last. The first two were nothing to write home about and so we'll see how today goes.

11:53am and we closed out the BGEN trade $39.05 for a scratch. And this is a scratch that was a victory since we started buying BGEN this morning at $39.30 and the share price went to $38.35 before bouncing back. We bought shares on the way down but sometimes we are happy just to survive as with this trade.

Having sold the BGEN we bought SBC at $23.60 in those same aggressive trading accounts. It is off on its earnings reports released today but is near the lower end of its trading range for the past four months.

12:30pm and from the website www.minyanville.com we offer the following quote from Fed member Bernanke yesterday that: "the U.S. banking system is highly profitable and well-capitalized and has managed credit risk over the latest cycle exceptionally well."

Our response to that quote is that banks ought to be profitable after all the interest rate cuts Uncle Alan has been giving them over the past two years. As we said yesterday it is a scandal that the low interest rates are disadvantaging the very folks who played by the rules and saved money all their lives for their retirements and are helping the profligate banks that never saw a risk they weren't ready to take with other people's money knowing that if things got bad the Fed would rescue them as long as they were too big to fail like JPM and C.

By the way the www.minyanville.com website is a "pay for" but well worth the money for the thoughts of Todd Harrison. Todd is a trader and a lot younger than we but we have followed him for six years and if you can get used to his lingo his thoughts are always provocative.

12:39pm and out California way the Republicans and their money are trying to thwart another election by recalling Gray Davis, the unpopular governor after less than a year after the last election. We understand that Davis isn't popular but he won the last election fair and square and without help from the California Supreme Court and the energy crisis and subsequent huge energy bills were the result of collusion by Cheney's cohorts in the energy business. Even the Bush controlled FERC found that there had been collusion and price fixing but FERC couldn't find the gumption to enrage Republican contributors in the energy business and so they didn't order the guilty companies to refund the $12 billion they stole from the rate payers of California.

Why any one would want to be governor of California facing $30 billion deficit is beyond our thought process. So this is a case that maybe the winner of this recall will really be the loser.

1:25pm and stocks are losing their gain early in the hour before the last hour. Usually the pull back that sets up a last hour rally occurs about 1:55pm and so we think this pull back is interesting and may signal a last hour of negative action. We are completing our purchase of Duke Power at $18.51 and will place it around.

With these purchases we bought 500 SBC, 500 DUK, 500 AOL and 1000 ELN in the Model Portfolio. We also traded 500 share of BGEN for a scratch in the Model. The Model is now 93% cash. We own these stocks as anchovies for trading purposes.

1:57pm entering the final hour the DJIA is down 30 points and the NASDAQ and S&P 500 are off just a bit. We'll see what the final hour brings.

3:02pm and something about the VIX which is the volatility index moving through 20 on the downside has been suggested as the cause of the late day sell off. A better reason is that if the good jobs number couldn't get stocks higher the question is what will. At the close the DJIA was off 82 points at its low of the day finishing at 9111. The S&P 500 surrendered 7 points to end at 981 and the NASDAQ was down 18 points to close at 1701. The bears win the day.

And tomorrow is not just another day since the prince and princess are coming for their summer visit. Hooray!

24 July 2003 - Morning Comment

7:35am and jobless claims dropped 29,000 in the latest week to 386,000. Continuing claims for unemployment dropped 24,000 to 3.6milion. Those numbers are being taken as bullish indicators and stock futures are higher, bonds are lower. There was an adjustment to last weeks jobless claims number to 415,000 from 412,000 so we will have to see what type of adjustment to this week's number we get next week when no one cares. For we have the number to trade on in the casino today and that number is bullish for stocks and bad for bonds

Obviously, the new bull market is here, the Fed won't have to cut interest rates to 0%, we are not Japan and President Bush's tax cuts have begun to work their magic.

Drug companies are reporting better than the predictions. AT&T is the sleeper we wanted but missed and it had decent numbers and is raising its already generous dividend 27%. Daimler Chrysler and SBC had lousy numbers and bankrupt UAL wants the U.S. to help with its pension plans. We would like their help too but we don't think we will get it.

With the jobless news the bulls see the rainbow's end and stocks will move higher on the opening and then we shall see. We ourselves are not convinced and remained sitting on the sidelines watching for foul balls.

So let the games begin.

23 July 2003 - Closing Comment

8:04am and according to the gurus 975 on the S&P 500 is the line in the sand since it represents the 50 day moving average. Of course there is also the 200 day moving average and the 667 day moving average and the 365 day moving average, but right now folks are concentrating on the 50 day moving average. The S&P bounced off that level yesterday and closed higher and so we'll watch and see what happens in the pullback after the opening push higher this morning. Another technical truism is that the more time a support level is touched the morel likely it is to fail.

9:59am and after opening higher the major measures are all lower. Breadth is negative and there are a lot of reds on our screen but only by pennies. Volume is light. Bonds have rallied and the "talk" is that asset allocation from stocks to bonds is occurring. That doesn't make sense to us since Treasuries have just demonstrated that they have quite a lot of risk to principal also. But then that is why we are in cash.

10:11am and Fed governor Bernanke said this morning that the Fed will continue to cut rates if it needs to. That has placed a bid in the bonds. We guess our instincts were right again yesterday when we were considering the three-year. We believe we will have our chance again and at a higher rate.

11:34am and EK is going to cut another 6000 jobs. The DJIA is down 40 points but the market is not dropping precipitously, it just seems heavy.

12:08pm and Amazon is up $4 today on a narrowing of its loss for the quarter. Shades of 1999. Amazon is a retailer selling at 80 times earnings. It is a good idea but it only competes by being the lowest cost supplier and so it will never earn big bucks. But traders love to long and short the stock and it looks like today the shorts are being taken to the laundry.

1:28pm and on a website yesterday we read a comment that increasing drug benefits for Medicare and the inflation adjustment for Social Security is a huge wealth transfer from working folks to the elderly. What Medicare and Social Security really are is a sharing of the burden of caring for the folks who fought WW II and the Korean War and raised and nurtured us and created the economy that allows us the opportunity to make our way in the world.

But the begrudging by the fellow writing the diatribe got us to thinking about the current move by the Fed to force interest rates lower. The Fed governor who today said the Fed would lower rates to 0% to get the economy going was displaying a total disregard for the common folk to cater to the bond and stock markets.

Low interest rates are a hidden tax increase on the frugal. With a $3 trillion soon to be $4 trillion national debt every 1% drop or rise in interest rates is worth $30 billion and soon to be $40 billion. By keeping rates artificially low the Fed is taxing savers to benefit the profligate. By keeping interest rates low the Fed is taxing savers to benefit the banks and financial concerns. By keeping rates low the Fed is trying to force savers to become speculators. Low rates haven't worked for 14 years in Japan and they won't work here. Job loss and budget deficits that don't stimulate the economy are the problem that no one in power wants to admit or address.

3:02pm and the DJIA gained 32 points to end at 9191. The S&P 500 rose 1 points to finish at 989 and the NASDAQ closed at 1719 up 13 points.

And tomorrow is another day.

23 July 2003 - Morning Comment

7:41am and we are keeping bankers hours this morning. We are a staying with our scenario of yesterday of up again today and tomorrow and down Friday with a slightly negative bias to the week.

The stock futures are indicating a higher opening. Europe is higher and Japan was higher by 1% and Hong Kong lower by 1% overnight.

There are so many earnings reports coming that it is hard to keep up. EK had better than expected by a lot but then the CEO was non committal about keeping the dividend payout at current levels. AOL had better earnings at around 10 cents or 20 cents or some figure depending on what was a special item and what wasn't. And so it goes.

We would guess up early then a pullback and a small rally into the close on a very dull trading day in the middle of summer.

So let the games begin.

22 July 2003 - Closing Comment

6:36am and the NYT is reporting that IBM, the most American of American Companies, is considering moving white collar jobs overseas to take advantage of lower salaries and probably no benefit costs. The NYT quotes Forrester Research as predicting that by 2015 over 3 million high paying services and software jobs will move overseas versus the 400 thousand that are currently moving overseas.

This movement of jobs to low cost countries is true capitalism. True capitalism knows no country borders. All true capitalism seeks is the lowest price to generate the highest profit. Remember all the supply/demand curves from Money and Banking. It's elementary as Lev Dobriansky used to say. And it will be interesting to see how supposed true capitalism proponents who happen to be Republican politicians will deal with this exodus. Our guess is that as usual they'll lower taxes again to stimulate demand.

6:52am and to the victors… the WSJ reports that by the end of the month, the Viceroy of Iraq and his consorts also know as American government employees will pick a consortium of banks to manage Iraq's Trade Bank. Among leaders in the contest are JP Morgan and Citibank, both of whom paid very steep fines for partaking in the Enron debacle. Of course they neither admitted nor denied guilt. Their choice would be a perfect fit with the choice of MCI to provide wireless telephone service, an area in which it had no expertise. But MCI did plead guilty to cooking its books and paid a $400 million fine besides destroying the fortunes of thousands of innocent investors. And lest we forget the oil service contracts were give to Halliburton, the Dick Cheney led company that traded with the enemy (through subsidiaries) all through the years that Cheney ran the company. Of course all of this is just "bidness" as usual among friends.

9:19am and the DJIA is a tad lower with the S&P 500 and NASDAQ higher. Lehman Bros upgraded semi-conductor stocks and that has put a bid in the tech markets. Treasuries are a bit stronger as short covering seems to be occurring.

We have developed an interest in the Treasury 2% due May 2006. We never thought we would be interested in three-year paper yielding 2% but with money funds at 0.3% and no desire to be in the stocks markets we are probably going to take down a chunk of these notes today or tomorrow if they weaken just a bit. We would be using them as a parking place for cash for several months but our theory is that when we want to sell them stocks will be under pressure and money will be flowing to Treasuries as a safe haven.

9:33am and the NASDAQ remains higher but the S&P 500 and DJIA are lower. Breadth remains positive. One troubling-if you are a bull-piece of data is that new highs are 25 and new lows are 14 on the NYSE this morning. Over the years when new lows and new highs cross for a period of time that usually is a good signal that the overall stock markets direction has changed. We aren't there yet, but the movement is in the direction of new lows gaining as new highs have been falling.

11:57am and the market has rallied on the news that Hussein's sons have been killed. As the stocks rallied the Treasuries dropped in price. The ten-year is at a 4.23% yield the rally seems to be running out of steam.

1:40pm and on news that the U.S. is 90% to 95% certain that the sons were killed the stock markets have resumed their upward movement. Treasuries are also rallying. Upon reflection we decided to reexamine our Treasury purchase and so we did nothing. As of this morning the Lehman Long Treasury Index has an overall 0.16% return for the year to date. The Lehman Intermediate Treasury Index has a 0.88% return year to date. Sometimes cash really is king.

