We are taking
Monday and Tuesday off to spend time with the family. We’ll be back on Wednesday
August 2, 2006.
Asia was higher
overnight while Europe is lower at . Gold is $527 and Oil is $73.94 both of which are
Advance GDP was less than
expected at up 2.5% and the Core PCE Deflator (inflation) was as expected at
2.9%. With those numbers traders have decided that the Fed is not going to be
raising rates in the near future. Treasuries are higher in price and lower in
yield. The new Treasury Secretary is doing his job
JP Morgan and Mother Merrill have
moved to neutral on Bristol Myers in the wake of the Justice Department
investigation mentioned in yesterday’s post. Our guess is that drug companies
have a special ear in Washington
and unless BMY is guilty of giving great sums of money to Democrats that all
the brouhaha will pass with a small fine. We do admit that CEO Dolan is a creep
(he fudged earnings in the early years of this century and didn’t get canned)
and shouldn’t be running the company but we are in the stock for a trade and
not for life and so we will assume the risk for now.
The major measures have closed lower
the last seven Fridays.
In the early going the major measures
are higher and breadth is 4/1 positive on the NYSE and 2/1 to the good on the
of Michigan Consumer Confidence
number was 84 when 83 was expected.
Three hours into the trading day
the major stock measures are 1% and more better and breadth remains strong.
Volume is good and Treasuries are continuing to rally with the two-year and the
ten-year both at 5%.
With the S&P 500 at 1278 the
next real resistance level is 1290. This rally may continue into the Fed
meeting on August 8.
In our largest accounts we have
flattened our trading positions selling Ford, Intel and BMY. In our other
accounts including The Model Portfolio
we are maintaining our holdings in those stocks. We have been aggressively
trading the very large accounts and want to continue that profile to remain
We also sold the last of our
Pharmaceutical ETF holdings (PJP)
for a scratch loss. We were down over $1 per share on that holding a few weeks
ago and are using the rally to flatten the position. The big boys and girls are
fleeing to drug stocks and we think the BMY is a better trade at these levels
Oil ended at $73.24 and Gold
was $630. Treasuries closed on
their highs with the two-year at 4.98% and the ten-year at 4.99%.
At the bell the DJIA was up 120 points at 11220. The S& P 500 gained 14 points to 1278
and the NAZZ rose 38 points to 2092.
Breadth was 4/1 positive on the NYSE and 2/1 to the good on the
NAZZ. Volume was brisk.
New highs were 195 and new
lows were 170.
The casino is closed for the
week-end and we’ll be back on Wednesday August 2.
27 July 2006 Daily Comment
Jobless claims were 298,000 and Durable Goods orders were up 3% and ex transportation up 1%. These numbers were more bullish on the
economythan expected and so Treasuries
are giving a bit of ground as the will they
/ won’t they crowd place their bets.
was up 2%, Hong Kong 1.8% and the rest of Asia
was also higher. European bourses are fractionally better and U.
S. futures indicate a higher opening.
Gold is up to $632 which is up
$10 from the NYC close and Oil is $74.43.
The HCA buyout is an example of management choosing self over shareholders.
What occurs in these buyouts is that the folks who do them immediately pay
themselves a very large dividend or two or three and then wait two or three years
until the company regenerates the capital to make going public again feasible.
Then the companies are taken public with about 20% of the shares sold to the
public at a very nice multiple of the going private value. Insiders also own
the remaining 80% of the shares which over time they are happy to sell to the
Several weeks ago we mentioned
that paying dividends to shareholders would be a much better way to reward them
than buying back stock. But management ownership in the company is in the form
of options which are not entitled to dividends. And so paying dividends, while
it would be beneficial to shareholders, does nothing for management’s options.
In the old days, folks could
mount proxy battles but now the companies are as large as countries and so the
only way to vote is with one’s feet. The true
genius of Buffet is that he has aligned his interest with shareholders interest
over the years and has made his fortune by building his company not by using
options to benefit himself at the expense of other shareholders.
Exxon Mobil’s net income over the last four quarters is about $40
billion. Revenues were $388 billion. CNBC
The Financial Times is reporting that General Electric will make the majority of its products outside the United States by 2010. *****
Citigroup is maintaining a sell rating on GM.
membership growth estimates) is being taken to the woodshed again this quarter
with it expected to open down $9 at $31. We had our problems trying to trade the
drop last quarter and so we will watch from the sidelines for a bit.
New Home Sales were down 3% with the Northeast down 12% and the Midwest
down 8%. The West was up.
$400 billion of adjustable rate
mortgages re-price this year and over $ 1 Trillion re-price next year.
Two hours into the day the major
measures are higher and breadth is 5/4.
are also buying BMY in our larger accounts at $24.20 down $1.80 from
is down even though they announced better than sales and earnings. The company
is the subject of a criminal probe. In March Bristol-Myers and Sanofi of France
reached a settlement with Apotex, which had been sued by the two drug giants
over its efforts to sell a cheaper, generic version of Plavix before its patent
expires in 2011.