2:01pm and the NASDAQ is up 28 points and the S&P 500 is up 1%. We'll see what the final hour brings.

3:02pm and the final hour brought confirmation that the two Husseins are dead. But the DJIA didn't add any points on that news and closed up 62 points at 9158. The S&P gained 9 points to finish at 989 and the NASDAQ rose 24 points closing at 1706. There were 60 new highs and 30 new lows on the NYSE.

And tomorrow is another day.

22 July 2003 - Morning Comment

5:52am and we are taking the dogs to the hairdresser. This is the reason for our early arrival at the office to write the comment.

Last week stocks were up on Monday, down three days in a row and then up again on Friday. Since with yesterday's sell off stocks are approaching some important support levels that can't be breached without some severe technical damage, we are guessing that the levels will hold and we will have an up day today. It isn't time yet for a waterfall to the downside. It won't be that easy.

Texas Instruments was a penny ahead of reduced estimates last night and rose in after hours trading. We don't think that will last for long. At current levels TXN is priced at four times declining revenues. When the turn comes it will be a leader. The only problem is that there is no turn up yet.

There will be more earnings today and so maybe the bulls will want to wait till the dry period between quarters in late August to run the stock higher. The high in 1987 was made then and the 2002 rally high off the early July low occurred in late August before the rollover. Time will tell.

For today we would guess a slow inching higher with a good pop up into the close.

So let the games begin.

21 July 2003 - Closing Comment

7:40am and Merck announced numbers that were neutral, and 3M had good numbers. The daily news from Iraq, coupled with the deficit news and the performance satisfaction of many mangers leads us to believe that most folks will be content to stay at these levels into the dangerous September/October market period.

10:11am and there was no bounce. The S&P 500 is down 12 points and the DJIA is down 70 points. This is the same Dichotomy we saw last week as the NASDAQ is off 30 points and is affecting the S&P more than the DJIA. We are watching. The ten-year Treasury is comfortably (unless you are long them) over 4%. Breadth is 2/1 negative and there are only 42 new highs on the NYSE. Volume is summer light.

11:35am and the thirty-year Treasury is down over 1 point and the yield is over 5%. The DJIA has been down over 100 points. We don't know whether the volume is light because of summer or indecision on the part of traders.

1:49pm and stocks are lower. We would like to make today interesting and if we were long some stock or bonds it might be, in a negative way, but since we are all cash and watching we have no news of interest. We know the stock market is a market of stocks and there are some that are higher today, but the gain versus loss potential is too random to risk trading.

The Bush folks' mention today of Iran and Syria as bad guys harboring terrorists is a negative for the markets and as a former president used to say we don't think that dog is going to hunt much longer in taking minds off current foreign and domestic problems. President Bush's plate is full and so is the table and the kitchen and the whole White House. A lot of credibility has been squandered and if the stock and bond markets are going to have to go through another year of uncertainty over more war and occupation and military spending increasing the already humongous deficit, we don't think many folks are going to want to step up to the plate to buy stocks or bonds at these levels.

Bonds, stocks and the dollar are all lower today and we haven't seen that trifecta much lately.

2:24pm and the thirty-year Treasury is down two full points. That's half a year's interest and why we are content to just sit in the money market. Breadth on the NYSE is almost 3/1 negative and is 2/1 negative on the NASDAQ. With 3M up 6 points being worth 40 DJIA points that is the reason for the disparity in the drop in the DJIA and S&P 500.

We continue to think that the bond market collapse is one reason that stocks are in trouble because the hedge funds are selling stock to cover bond market losses.

3:02pm and the DJIA closed down 92 points t 9095. The S&P 500 lost 15 points to finish at 978 and the NASDAQ dropped 14 points to end at 1681.

And tomorrow is another day.

21 July 2003 - Morning Comment

7:26am and this week we get into the nitty gritty of the summer doldrums. Vacations are more important than markets at this time of year as long as money manger types have decent performance numbers. Since many have had to endure three previous years of confusion this summer may be coming as a relief to most.

And so we would expect a continuation of the sideways motion of last week which saw one big down day followed by Fridays big up day. All the while Treasuries sank in price and rose in yield. Treasuries are no where near the point where we consider them a buy, and we aren't tempted to trade the five-year since we believe a bottom had been made in yields-barring recession- and the trade now is to bet yield move to the upside by shorting bonds. Since we don't short anything we will stay on the sidelines.

Overseas is lower and the stocks futures are languidly lower. We don't expect much today but a resumption of Friday's rally might get the juices flowing in the bull camp. We should be down a bit early and then rally above even and then we watch paint dry.

So let the games begin.

18 July 2003 - Closing Comment

7:40am and there is a lot of media and guru talk about AOL. Because the company permeates the life of many investors there is always current interest in the stock. Today the company is selling its DVD division for $1 billion plus and that brings to $3 billion plus the cash raised recently for paying down debt. A chunk of that debt of about $8 billion came from AOL buying AOL Europe from Bertelsmann.

So they are selling productive assets to pay down debt on an acquisition that certainly isn't going to be as productive as the divisions sold. We have no argument with the debt reduction, but we are bemused by the short memories and positive spin being placed on the transactions.

Of course the talking heads get their spin from the investment bankers who want the price of the stock to go up as an affirmation of the great prices they are receiving for selling valuable assets. The only problem is that the talking heads have no one giving them the reason for the sales and since the attention span of most talking heads is about two commercials long we can't expect them to put 4-2 together and come up with 2 when the investment banks are saying 5. This is just more of the same old same old.

That doesn't mean that AOL won't move higher on the news, only that the moves are being encouraged with less than the whole story being explained.

8:41am and stocks are higher by about ˝%. It is always a little annoying when a trade our discipline doesn't allow us to hold over night opens with the gain we were seeking as the SPY are doing this morning. On these occasions we have to remind of the times when we breathed a sigh of relief that we had closed out a position a day earlier at a profit when the profit would have disappeared the next day.

Breadth is positive and the markets need some time to digest the morning's news and expiration activity. One of the services we follow said that their records show that July 18th is negative 78% of the time. It is the day of the year with the highest percentage negative return of all the trading days. It is interesting the lengths folks go to game the stock market. As this example demonstrates there are few stones left to turn over with new ideas and metrics for making smart trades.

9:02am and the University of Michigan Consumer Sentiment Number was 90.3 for July versus 89.7 for June. So traders take heart.

10:52am and the DJIA is up 50 points, about twice as much as the S&P 500 while the NASDAQ remains lower on the day. There is some rotation to blue chips but volume is slowing and we would guess it will slow until the bell. We aren't interested in any individual stocks except to see how they are reacting to news.

1:02pm and as the paint dries all the major stock measures are in positive territory. Treasuries are flat with the ten-year at a 3.97% yield. Breadth is positive and up volume is 2/1 over down volume on both major venues. New highs on the NYSE are under 50 and under 90 on the NASDAQ.

1:08pm and Reuters just ran a story saying that in the financial forms filed by government officials Chairman Greenspan's wealth was unchanged from last year. Reuters reports he keeps no money in stocks to avoid conflicts of interest, rather he keeps his money in Treasuries. Pardon us? Doesn't the Chairman have a lot more direct control over Treasury bond prices?

2:15pm and we are having the rally we wanted yesterday. Coming a day late leaves us a dollar short. Ah well, the weather is beautiful and the week-end approaches. The DJIA is up 125 points, the S&P 500 is up 12 points and the NASDAQ has gained 15 points. All is well in "la la" land.

3:02pm and the DJIA closed up 130 points at 9180. For the year the DJIA is up 10%. The S&P 500 gained 12 points and closed at 992 and for the year it is up 12.7%. The NASDAQ gained 11 points to end at 1710 and is up 27.8% on the year.

The Model Portfolio is 100% cash and is up 12.8% for the year.

And tomorrow is another day.

18 July 2003 - Morning Comment

7:19am and we are late starting the day because a cool front moved though and the sleeping was great.

Yesterday's trading adventure was a no go and may signal that the summer correction is upon us. Should the S&P 500 get down another 13 points in the next few days we will probably give that trade another try. But upon reflection we realized that all the other times the S&P was down that amount in the past few months, the DJIA was down as much or more and leading the way lower. That wasn't occurring yesterday and while we noticed the dichotomy we missed the importance. Lesson learned.

The "Streets" take on Microsoft's earnings is generally positive and a few gurus continue to concentrate on the $65 billion cash hoard that MSFT has and are hoping for a nice $3 extra dividend to pop the stock. With $10 billion shares outstanding such a dividend is not out of the question, but then what?

Overseas markets were mixed to positive over night and the U.S. futures are showing an early up as the market opens. After that we'll see if the bulls can regain their footing. They have a bit of work to do, but current market psychology is so ephemeral that any momentum to the upside could get the rally going big-time. Correspondingly, momentum to the downside might embolden the bears.

Our guess is up early then a sell off and then up into the close.

17 July 2003 - Closing Comment

7:32am and housing starts in June were up 3.7% to 1.8 million. Jobless claims for the week of 7/14 were down 29,000 to 412,000. Interest rates are moving higher and that is affecting stock futures. Building permits were up 0.8%.

8:45am and stocks are opening slightly lower. On the interesting news front, Delta Airlines reported a profit for the quarter because of a $250 million aid payment from Uncle Sam. We never knew that aid payments qualified companies to be profitable from the aid payment itself. Delta also sold its reservation system for $137 million. So they really lost about $300 million dollars but in la la land the stock is higher.

Smith Barney upped its rating on SGP to "in line" and so the stock is up over $17 per share this morning.

Breadth is negative and tech stocks are under pressure. As we wrote the DJIA moved into positive territory as traders seem to be moving from tech land to the blue chips.

This morning's fashion press is reporting The Gap signing of Madonna as a fashion coup. Madonna will bring the soccer moms back The Gap, one fashion guru predicts. Say what?

10:24am and stocks are lower without conviction. The big question of the day on CNBC is should the Treasury go back to the thirty-year bonds. We have never did understand why it was OK for a Republican administration to sell thirty-year Treasuries with a 15% locked in yield i.e. cost to the Treasury but it now makes no sense to lock in a cost of 5% or less in the last year for thirty year bonds. Do the Bush folks with their trillion dollar deficits really believe that a 5% rate will never be an attractive low cost sometime in the next thirty years? If they really believe that long Treasury rates will never exceed 5% they are living in a dream world.

10:58am and the ten-year Treasury is now at a 4.02% yield.

Our civics lesson for today mentions a few of the major patriotic companies of the United States who are supplying goods and services to one of the evil countries on the "do not traffic with the bad guys" list compiled by the U.S.Government. The list includes Iran, Sudan, and Libya. From: http://atrios.blogspot.com/ .

In Iran -- "the most active state sponsor of terrorism," according to the State Department -- General Electric is providing four hydroelectric generators to expand a dam on the Kurun River through a Canadian subsidiary called GE Hydro and is also supplying pipeline compressors and gas turbines for Iran's burgeoning oil sector through an Italian unit called Nuovo Pignone. Not far from the Iraqi border, a subsidiary of Halliburton is helping to build a $228 million fertilizer plant, one of the world's largest. Another Halliburton division based in Sweden is providing the Iranian National Oil Co. with a $226 million semi-submersible drilling rig, while other subsidiaries operate in Libya. A British subsidiary of ConocoPhillips helped Iran survey its Azadegan oil field, and ExxonMobil only recently sold its Sudanese gas subsidiary based in Khartoum.

11:30am and again we wish to share a poem. We wrote it for the celebration of the life of a neighbor who passed to the other side a month ago.

        Gilbert Parker

We saw the oak trees from afar
First in the park they grew
And oft and on through the years
Our friendship did renew

At first we shared but a cat
The cat was black at that
And as the time passed quickly by
The loving trees reached their sky

Advice and beauty we sometimes sought
From trees so wizened and free
The trees lived in their parks delight
Built over years shared happily

We can't forget the wild home
Amidst the crumbling walls
Painstaking beauty from every chore
With grapevines sheltering welcome door.

Around us now we have them dear
In quilts and farmland home
And books and rugs and quirky desk
Their sharing lives survive

And all is as all should be
No worry that love ever ends
For in passing through the flowered fields
We all live on in friends.
        BL 7/17/03

11:31am and when the Philly Fed data was released Treasuries rallied a bit. If we spent some time we could probably understand what the numbers released mean but we don't think it is worth the effort. The real purpose of all these numbers are to provide data to keep the bets flowing. Sort of like flipping cards one at a time in stud poker so that the traders can place their bets and raise the pool.

11:53am and always the contrarians, this mornings market action as encouraged us to take a flyer on the XLK at $17.47 down 3% form the close and SPY down $1.25 from yesterday's close at $98.494. These trades are only in our aggressive accounts and the SPY is a day trade while the XLK may be held. We bought 1000 of each in The Model Portfolio.

1:02pm and the NASDAQ is down 40 points and struggling to hold 1700. Tech stocks are still the darlings of the hedge funds. Moreover hedge funds with leverage have such huge buying power that we wonder if a few are in trouble because of the 100 basis point up move in the ten-year Treasury from the low. We don't doubt that some young aggressive types were using the ten-year as a place to park cash. After all they would be smart and quick enough to get out before the bond moved. The 1% up move in yield in the ten-year works out to about 2 years interest lost or 8% of the value of the bond. If bought on margin with cheap borrowed money to lever more interest earnings we would guess that some large hedge funds and probably a major bank or two are going to fess up to some very large losses "because they weren't sufficiently hedged" as the excuse. The reality is that the boys and girls running the money were taking untoward risks because they were thinking of year end bonus time a lot more than present day risk.

1:42pm and entering the final hour the NASDAQ remains down 50 points at 1698. The DJIA is only down 50 points and that dichotomy is the story of today's market. The momentum kids are abandoning ship for the reason stated above or because enough profit is enough profit. We'll see how events unfold in the final hour. Obviously with the trades we have on we are hoping for a move back to flat for the day into Microsoft's earnings after the close.

2:26pm and breadth is 3/1 negative on the NYSE and 4/1 on the NDASAQ. Down over up volume is even worse. And for the first time in a long time there are 25 new lows and only 48 new highs on the NYSE. We sold our SPY at $98.35 for a 20 cents per unit loss, the XLK at $17.43 for a 7 cents per unit loss. This is the first time in two months that buying SPY down $1.50 hasn't worked to at least provide a 50 cents per unit profit by 2:30pm which is our latest time (self imposed) to close out trading positions.. And so we will have to decide whether today is just an expiration anomaly or whether a corner has been turned. With the XLK we remember how last week we turned a 5cents per share loss into 50cents per share loss and we didn't want to make the same mistake again.

3:02pm and the DJIA closed down 44 points at 9050. The S&P 500 lost 12 points to end at 981 and the NASDAQ dropped 50 points to finish at 1698.

And tomorrow is another day.

17 July 2003 - Morning Comment

7:06am and stocks look to be opening lower on bad news from IBM and Nokia. The Asian markets were lower and Europe is no great shakes. We have a feeling that a good swift down opening will be met by buying and so we are going trade some DIA at the $90 level which would be off 120 points.

Other than that kind of trade for an intraday rebound, we don't hear or see much happening to move us off cash. Merrill Lynch did upgrade AOL, and Nextel had good numbers which may help the other wireless phone companies.

It looks like we'll be down early but a pop is in the cards today.

So let the games begin.

16 July 2003 - Closing Comment

7:02am and the Asian markets closed mixed this morning with no discernible trend.

7:23am and Sandy Weill the big honcho at Citigoup is moving to the Chairman's post and turning over the CEO and CFO responsibilities to two other folks. And now the praises of the wonders of this man and his accomplishments flow through the corridors of Wall Street. No questions about Enron or myriad other bankrupt at birth deals are asked. No questions about the total devastation suffered by folks who were the little people clients of Smith Barney who were financially disadvantaged by the company so that the profit machine could continue to function. It has always been so and will always be.

7:32am and CPI for June was announced as 0.2% and core ex food and energy is 0.0%. The ten-year Treasury is now over a 4% yield. The yield was 3.1% a few weeks ago. Inflation is low according to the numbers unless one is trying to live in the real world.

The talking heads are talking about buying high growth stocks. We see them buying Sears and Intel neither of whose earnings have gone anywhere in the past five years.

8:50am and after a quick run higher, stocks have backed off to resurvey the landscape. The ten-year has rallied a bit but still is close to a 4% yield and we think that is slowing the stock advance.

Sears was trading over $41 before the opening and is now at $39.50. Intel was up at 26 pre-opening and now is at $25.25. Citigroup is off $1 on the Weill and Sears news.

10:37am and as Alan testifies the stock markets are taking a breathe with the DJIA down 60 points and the NASDAQ down 13 points after being up 17 points early in today's trading. Breadth is 2/1 negative.

The Chairman is being questioned about the return of the thirty-year Treasury. As you may remember the Bushies stopped issuing it back in the halcyon days of supposed budget surpluses as far as the eye could see. That was two short years ago. Now budget deficits as far as the eye can see are projected. And as long as the Bushies are in office we are willing to make the bet that the latter projection will be true.

AMR posted a second quarter loss of $335 million. Airline stocks are anchovies.

Mike Crapo, Senator from Idaho is speaking. How can a guy with the name Mike Crapo get elected? We presume his name has a different pronunciation than the obvious.

Alan loves derivatives. So did Long Term Capital Management which Alan had to rescue to prevent all the major financial houses from collapsing. Alan is saying that derivatives help banks from taking on too much risk. What a crock! How are the banks making the big bucks? The answer of course is by taking on big risks.

11:07am and a time to share a poem:

        August at the farm

And so it begins.
Andy Kathy Rob and Lisa
And Michael Amy and Michael
Come to the farm and Water World
Then the Powwow and a Cubs game and then
Tyler's birthday Dave and Lisa' anniversary Viterbo Reunion,
Neighbor pot luck birthday party riding Skeeter Abigail walking
Luna and Cubby and Pooper and playing house with Bernadette and Norah
Silly Seamus and Talkative Tyler riding bikes Dave and Tyler
Cleaning the spring Kelle speaking French and riding
Her bike 100 miles with Katie while Bud and Jackie sit on the porch
Then Rich and Jay and Katie and Ally and Richie and Patrick and
Number 5 plus maybe Barb and Big Rich and we all
Go to the Crawford County Fair to see the cows and sheep
And pigs and goats and corn and eat the blueberry pie and
Then pick blackberries and get mosquito bites and all wet in the creek
And then grandpa and grandma get to rest.

All these thoughts filled our mind
As we walked to the office this morning
Smelling the new mown hay.


The chicory's up and black caps turning
So yesterday we mowed the hay
The sweet smell fills the summer air
And suggests the visit of those we care

We mow the grasses late each year
To give the bobs and meadowlarks
A chance to raise their hungry brood
And not become coyote food.

For when the rake combines the rows
To dry in sun for evening bale
Coyotes from the woods arrive
To eat any chicks still alive

Gruesome as all nature seems
The food chain does its purpose serve
There is no hapless killing here
Only food to live the year

The windrows wait in ordered lines
The hay rake circling metal tines
The swallows fly above the dust
Catching bugs for babies' sust

These few days of warmth and work
Are for putting rations by
Soon grandkids whoops will fill the air
And we will know our summer's here.

We make the hay in big round bales
And row them on the road near hill
So grandkids for the rest of year
Have a playground free and near.

And we will sit upon the porch
Rocking as our kids deploy
All is well in our small world
At least for now we can enjoy

We all should steal some time for fun
So serious we've all become
Relish now our love and luck
With family in our pick up truck.

Across the fields we slowly roll
Laughter wringing out the droll
Another year of watching deer 
And sharing time with those most dear. 

12:17pm and the new folks at Citigroup are Charles Prince, 53, CEO and Robert Wullumstad, 57, CFO. Could this be another sign of a market top as was the retirement of the great Jack Welch. Or is it sign that the earnings growth is over at C, as it was for GE? Just asking.

1:32pm and breadth is 2/1 negative with stocks stagnant. New highs on the NYSE are under 100. It may be that the summer doldrums have arrived. Or it may be the calm before the storm. Utility and telecom stocks have been selling off. Treasury yields have been rising and CNBC is giving that as a reason for the sell off. We think everything is too expensive so we'll stick with cash for a while.

2:24pm and we see where Gap Stores are going to pay Madonna to be their image person. What's interesting is that GPS seemed to moving back to a basic kind of image which was working and now they are spending big bucks on a very trendy bet.

3:02pm and the DJIA closed down 35 points at 9092. The S&P 500 lost 6 points to finish at 994 and the NASDAQ dropped 7 points to end at 1746.

And tomorrow is another day.

16 July 2003 - Morning Comment

6:28am and Happy Birthday to our namesake and father Ralph J. Lemley who would have been 99 years old today. We were in error last year by placing him at the century mark but we were quickly corrected by the keeper of the records.

Today it's up and away for the stock markets this morning as Citigroup is buying Sears credit card business and Intel beat its numbers.

In last nights post we said C was paying $6 billion. Upon reading the whole announcement this morning, C is paying $3 billion for $29 billion in receivables that generated $1.5 billion in earnings last year. That was 60% of Sears earnings so multiplying by 2 would give Sears a value of $6 billion. Traders don't see it that way as they have run Sears to $41 per share from $33 yesterday giving the company a value of $12 billion.

There is some confusion in our mind anyway since Sears announced that the sale price is $6 billion because it will be able to withdraw $3 billion of its own capital needed to support the credit card portfolio. Stop of is we are wrong, but taking $3 billion from your left pocket and placing it in your right pocket does not give you any more money. Or so we think anyway.

Citigroup may make up to $200 million in yearly performance payments to Sears although Sears is already intimating that it will deliver that money to shareholders. We think they have to merit it before they can spend it. And given Sears track record we don't think that is money in the bank. As we read the press reports we see that Sears is saying that it will return $4 to $4.5 billion to shareholders over the next ten year. With 300 million shares outstanding they can do that with a $1.50 per year dividend. We don't think the folks buying the stock at $41 this morning are expecting that long a time period for the payoff. Our experience in owning Sears has always been that more is less and so we will wait to be proven wrong.

The Intel numbers were an immediate boost to the tech area and overshadowed Motorola's less that stellar results. INTC revenues were $100 million more that expected and they were positive going forward on their sales and earnings. The share price jumped $1 overnight.

As a result we expect a higher opening and then we will see how strong the bull case is. The Treasury bonds are going to have to cooperate a bit and the ten year cannot jump another 20 basis points in yield today without frightening some traders. Uncle Alan is before the Senate today and he might try a different refrain. We know he will receive a more courtly reception that the rabble rousing diatribes from several Dems including Barney Franks and Sanders of Vermont that we thoroughly enjoyed and felt were warranted.

We expect up early and then it's anyone's guess but ours. We are 100% cash and happy.

So let the games begin.

15 July 2003 - Closing Comment

8:16am and retail sales were up 0.5% in June, ex autos they were up 0.7%. The NY Fed Manufacturing index dropped from 27.6 to 22.6. So the early economic reports on which the big casinos trade were a mixed bag

We have been informed that Chairman Greenspan is giving his Humphrey/Hawkins testimony today at the House and tomorrow at the Senate. We know who Humphrey was but who was Hawkins?

Among the earnings news this morning, Well Fargo and Fannie May were both a penny light on actual versus forecast earnings and WFC did not raise its dividend. McDonalds met expectations as did Merrill Lynch.

According to CNBC talking heads Merrill seems to be getting a larger portions of its profits from proprietary trading. That's always been a two edged sword for most brokerage houses. This quarter's $1 billion in profits for Merrill contained $75 million in insurance recoveries and MER also announced that 1300 associates are no longer associates.

Boeing is taking a $1.1 billion charge for something to do with the satellite business. It seems that once or twice a year Boeing takes a $1 billion charge. Since it is a special charge, aren't they all, it won't go against operating earnings.

8:31am and stocks are opening higher returning to the levels they were at yesterday when the bogus computer glitch ruined the fun. The DJIA is currently up 55 points and the NASDAQ is up 1%.

9:08am and Chairman Greenspan says the Fed has room for "substantial further" rate cuts. Say what! Are we about to be charged for holding cash? That would be a novel way to get money moving.

The Chairman also says that the increase in productivity may lead to further increased unemployment. Now that's a disconcerting thought.

9:15am and the DJIA is down 10 points after being 50 points higher on the opening. Maybe who ever made the error selling S&P futures yesterday has decided to stay with the error?

We read in the WSJ that JP Morgan is going to pay fines of about $350 million to the SEC and NY State for its collusion in helping Enron to cook its books. JPM won't have to plead guilty to anything and will only have to promise to never do it again. Contrast this action with the "throw the book" at Martha Stewart and an investor can be confused. JPM helped Enron defraud investors and consumers out of billions upon billions of dollars while Martha made a lousy extra $45,000.

No Ken Lay indictment. No JP Morgan or Citibank indictment. Laissez faire is back again. Almost makes one pine for those days of yore in the Clinton administration where the FBI and Congress spent $100 million to find out "nada". Here collusion and conspiracy are boiling over and the folks involved are only require to pay back probably less than the profits they made and probably get a tax deduction in the bargain. Is this a great country, or what?

9:24am and breadth is positive on the NYSE and negative on the NASDAQ. As Greenspan continues to testify it is obvious that the Fed is using savers money to save business at the expense of the frugal.

10:05am and coming today or tomorrow is a budget forecast of a $400 million deficit this year and next. A few months ago the projection was $150 billion. Do we hear $500 billion anywhere? Not to worry the White House will tell us. It is Democrat deficits that are bad while Republican deficits are good.

10:32am and the White house just posted a projected deficit of $450 billion this year and $475 billion next year. Wanna bet the two years add up to $1 trillion before the election. What happened to the trillion dollar surplus?

By the by, the projected deficit for this year is being offset by using $150 billion of Social Security (remember the lock box) funds for other programs. So the deficit is really $600 billion and counting under the 2000 election lock box scenario.

Concerning the Greenspan testimony Bernie Sanders of Vermont's' questioning will make the evening news except on Fox.

10:54am and on www.salon.com we read an interesting article on telemarketing. So far 23 million phone numbers have been registered and within a year even we will have our numbers listed. Telemarketers employ 4 million folks and generate $250 billion in business every year. Or at least they used to. And telemarketers pay their folks more than Wal-Mart pays its folks. But with the new rules about half those jobs are expected to disappear. This reality is an example of a law of unintended consequences.

11:42am and we received this e-mail from a long time client.

A broker down here is recommending an AIG tax-deferred annuity, 3% guaranteed, withdrawal penalties for 7 years. Sounds too good to me. I wondered if you had any thoughts on that sort of thing.

Our immediate response:

No No No, too good for the broker is more like it. You are going to be paying a 6% load or more to get a guaranteed 3%. When you withdraw from the annuity you pay taxes. You have been reading me long enough to know better. So you only earn 1% on your money for a year%. For the past twenty we have been making 7% or better on average on your money. A year at 1% brings the average down to 6.7%. If you really think rates aren't going anywhere for seven years buy the ten-year treasury at 3.95% today. My advice is sit on cash and be happy you got out of Janus when you did and wait till autumn to see how things go. If the economy recovers, stocks may be up but so will bond yields. A trillion dollar coming deficit over the next two years is going to raise interest rates.

11:52 am and Treasuries are under selling pressure. The thirty-year is down over 2% in price. That's half a year's interest. We don't know whether it was the deficit numbers just released or Greenspan. We are guessing the deficit numbers.

1:34pm and CNBC is reporting that now the Chicago Mercantile Exchange is going to institute a stop logic trading system on the downside so they don't have to bust trades like they did yesterday when the mini S&P contract collapsed in a few seconds when sell orders hit the computer. We always wonder why when the contracts run away to the upside that no one cares and no sales are busted.

1:41pm and we sold the last two stocks we own. We sold PCS at $5.90 for a scratch loss and we sold RAD at $4.50 for 25 cents per share loss. RAD is up $1.50 in the last month and we were trying to catch a shooting star. We don't have a big enough position in either stock to make them worth holding here and we don't feel like losing any more money if the markets head south. We are now 100% cash. The Model Portfolio has a value of $519,470 and is up 12.9% for the year. Happy summer.

1:52pm and Rush Limbaugh is joining ESPN's team of Sunday NFL commentators. Is this a great country or what?

1:58pm and entering the final hour its time for the bulls to start moving. The DJIA is down 70 points and breadth is negative.

3:02pm and Citigroup is buying Sears receivables for $6 billion. Sears is now a retailer again. We never repurchased Sears after taking a loss earlier this year and we missed a nice move. In the long run we don't know what to make of the transaction. In the short run it is giving Sears a bump. This is another case where maybe we were too smart for our own good. In the short run we were surely wrong although we know we wouldn't have held our position this long anyway.

At the close the DJIA was down 48 points at 9128. The S&P 500 was off 3 points at 1000 and the NASDAQ dropped 2 point to finish at 1753.

And tomorrow is another day.

15 July 2003 - Morning Comment

6:36am and we just finished reading Bill Fleckenstein's column from last night on www.realmoney.com. In the column he has an anecdote about a broker who tried to get his client to sell in early 2000, finally persuaded the client to be more conservative in 2002 after the client had lost half the value of his $4 million portfolio, and lost the client two weeks ago for not getting the client back into the market in March of this year in time for the rally.

We smiled because it reminded us of why we mange folks money and are not stock brokers. When you are a stock broker a few clients will break your heart because they only remember the bad advice and never the good. That happens sometimes as a money manager but at least we know that we were in control of the investments and so if something blows up-or goes well as it has for us and our clients the last five years-its our fault or credit and not because we couldn't convince the client to act.

Over the weekend we were thinking about the fact that we are up the same as the S&P 500 yet we have missed much of the recent rally because we went to a large cash position early in May. The reason we are matching the S&P and still outperforming the DJIA is that we didn't go down in value into the March war because we actively raised cash. If we were stockbrokers we never could have persuaded our clients to act as quickly as was needed.

In the last few weeks we have been feeling the need of folks to make back the money they gave up in the bull market. This year Yahoo has run from $10 to $30. We traded it in a few accounts late last year in the teens, but we couldn't feel comfortable owning the stock. That's because its stock market valuation was around $12 billion at the time and it had revenues of $1 billion.

As we have said for the past ten years we know the Internet is here to stay, we just don't think it will ever be the big money earner for any company that the valuations on companies is suggesting. That was true when Yahoo sold at $100 per share and it is true now. Yahoo (or any other Internet stock that has run up recently) is cheap only in the minds of those folks who think $100 was a fair valuation.

The sell off in the last hour yesterday was ascribed to a computer error in the futures pit. Stocks managed to close higher and as more earnings are announced today we'll find out how the stock markets react. Since the tech sector is still leading this rally, the big earnings report is Intel due after the close today. So we think stocks may mark time till then. Also Uncle Alan testifies before Congress about something today and tomorrow and we will not be hanging on his every word.

So let the games begin.

14 July 2003 - Closing Comment

7:43am and over the week-end we were thinking about the markets as we worked on our garden. We are happy to report that the garden is now ready for display on HGTV. And we also have a better grasp of the worries that are keeping us sidelined.

The first is that the time of year has not been conducive to continuation rallies without a pullback.

PPI was positive at a 6% annualize inflation rate in June except that without Food and Energy the PPI was negative 1% on an annualized rate.

Inflation adjusted bonds are yielding 1.9% which means that the folks who own them are obtaining a minus 4% return versus inflation (PPI). Ten-year Treasuries yield 3.7% and net of taxes the yield is 1.8% so folks holding them and paying taxes are minus 4%. Folks not paying taxes are negative 1.2%. That's why King Alan and the boys talk about the core rate.

Now the negative return of the core rate means that manufacturing continues to shed jobs. So the actual PPI rate is telling us that most folks are paying more for what they use every day like food and energy while the negative core rate is telling us folks are going to continue to lose jobs.

Moreover new rules are going to remove over-time pay for between 800 thousand (Republican number) and 8 million (Democrat number) of workers. Over-time pay is an incentive for people to work longer hours and take home more pay. But when the economy begins to recover it is also an incentive for business to begin rehiring workers to reduce overtime costs. This rehiring has a ripple effect of improving the job market. So Reducing folks eligible for over-time pay may have a continuing negative effect on the economy, the opposite of what the Bushies say they want.

A whistle blower has accused Coke, good old Coke, of inflating revenue numbers by in part stuffing the channel with syrup at quarter end to raise revenues. Ever since Coke and Pepsi spun off the majority interest in their bottlers while retaining minority interests, both companies have been much better able to deliver consistent earnings. We have always thought that is because they can name the price and amount of syrup their captive bottlers have to take to help KO and PEP make their plan numbers.

9:01am and stocks are not listening to us as the DJIA is up 128 points and there is strength across the board. Breadth is 3/1 positive and volume is good. Citigroup raised its quarterly dividend from 20 cents to 35 cents. That may be a harbinger of other bank stocks doing the same thing.

10:11am and Citigroup increased its dividend by 60 cents per year and the stocks is now up $1.80 on the day. So anyone buying the stock at this price versus Friday's price for the dividend increase will have to hold C for three years to be even on the increase in the dividend received ($1.80). Certainly C may go higher although it is near its high for the year.

The DJIA is up 145 points and trading is active. Breadth remains 3/1 positive.

12:07pm and the DJIA remains up 125 points. Trading has slowed but breadth remains 2/1 positive. We are watching. Bonds have finally turned lower in price after bring higher in price and lower in yield earlier this morning even though stocks were strongly higher.

12:55pm and today's WSJ has a front page report on disabled workers being fired by companies to save money. The hope is that the disabled will be able to find some government program to aid them. That such actions can occur in the richest country in the history of the world is sad sickening and shameful. Shame!

When in trouble on WMD Bush is happy to call on Clinton to bolster his case. As the saying goes, politics makes strange bedfellows.

1:29 pm and Yahoo is buying Overture for $1.7 billion. Overture is a search engine for the web. In its latest fiscal year overture had sales of $750 million and EBITDA of $83 million and earnings of $55 million. Yahoo values at $20 billion has sales of $1.6 billion. EBITDA of $250 million and income of $200 million. Thus Yahoo sells at 100 times income 15 times sales while it is buying on overpriced Overture at 30 times earnings and 2 times sales.

We are swiftly returning to the bubble days of yore.

1:49 pm and new highs are over 400 on the NASDAQ and 300 on the NYSE. That's not quite as good as several weeks ago when the new high lists both places hit over 550 but it does show that this rally has strength. Entering the final hour of trading the DJIA is up 123 points and trading volume is active.

1:57pm and C. Michael Armstrong has resigned as Chairman of Comcast. And now hopefully he will go back to the obscurity he deserves after the terrible job he did running AT&T into the ground. As they say among retiring CEOs these days, he is both wiser and much richer. Too bad the shareholders of AT&T aren't.

2:09pm and recently several of our clients have gone to banks for loans. Since many of our clients live on the monies we generate they show trading profits as income. Not a few of the bankers have asked for confirmation from us regarding the gains over the past five years because of all the horror stories about stock market experiences. We presume some of the bankers own portfolios may have suffered. Following is a letter we wrote for a client today:

Dear Mike:
Most of Ms. ….. income from the accounts managed by us comes from trading profits as the gains in the accounts for the last 5 years show. In none of the last 5 years has the account shown a loss.

1999 $235,724.00
2000 $ 20,624.00
2001 $185,160.00
2002 $ 34,802.00
2003 $ 30,327.00 thru March

Ms. ….. regular account had a value of $850,000 on December 31, 1998. In December 2001, $335,000 was withdrawn. Other money has been withdrawn for various purposes over the years including $92,000 this year and as of July 11, 2003 the regular account had a value of $755,166.

For your information, on December 31, 1998, the combined IRA accounts were worth $269,464. As of July 11, 2003 they had a value of $564,155. No monies were added.

If you need further information, please do not hesitate to call.


3:02pm and stocks gave back some of their gains in the final hour. There was a rumor of a sell rather than buy error in the E-mini S&P500 contract but whatever the last hour was a bummer for the bulls and gave a faint glimmer of hope to the bears.

At the bell the DJIA closed up 55 points at 9175. The S&P 500 gained 6 points to end at 1004 and the NASDAQ rose 21 points to end at 1755.

And tomorrow is another day.

14 July 2003 - Morning Comment

6:45am and Happy Bastille Day to all. Stocks are going to open higher as Bank America and Citicorp announced better earnings and Boise Cascade announced the acquisition of Office Max for $9 per share in stock and cash. The purpose of the acquisition is to have an outlet for its paper products so we are back to the era of vertical integration.

Wal-Mart expects same store sales to be up close to 4% for July. The talking heads are getting more bullish and more positive investor psychology resulting from rising stock prices has breathed new life into this rally. As of now we continue to view the present rise as a bear market rally. And we are sorry we missed most of it but that's nothing new.

Until the economy shows better signs of recovery we will stick to our bearish stance. We don't see any stocks we want to own for more then a trade. Market leadership remains in stocks that were the belles of the ball at the end of the last century and we still haven't found a reason to pay 80 times earnings for Yahoo.

We are on the sidelines and it looks like we will be here for a while. Asia was higher over night and Europe is also higher.

So let the games begin.

11 July 2003 - Closing Comment

8:53am and after a little hesitation stocks are moving higher. Even with the narrowing of its estimate, GE is up as is Home Depot on a better late than never upgrade by Banc of America. Breadth is positive and right now all is well with the bull case. Today's rally is wide but shallow and we expect it to roll over later.

It's all the CIA's fault. In true Harry Truman fashion the Bush White House blamed the CIA for not warning them about the African uranium sales falsehood that Bush used in his State of the Union address.

10:03am and the DJIA is now up 80 points on moderate volume. Maybe the markets are going to reverse yesterday's collapse. It's a beautiful summer Friday and we are in a true watching mood today, although we are letting some of our HAIN go at $16.20.

The Nikkei was down over 300 points at the close today.

12:17am and this is one of the dullest rallies of the year. That probably is because it is Friday and we don't own much stock. Volume remains summer lite and breadth is 2/1 positive.

We sold the balance of our HAIN at $16.20 for a 30 cents per share profit.

And so we are down to Rite Aid and Sprint PCS.

1:41pm and entering the final hour stocks are giving up some of their gains. GE has been up most of the day but is now lower and since GE announced earnings today the trading focus has been on it. Often stocks will sell off into the final hour and then the true trend will assert itself as we find out whether traders want to be long or short over the week end.

3:02pm and the bulls won the day with the DJIA closing up 85 points at 9125. The S&P 500 gained 10 points to finish at 999 and the NASDAQ was up 18 points at 1734.

For the year the DJIA is up 9.2%, the S&P 500 is up 13.4% and the NASDAQ is 29.5% higher.

The Model Portfolio is up 12.9% with a value of $519,600 and is 97% cash.

And tomorrow is another day.

11 July 2003 - Morning Comment

7/11am and two seven elevens in a row means today will be someone's lucky day. GE earnings are in line, IBM and HWP had their ratings raised by some analyst and the sun is shining, humidity is hiding and all is good in God's country. What more could one ask for?

Well for starters we'd like to erase of few of our last ten trades. Then we would like to know which stock is going to pop 20% today. Since neither of those is going to happen we will settle for two sunny days so we can get into our jungle of a garden and find the edibles again.

We are feeling peppy because we have tried our hand at trading this week and survived and are now back to mostly cash. As we often say, we have to immerse our arms in the fruit bowl to really feel the flavor and decide whether the stocks we think we want are ones we really want. That type of stock picking may not work for most, but it does for us.

We saw pictures of King George doing his Teddy Roosevelt imitation on the plains of Africa and we hope those pictures play as well for him back home as the fly in on the aircraft carrier.

GW's promise of AIDs aid to Africa was immediately undermined by the Republican House of Representatives which cut the funds available this year by 33%. But on the 7/11 side of things 2/3rds of the pie is better than the benign neglect of Uncle Ronnie's years in office.

We also see word that the Senate has reached agreement on Asbestos litigation relief and so now all the asbestos related stocks like Honeywell and Halliburton and MMM can resume their upward journey and those scoundrel tort lawyers will have to be content with on quarter of their normal fee or less.

It's funny how the Halliburton name keeps popping up when favorable legislation and no bid contracts by the government are mentioned. We all know that Bill and Hillary Clinton were deeply involved with that company and that Bill was CEO before entering the Presidency and still is receiving deferred compensation from them. We mention this not to stir the hearts of clintonphopia but to remark on how good it is that Republicans seem to have recovered from their excessive distrust of Clinton and his business dealings. After all the lost money on the Whitewater deal, while he made $50 million on the Halliburton service, it good to see that Congress has gained some perspective on the issue and realizes that a guy has to make a living.

7:32pm and Producer Prices were up 0.5%, the core rate was down 0.1%. Overnight Asia was lower and Europe is mixed. U.S. futures are mixed. GE now has narrowed full year earnings expectations to the lower end of the earlier range.

Down a bit early and then up later and then…

So let the games begin.

10 July 2003 - Closing Comment

7:18am and the Bank of England cut its discount rate 25 basis points to 3.50%.

7:32am and jobless claims were up 5,000 to 439,000 versus consensus 420,000. We guess the top rate tax cut hasn't trickled down far enough yet. Stock futures have moved lower on the news.

The great debate this morning in media land is what Yahoo's earnings are worth in share price. With the stock at $35 and earnings estimated at 40 cents for the year we would guess that 80 times earnings gets us back to the bubble years. When will they ever learn, when will they ever learn?

That question could be used with the war in Iraq too. Three more soldiers were killed yesterday and the price of occupation was doubled to $4.2 billion per month. Last week Rumsfeld made an ironic comparison with Washington DC and the number of folks killed there every day to dismiss questions about troop deaths. Our response is that if three policemen were being killed every day in any city in the U.S. there would be media frenzy. Moreover there are no reports on the number of our Iraqi subjects who are killed and robbed and raped every day.

Proconsul of Iraq (sounds like the Roman legions, wonder if he rides an elephant) Paul Bremer says not to worry. Bremer is the guy who set up a terrorism advisory business to advise corporations on how to deal with terrorism. He fits right in with Perle and Ledeen as three guys who know how to make a buck.

And on the WMD front the Bush folks finally admitted that they were wrong about the African yellow cake that they said Saddam was buying. They blamed the error on the British and their faulty intelligence. And we all know that Tony Blair and Bill Clinton are good friends so it is only a matter of time until Clinton has to take the full blame. In fact knowing what a sneaky fellow Clinton is he probably had Monica do the forgery of the uranium sale documents, or something like that.

8:46am and stocks opened lower but now are beginning to bounce.

Texas Instruments sold 25 million shares of Micron Tech yesterday and this morning UBS upgraded Micron. We wonder if there is any connection.

10:35am and the DJIA is down 90 points after being off over 100. There seems to be a rotation to the blue chips from the overstretched tech stocks occurring with Pepsi up $1.50 and Coke and GE higher. Breadth is 2.5/1 negative and down volume exceeds up volume 3/1.

We sold our SPDR Tech holdings at $17.85 for a 60cents per unit loss. That's how a penny can cost 60 cents (see Closing Comment 7/9/03). We thought good Yahoo news would give us a chance to get out ahead. It didn't.

Two years ago we were telling a client that the Social Security check she was receiving monthly of $1000 made her Social Security fund worth $200,000. That's because two-year Treasuries were yielding 6% and so to receive $12,000 per year she would have to own $200,000 worth of Treasuries. Now with interest rates a 1.2% on the two-year Treasury her Social Security fund is worth $1 million for that's how much money must be invested in Treasuries to earn $12,000 per year. While the principal can't be spent or passed on our example does demonstrate the value of a guaranteed fixed payment from Social Security.

11:16am and IBM is selling off. As we have said before, we don't think the market rally can be sustained if IBM doesn't move decisively through $90 on the upside.

There is a major crack down by the Department of Homeland Security on illegal arm sales to Iran. Maybe one of these days they'll get around to a major crackdown on arm sales in this country. Oops, we forgot that Iranians don't vote in U.S. elections.

12:34pm and it is funny how the stock market can go from being a one way street higher to a one way street lower. There is no liquidity in this market. That is what hurt our trading yesterday and is hurting it again today. The lack of liquidity is in part due to the trading in pennies where traders-and we include ourselves-now think in pennies instead of eighths but still think we should be able to sell on the even number quarter increments like we used to even if that number is only 3cents below the last sale.

We mention this because we have decided to try and lower our trading positions at a loss as well as sell the DPH we bought around. We are selling the Delphi because the pop we thought it would get from the Dana takeover hasn't occurred and we don't want to hold the stock into earnings since they have already announced lower results to come. The same rational applies to our selling the rest of our SGP trade.

1:05pm and we sold the balance of the SGP for a 40cents per share loss at $17.25. We sold DPH at $8.46 for 50cents per share loss. Ouch!

The DJIA isn't able to rally although as with yesterday the final hour will tell the tale. We have a feeling that not a few of the recent returnees to the stock rally are feeling queasy and deja veuie and wondering if all the bullish talking heads are as wrong now as they were all the way down the last three years. Many folks haven't had trading profits for a few years and we don't think they are going to let them evaporate again.

2:22pm and both Europe an Asia closed lower on the day.

3:02pm and the DJIA closed down 120 points at 9036. The S&P 500 lost 13 points to finish at 988 which is above its 985 trend line and the NASDAQ dropped 32 points ending at 1715.

And tomorrow is another day.

10 July 2003 - Morning Comment

6:29am and in a perverse way that comes from our trading style and personality there was satisfaction yesterday that our trading strategies didn't work. We had decided to try and make a few dollars for our aggressive accounts and instead we lost a few dollars and are left with a position in the SPDR Tech Trust at its yearly high and a few share of a beaten down Schering Plough in larger accounts.

If that's the price we have to pay to turn the stocks markets lower we are willing to take that risk. We know that is personalizing our trading to the point of believing that stocks react to our actions, but trading techniques are personal and what works for us may not work for anyone else. The extra try often fails but in failing confirms our thesis. And usually there is one more rally left to rescue us and we think that will be the case this time.

Moreover the low priced stocks we purchased in many accounts continue to hold their own and we do think that individual speculators once having reentered the markets will continue to buy pullbacks and thus induce mini-rallies until eventually they run out of money and/or gumption again as they did a few year ago.

For the bottom line is that the EBAYS and YAHOOS of the world are able to fly and crash because they have no real earnings and no real effect on the overall economy. By that we mean that EBAY will not create the millions of jobs needed to pull the economy out of the doldrums nor will Yahoo. On the contrary, both venues provide places in never never land for those folks who are out of work to visit and forget their cares and woes.

Among other stocks that have been leading the stock markets higher are the biotech which always have their speculative fling until folks wake up and realize they are paying prices that discount earnings ten years out.

The financials are benefiting from Uncle Alan's lower interest rates but we believe the banks will find a way to over lend, under loan, or assume bad risk and thus reconfirm our long held observation that giving large sums of money to "thirty somethings" (sorry Rich) to lend while playing golf is not a way to run a business unless the Fed is around to rescue with low interest rates. The banking system in the the 1970s saw collapsing South American loans that still haven't been paid off, the late 1970s saw commodity loans that vanished into the air, the early 1980s saw oil loans and repo/mania, the late 1980s was the time of California real estate and shopping centers, the 1990s gave us Long Term Capital Mismanagement and Dot Coms by the dozens. So never fear, when banks are blazing earnings, some conflagration can't be far behind.

Until the Delphi Autos of the world find their footing there is going to be no real recovery. We heard on mindless media last night that UAL is going to do better this quarter by slashing its loss in half from $1 billion to $500 million. We presume part of the reason is that in bankruptcy they don't accrue interest on the $10 billion plus in debt outstanding. It is also because the employees have been laid off and taken significant pay cuts. None of those items sound like the stuff of economic recovery.

Asia and Europe were lower overnight and the U.S. stock futures are also lower. Jobless claims are announced at 7:30am and are expected to be 420,000. That number will set the trend for trading today.

Wal-Mart sales were up 2.7% in June and Sam's Clubs rose 4.1%. The behemoth roles on.

So let the games begin.

9 July 2003 - Closing Comment

8:55am and in a repeat of yesterday the DJIA is off about 25 points in light trading. NCR had super earnings and so the stock is up $2 at $30 per share. That's one stock we missed. The deal stocks have some interest but it seems that the markets are now going to await Yahoo's earnings tonight. That is an interesting stock for the markets to focus on and is an indicator of the speculative juices flowing. Treasuries have rebounded this morning as they also did yesterday. So far there is no trend.

9:02pm and wholesale inventories dropped 0.3% in May and wholesale sales were down 0.5%.

9:54am and the DJIA is down 50 points. We added AOL at $16.70, SGP at $17.70 and XLK at $18.38 to our aggressive trading accounts. We are not adding to most of our accounts because we feel we are in the speculative blow off of the bear rally. With our trades we are trying to catch the last part of the move and it is dangerous.

12:05pm and the Treasury ten-year Note indexed for inflation was sold at a yield of 1.999%. That's amazing.

We chickened out on our purchases this morning and sold the AOL for an 8 cents per share loss. We hope to be out of the SGP and XLK by days end.

Stocks are meandering at lower levels and the last hour today should be interesting. The DJIA is now down 81 points after being down 110 points earlier.

1:35pm and the DJIA is inching higher but without much conviction. Everything is setting up for the last hour.

3:02pm and the DJIA closed down 66 points at 9156. The S&P 500 lost 6 points to end at 1002 and the NASDAQ rose 1 point to finish at 1747. We sold part to all (depending on the account) of the SGP at $17.50 for a 20 cents per share loss. We were a little too greedy with our limit price on the XLK and so we'll have to hold it at least overnight.

And tomorrow is another day

9 July 2003 - Morning Comment

6:50am and today is the 37th wedding anniversary of yours truly and the wonderful Katie. We've known each other since our college days back at Georgetown in 1961. The journey has not always been smooth but it has always been interesting. And we have two wonderful children and two fantastic grandchildren and what more can we ask from life than that.

6:55am and Asia was higher over night while Europe is slightly lower. U.S. stock futures are also off a bit. Stock news is muted. Microsoft is going from options to five year vesting of stock to reward employees and Alcoa announced earnings lower than last year but higher than expected. And the EU put GE's acquisition of Afga Gevaert on hold. Since we didn't know GE planned to buy the company which we have never heard of, we don't know whether this is good or bad. Since the value of the transaction was $400 million we doubt it is a big wrench in GE's plans.

The NASDAQ remains on fire. We are tiptoeing around the edges by buying lower priced stocks that we think may benefit from continued speculation. We continue to view the rally as one in a bear market, although in hindsight we wished we had stayed with a few purchases a bit longer. But our quick trading has served us well over the past five years.

The important thing about trading is not to be intransigent and closed to changing trends. The current rally remains within the bounds of a bear market and we think it will take till next fall to know whether the economy is beginning to recover, and that will provide us with the time and opportunity to participate more fully if we chose.

This morning down early, and then up in a repeat of yesterday.

So let the games begin.

8 July 2003 - Closing Comment

7:46am and EMC is acquiring Legato, a software maker for about $1.1 billion in stock. The deal should cause a sell off in EMC stock as the arbitrageurs sell EMC and buy Legato. By the by, Legato lost $229 million on sales of $262 million in 2002. On completion of the transaction EMC says that they will take a write off for Legato work in progress. The transaction means that EMC is paying $1 billion for no earnings although the special write-off will allow the EMC to show earnings in 2004 since the write-off will get rid of costs. These are not deals that are going to rescue the stock market.

After this deal EMC will have a market capitalization of $23 billion on sales of $3 billion. That isn't cheep. EMC makes storage capacity that is needed it's just that tech stocks still are overpriced to us and so are only interesting as trading vehicles until earnings catch up to price.

Maria the mouth just announced that the Lehman upped its rating on the chip stocks to overweight. So the tech dance may continue with traders rushing to grab a partner.

The WSJ is reporting that the Treasury Department is going to change the pension rules to allow companies for a two year period to use the rate of return on 20 to 30 year corporate bonds to figure their pension requirement. The current requirement is that companies use the return on U.S. Treasuries but since the yields on Treasuries are so low the companies are required to put in twice the amount of money for pensions that they would have to if they used the corporate rate. This is called the Alice in Wonderland solution to lower interest rates.

On the one hand the Feds want lower interest rates to keep the house building growing and the interest expense on the national debt low. But by keeping interest rates artificially low they cause companies to under fund pensions, not to mention forcing savers to go to riskier reinvestments to attempt to obtain a higher return.

CNBC is debunking the Microsoft $10 billion special dividend story of yesterday that got the tech stocks moving.

And this morning on CNBC we were treated to Chuck Grassley of Iowa pushing for deductibility on long term care insurance and tax credits up to $3000 for home health care. The second we could live with although that sounds like a Democrat idea. The first regarding deductibility of long term care premiums is a bone for the insurance industry not the insurance buyer.

The Congress should be simplifying health care and instead they are making it more complicated. Our guess is that this happens not because they are bad people but because they have so many items on their plate at any one time that they don't have the time to master any. Repubs were elected in 1994 to simplify government and get rid of deficits. Instead the opposite as happened as interest groups rewrite the legislation that the Congress folks don't have the time on which to concentrate.

We continue to believe that catastrophic coverage for health care and long term care and health needs can be met in a timely and simplified manner. But simple is not profitable to some and so…

Yellow Corp is going to acquire Roadway Express for $48 per share in a half stock/half cash transaction. So another arbitrage situation appears. By that we mean that folks will sell YELL short and buy ROAD share to lock in an assured gain if the deal goes through.

We find arb stocks interesting if the stock acquiring is one we have followed like Andrew and EMC and Yellow. We may take a look at EMC and YELL. While the Andrew is closing soon these other two will take through the autumn crash period and so we will keep them on the radar for that time.

9:08am and stocks are lower and Treasuries are a tad higher. There is no great selling pressure although breadth is negative and volume is summer light. We are picking up some Delphi Auto at $8.80 as an "upgrade" play since ArvinMeritor has made a hostile bid for Dana Corp. All three companies are in the auto parts business and have been around forever under various names. The Dana offer is worth about $1.8 billion for Dana shares plus $3.5 billion Dana debt for a total $5.3 billion. Dana has sales of $8 billion. Delphi is selling at $4.7 billion with $2.3 billion in debt or a total value of $7 billion and $28 billion in sales. GM is still 82% of sales so a discount is required but DPH is cheap compared with the Dana bid. DPH is also just cheap if there is going to be an economic recovery. We have traded DPH before and we may decide to hold this in accounts if we buy it even if there is no "upgrade" announcement or pop.

In a new filing MCI says that it is slashing spending on capital equipment by $3 billion. That's more bad news for the likes of Lucent and probably also MCI customers including those in Iraq.

10:17am and the DJIA has inched into positive territory. The move the last few days has encouraged even bears like us to pick up a few cheap stocks as speculations on a continued move higher. We are buying PCS for accounts at $5.90 and also will be adding DPH by the end of the day. These are low priced stocks that have decent percentage gains potential and can be held in any sell off. They also don't require the commitment of a big chunk of money to give us a few stocks to keep our interest peeked.

We sold WAG at $30.60 for a 30 cents profit to use the money for our low priced stock purchases.

11:51am and the DJIA backed off when news that Abbas had called off talks with Sharon. There wasn't a big sell off, just a pull back of buyers. We are buying Rite Aid in our accounts at $4.80. RAD announced good same store sales numbers up 5% and same front store sales were up 2%. The shares are up a bit today and so we are taking an initial position with the idea of buying more if the stock backs off. This is a stock we have followed for a number of years and one of these days it will be a $15 stock. We probably will have traded out of it by then. The new management installed several years ago seems to be turning the company around. The high debt load has been a huge drag and management has made strides in reducing the debt and closing underperforming stores.

1:54pm and entering the final hour the DJIA remains off 13 points. Most of the other indexes and averages are higher so the stage is set for a rally into the close. Breadth is positive and new highs exceed 300 on the NYSE and NASDAQ. Volume is better than yesterday.

2:22pm and we have two cliff swallow nests on the front porch of our office. The last of the eight babies born just flew out into the big bad world. We wish them all luck.

3:02pm and it could have been a better last hour. The DJIA closed up 5 points at 9221. The S&P 500 gained 3 points to end at 1007 and the NASDAQ jumped 23 points to finish at 1745. The rally continues on the NASDAQ where it is not sustainable. It's the same old game, with probably the same old players and a lot less money. EBAY is not going to lead the economic recovery, nor is YAHOO. Treasuries dropped a bit in price as yields inched up at the close.

And tomorrow is another day.

8 July 2003 - Morning Comment

7:30am and stock futures are indicating a lower opening. Overnight the Nikkei was higher as was the Hang Sang Index, gold and oil are lower and Europe is slightly lower.

Merrill lowered its earnings for Honeywell a tad and Eastman Kodak had an unfavorable review from Smith Barney and so those two DJIA stocks may be under pressure.

Pepsi comes with earnings on Thursday and GE is Friday so that should give some direction to future market action when they announce.

After a big day like yesterday an early morning pull back is to be expected but a higher close would seem to be necessary to bolster the bull case. We are back in the swing and so if some trading opportunities arise we will be ready. As of now we have no ideas and are glad we didn't pick up EK at the end of the quarter like we were thinking.

By the way, Scholastic Books is lower by $3 to $25 as they have disappointed again on the earnings front even though they are the publishers of the very popular Harry Potter series of books.

And so we are guessing down early and then a rally.

So let the games begin.

7 July 2003 - Closing Comment

8:08am and the WSJ has a front page article on retirees who are trying to live on income from C/Ds now that interest rates are at all time lows. This is the story of savers who did what they were supposed to and refused to take risks and now they are paying the price of saving the economy. Many of them bought variable annuities at the banks they visited and those have been variable as the underlying equity mutual funds have e-tanked. They could have purchased ten-year Treasuries with a 6% or better yield but those didn't pay as much of a commission to the bankers who sold the annuities.

Our clients have averages a 15% return over the last five years even with our usual large cash position and so they have been able to spend 6% to 8% of their money and still build up their principal. Past performance is not an indication of future performance.

We usually under perform roaring bull markets or bull spikes in long term bear markets because we maintain large cash or short term bond positions. But then we don't give much back in the bear phase.

11:15am and stocks opened higher and haven't looked back. The DJIA is near its high for the day up 160 points. Breadth is positive, volume is good and there is strength. Today the S&P is going to pass us on the upside for the first time this year. But it will be back.

We sold our ONE trade for a scratch we are hoping for some action in Walgreen before too long. There is nothing for us to do but watch and wait. We may be boring for a while but we like our cash and being up 13% for the year.

2:24pm and we are having a hard time getting into this market after the long hot holiday. When we walked in this morning the futures were already up so we presume that not many folks who bought today have profited from the move. At its high the DJIA was up over 160 points. Currently the DJIA is up 125 points. The NASDAQ is the big winner today being up over 50 points and pushing through 1700. How long this rally will last is beyond our powers of guessing. If the markets close strongly this afternoon then tomorrow morning should be a good tell.

3:02pm and the DJIA closed up 144 points at 9215. The S&P 500 gained 18 points to finish over 1000 at 1005 and the NASDAQ rose 57 points to end at 1720.

And tomorrow is another day.

7 July 2003 - Morning Comment

7:16am and thank the Lord it's Monday and we can get back to playing big people games. For the last month we have been praying for rain and someone up there finally heard us and now we are praying for no more rain.

Microsoft is heading higher this morning on rumors of a big dividend payment and that has all the tech stocks moving. Dividends are not earnings and while nice, a raise in a dividend without a corresponding rise in earnings is a temporary phenomenon at best.

CNBC talking heads are all out of joint because the EC may not allow GE to take over a company called Instrumentarium. As we all know GE owns CNBC.

Japan was up 2% overnight and Europe is also higher. And so the stock futures are higher and we suggest holding on to your hats boys and girls at least for the first few hours. There is selling in bonds and moving to stocks occurring worldwide. It first began in Japan last week.

So let the games begin.

2 July 2003 - Closing Comment

6:50am and we see that the Jurist who decided to throw out the case against Merrill Lynch was 97 years young. Far out, as we used to say when the judge was a spry 60 years of age. Now a few of our most valued clients and friends are of that nonagenarian age but there is a point when … Anyway, we were amused that as we suggested yesterday, Judge Pollack used the "caveat emptor" reasoning for rejecting the law suit and blamed the victims in rejecting the plaintiff claims. Such a ruling fits right in with the Ashcroft DOJ mentality that seems to permeate the minds of the elected and non-elected pooh bahs in Washington of the elephantine persuasion.

7:25am and the data is coming, the data is coming. Today we are looking for June employment data. The guesses are: unemployment rate 6.2%; Non-farm payrolls flat. Average work week 33 hours and jobless claims rising 6,000 from 404,000 to 410,000.

And the real numbers: unemployment rate 6.4% up from 6.1%; June payrolls down 30,000 to 430,000 and May payrolls revised from down 17,000 to down 70,000. Oops! One million folks have been added to the unemployment roles since March. Hourly earnings rose 0.2%.

Larry Kudlow, Jack Welch's favorite affirmative action economist and self proclaimed know it all who has been wrong forever but never in doubt, is the major talking head hogging the talkfest on CNBC trying to make a silk purse out of what were lousy economic numbers. Stock futures have turned lower and the boy and girl bovines are going to have a tough time painting a pretty picture with these numbers today.

9:52am and the DJIA has been down all day but not by much. Treasuries are dropping in price which is counterintuitive to this morning's early economic data. But the 9am ISM Services number of 60.2 versus a consensus 55 has trumped the lost jobs and the glass is half full at least for today. Stocks may pop in the last half hour to close stocks higher again today. Breadth remains negative

We sold our JDSU trade for a 20 cents plus per share profit at $3.71 and rolled half the proceeds into Sprint PCS at $5.91. We are just trading around the edges to stay awake and keep our mind on business. We missed ONE under $37 this morning but if it revisits those nether regions before the close we may establish our trading position.

11:03am and entering the last hour of trading the DJIA remains lower. News is scarce and volume is light.

12:02pm and the DJIA closed down 71 points at 9070. The S&P 500 lost 8 points to end at 985 and the NASDAQ dropped 15 points finishing a 1663. The ten-year Treasury rose 12 basis points on the day to end at 3.64%.

For the year the DJIA is up 9.1%, the S&P 500 is up 12.5% and the NASDAQ is higher by 25%.

The Model Portfolio is up 13.1% and is 96% cash.

And tomorrow is the Fourth of July

3 July 2003 - Morning Comment

The sales of ANDW at $9.95 was not recorded in several client accounts last night due to some technical glitch. Please know that our entire client position was sold at $9.95 and the missing sale trades will be entered today.

6:10am and we are sitting in the middle of a needed thunderstorm listening to the patter of rain and rumble of rumbles. Having lost our satellite picture we have no idea of what the talking heads are talking and that in itself is a rather peaceful occurrence.

We made an effort to sell in to yesterday's rally because we would guess it was a combination of new money for the quarter and complacence that allowed stocks to move higher. In truth, all the technical indicators were bullish and it was hard to find fault with any. But holiday week rallies are not usually the stuff of sustained moves higher and with a shortened day today all eyes will be on the claims for unemployment numbers to be released at 7:30pm.

By then the rain will be gone and we'll be able to decide how the boys and girls are gong to spin the wheels and roll the dice on the day before the Fourth.

Before Mother Nature consumed our picture in rain, the sock futures were looking lower. Asia was higher overnight while Europe is in the minus column.

Remember we close the casino at noon today C.D.T. and on that note let the games begin.

2 July 2003 - Closing Comment

6:56am and Merrill placed a buy on MSFT with a thirty dollar price target. We did the same about a month ago but we have a bit less power on the Street than Merrill does. So this morning all the Merrill salesmen are on the phone dialing for dollars and in anticipation of the thundering herd at work MSFT is already at $27.

Merrill is also placing Wal-Mart on its focus list. There is nothing to get the blood of a salesperson flowing more than to be able to call clients with WMT and MSFT on the buy list.

Those two stocks will give a good pop to the averages at the opening. And that pop also explains the strength in the SPDR TECH Index late yesterday as it looks like a few folks got early word of today's MSFT upgrade.

By the way, to justify the switch from neutral to buy on MSFT the analyst upped the 2004 earnings estimate from $1.04 to $1.09. And so a change in a few pennies of earnings is going to lead to a $30 billion increase in value. And we were just reading that pennies were useless and that the Treasury is thinking of eliminating them.

Baxter is lowering earnings estimates to $1.60 to $1.70. This stock has been nothing but trouble for the past year. There will be another significant restructuring effort including axing 2500 employees.

Another reason given for the higher markets today is that a judge in NYC threw out a class action suit against Merrill Lynch for giving tainted advice. We presume Merrill's defense was that they have always given tainted advice and so tainted advice is the custom and practice in the industry. This is the reason the term "caveat emptor" used to be carved over the doorway of all brokerage houses. Moreover the SEC has placed cigarette type protection on the brokerage business by forcing everyone to say that past performance is no indication of future performance which is a fact many investors and wives can certainly attest to.

7:43am and according to our calculations there is $12 million in profit to the underwriters of Alliant which works out to 80 cents per share. It will be interesting to see where the underwriters place their stabilizing bid.

8:18am and Ralph Bloch of Raymond James is on CNBC saying the worst of the retrenchment from the recent rally is over. He thinks that stocks go higher to DJIA 9500 and he likes tech stocks.

8:47am and out of the gate the DJIA is up 40 points. With the WMT and MSFT upgrades we would have expected more. LNT is trading at $19.60 which baffles us-not the first time-and also removes it from our "to buy" list. We were obviously too cute with the stock in trying to game the action.

And so we are going to stay with the few stocks we have and we may revisit Sprint PCS.

9:58am and the DJIA is stuck at up 40 points. That's interesting given that the MSFT and WMT opened up about 2% but haven't made much headway. The holiday week is affecting that.

We are selling at $9.55 the ANDW we bought the other day at $9.43 because we were able to buy stock yesterday at $9.10 and we want to limit market exposure. We own this stock for a pop in mid month after the merger is completed and we have more confidence in the merger occurring than we do in the markets staying up.

11:04am and the DJIA is up 54 points. Breadth is 2/1 positive and new highs already exceed 100 on the NYSE and NASDAQ.

We are trying to sell the balance of our ANDW that we purchased yesterday at $9.08. We are offering the shares at $9.95 which would be a 10% gain in a few trading hours. We don't believe the rally and so if we can get the stock off we'll be happy to book the profit.

11:08am and the use of the recall petition in California to get rid of Davis is similar to the Supremes electing Bush and De Lay getting Texas to vote on redistricting again. If folks fool around with elections long enough, the elections will become worthless. Here's a thought for pondering. If all voting is done by computer, who checks the computer software that registers the vote to make sure that the software is properly reflecting the vote cast? Did you know that there are only a few companies creating the software and that not all machines are checked? The old paper and pencil voting may take longer but that would give the media something to talk about besides the next grizzly murder. Society places too much faith in computers since computers only reflect the input of those who program them.

2:03pm and we sold at $9.95 the ANDW we purchased yesterday for $9.07. We couldn't pass up the gain. The DJIA is up 95 points so the bulls are going to carry the day. But it is interesting that MSFT still hasn't traded higher after its initial surge.

We sold our HPQ purchase of yesterday at $21.60 for a 60 cents per share profit.

3:02pm and the DJIA closed up 98 points at 9140. The S&P 500 gained 11 points to end at 993 and the NASDAQ rose 38 points to finish at 1677.

And tomorrow is a half day of trading and writing this column.

2 July 2003 - Morning Comment

6:42am and as we surmised from the price movement yesterday, Alliant Energy priced the 15 million shares it had for sale at $19.25 which is also the price we guessed since some magic fairy managed to close the shares at $19.42 so investors would think they were getting a deal. We may or mayn't take a flyer on the stocks today.

Europe was strong overnight and Japan was up 3%. U.S. futures are up, but not as strongly since Europe was playing catch-up with our markets.

The happenings in Israel offer a ray of hope and calm in that area of the world would be a blessing for the folks that live there and also a positive for the stock markets.

These next two days may be volatile but we don't know whether they will show any long term trend since this week is basically a vacation week. The markets close at noon tomorrow for the Fourth of July holiday.

And so this morning up early and then it's anyone's guess.

So let the games begin.

1 July 2003

8:55am and stocks are lower as Treasuries rally. The DJIA is down 40 points. we don't think the bear market rollover begins today so we may try to trade some SPY or DIA if they get down 12/125 points respectively.

Walgreen is up a tad on a Goldman Sachs upgrade but everything else is under pressure. LNT is under $19 and that is peaking our interest. And ANDW has dropped under $9.10 so we may do something there. If SGP gets to $18 we'll buy some more as with AOL at $15. A rollover to lower levels would be too predictable from here.

This give back is more an absence of buyers.

9:06am and it looks like ABN AMRO is sending new confirms for Lemley Yarling Management clients where all the trades on a certain day are combined on one confirmation. That's called progress and increasing productivity and saving envelopes. Hopefully they will discover the computer age and begin sending e-mail confirms. By the way, the Summary total of buys and sells on the confirmation doesn't mean you made or lost money. Those totals only refer to the number of dollars used in the transactions and whether at the end of the day more money was raised than spent or visa versa.

10:01am and ISM manufacturing number was 49.8 for June versus 49.1 for May. The stock markets were expecting over 50. Construction spending was down 1.7% which was more than the expected down 0.3%.

The DJIA is flirting with down 100 points and we have done nothing yet. We are taking a flyer on JDSU at $3.45 in aggressive accounts; it recently ran to $4.50. We are also adding to our ONE trade and we are trying to buy ANDW for many accounts around $9.10.

11:41am and maybe GW should change his name to Moses. The following is from the website Talking Points Memo

From an article in Tuesday's Haaretz, a leading Israeli daily ...

According to Abbas, immediately thereafter Bush said: "God told me to strike at al Qaida and I struck them, and then he instructed me to strike at Saddam, which I did, and now I am determined to solve the problem in the Middle East. If you help me I will act, and if not, the elections will come and I will have to focus on them."

12:10pm and Alliant Energy is creeping higher which means that it will probably be priced tonight. We missed our opportunity to buy it under $19 this morning and it is now trading at $19.20. We know underwriters don't mark stocks up to price them, perish the thought, but today we may sell the stock we own at $19.25 to see what happens tomorrow.

1:02pm and the DJIA is staging the slowest and sickliest rally we have seen in a long time. it really is just an absence of sellers no as it was an absence of buyers this morning. The DJIA is now down 35 points and the NASDAQ is off 7 points. Breadth is negative and new highs won't reach 100 on either venue today.

1:35pm and stocks are now in positive territory. We sold the LNT at $19.25 for a 30 cents per share loss. Our guess is that the underwriters price the shares at $19.25 tonight. We may be too cute on this but there is a ceiling on this stock until the shares are offered.

Breath has not budged and still is in negative territory.

Treasury prices are now lower at the stock markets have rallied. We don't know which is the chicken and which the egg.

1:59pm and entering the final hour the DJAI is up 35 points. Wonder of wonders, LNT is now $19.44, so we guess the underwriters close it at $19.50. Sometimes we just don't have enough imagination.

Air Tran with yearly revenues of $800 million is going to buy $6 billion in airplanes from Boeing. EBITDA last year was $60 million. At 5% interest that's $300 million per year. We are sure it makes sense to someone.

3:02pm and the DJIA closed up 56 points at 9041. The S&P 500 gained 8 points to end at 982 and the NASDAQ gained 17 points to finish at 1640. Breadth was positive at the close and new highs did surpass 100 on the NYSE and NASDAQ

Near the close we sold our trading position in SGP at $19 for a scratch loss. We sold at $37.40 the ONE we purchased today for a 25 cents per share profit. We sold our AOL trade from the other day at $16.10 for a scratch profit. We are actively trading our aggressive accounts because we don't want to increase our stock market exposure.

And tomorrow is another day.

1 July 2003 - Morning Comment

6:32am Rabbit, Rabbit, and today our daughter Christine begins her two week examination to become a Ph.D. candidate at the University of Wisconsin School of Education. Go you girl.

The DI finished the first half of the year up 7.7%, the S&P 500 gained 11% and the NASDAQ was 22% higher. The last time the three major measures had such good performance was 1998, the year of the Long Term Capital Meltdown in October.

For the first six months the Model Portfolio was up 13%. We are pleased that even in a bullish phase our trading philosophy has performed well. We have developed this philosophy over 26 years in many types of markets and our main aim is to earn a decent return while limiting risk. While our trading limits the amount of long term gains available we would suggest that the whipsaw action of the past five years have presented few opportunities for such gains.

That's not to say that if in the future stocks get cheap enough and the overall markets looks like they have worked off their excess, that we won't chose to sit for a while with a few stocks. But we don't think the stock markets are at that point and in fact we consider the second quarter auction to be a rally in a bear market.

Japan has enjoyed as many as four or five 20% to 50% rallies as its stock averages slid to oblivion over the past thirteen years and we remember back in 2000 how the gurus were expounding that US markets were different from Japan and that our Fed and Treasury knew how to manage crisis much better than the Japanese. Four years later we would guess that in their hearts if not heir mouths these gurus are not so certain.

Our outlook for the summer is a trading range and then a collapse in the fall created by some as yet unknown financial or political crisis followed by who knows what.

And on that cheery thought let's have the games begin.

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