The proposed settlement of the
patent-infringement litigation would allow Apotex to begin selling generic
version of Plavix several months ahead of the patent expiration. In exchange,
Bristol-Myers and Sanofi agreed to make certain payments to Apotex, some of
which were covered by a $40 million reserve recorded by Bristol
in the first quarter.
Bristol-Myers spokesman Jeff
MacDonald said the company didn't have any more detailed information about the
Justice Department's probe. He said the company's conduct in its settlement of
the Plavix patent litigation has been "entirely appropriate," and the
company intends to cooperate fully with the investigation.
We think the shares are worth a
trade from this level.
22 countries have raised interest
rates more than 90 times over the past 12 months in an effort to control
Entering the contra hour the
major measures have turned negative in slow trading. The violent reactions in
individual stock to their earnings reports may be taking a toll on traders and
investors (if there are any). Breadth has also flipped and is now 5/4 negative.
Oil closed at $74.64 and Gold
was $634. Treasuries were unchanged
on the short end to 3bps higher on the long end.
The DJIA closed down 3 points at 11099. The S&P 500 was off 5 points at 1263 and the NAZZ ended down 16 points at 2054.
Breadth was 5/4 negative on the NYSE and 2/1 negative on the NAZZ.
Volume was moderate and new highs and new lows were about even
at 185 each.
And there is one more day at the
casino for he week. Tomorrow brings Advance 2nd Quarter GDP not to be confused
with Preliminary GDP or Final GDP.
26 July 2006 Daily Comment
Asia was mixed overnight and Europe
is slightly higher. Oil and Gold are both unchanged and U.S.
futures are flat.
Last night Amazon and Panera Bread disappointed
and both are trading lower by over $5 this morning.
According to the street GM had great numbers reporting super
earnings of $1.2 billion. That was after special charges of $7.6 billion but
who is counting. The stock is looking to open two dollars higher.
Hewlett Packard is buying a software form for $4.2 billion in cash
and the street likes the deal.
Mother Merrill raised The
Gap to a buy.
Investors Intelligence numbers were basically unchanged with 42%
bulls and 36% bears.
The tone of the talking heads is
positive today and many of the web gurus are predicting further rallying.
The major measures were lower in
the early going but are now about even at .
Breadth is flat after being negative. Now comes the hard part for the bulls as
they try to make it three up days in a row.
We bought Intel and Ford in accounts
today. With the street deciding the
GM is coming out of the woods and Mother Merrill’s comments yesterday about
Ford having all the bad news in the current price we think a small position is
warranted. We feel the same about Intel. We may be jumping the gun a bit but
our exposure is small and if this rally continues the potential percentage gain
in both stocks makes the risk assumable. The two stocks we are buying have been
the subject of bad news for months. Since both have stopped going down on bad
news it is the time to at least get our feet wet.
The negative holding the major measures
back today is the miss by Norfolk &
Southern with the shares now down $5. All the other rails are lower in
sympathy. Our take on the matter is that we didn’t understand the infatuation
with these stocks to begin with.
The Fed Beige Book released today suggests a slowing economy and
Treasuries are rallying on the new. We placed a bit more money in the new
two-year 5% Treasuries at a 5.03% yield.
We also sold our 3M trade from yesterday for a $1.20 per
Today’s feeble rally is because
the Fed may not raise rates at the August 8 meeting because the economy is
slowing. But if the economy is slowing that means profits will be pressured.
And if profits are pressured……
Oil closed at $73.94 in NYC and Gold finished at $621.70. Treasuries
were storing into the close with the new two-year at 5.02% and the ten-year
at 5.03%. The dollar was weak.
There are many cross currents in
today’s markets with Boeingoff $4 and NSC and CSX down over $3 each, Amazon
is down $7 bigger and Apple is up $2
and Amgen $1.50. The rally is failing and we are going to sell our GE and Cisco trades for a few pennies profit. We don’t want to own CSCO
into earnings in early August and GE is an anchovy with us.
The DJIA closed down 1 point at 11003. The S&P 500 dropped 1 point to 1268 and the NAZZ was down points to 2170.
Breadth was 5/4 positive on the NYSE and flat on the NAZZ. New lows at 180 bested new highs at 160. Volume was active.
And the casino will be open as
25 July 2006 Daily Comment
Texas Instruments had good numbers last night and is trading a
dollar higher this mooring. UPS
announced lousy numbers and a less than happy outlook and that took the street by surprise and so the shares
of UPS are trading $10 lower in the early going. That works out to a loss of
$10 billion in Market capitalization.
was up 1.5%, and the rest of Asia was also better. European
bourses are green and U.S.
futures are indicating a slightly higher opening. To complete the picture both
gold at $622 and oil at $75.40 are higher.
The bulls would like a nice strong
up move though the 1260 resistance on the S&P 500. Bears of course want the
rally of yesterday to fail as the last two have. That failure would put in a
higher low and continue the pattern of failed rallies.
The four big up days in the last
six weeks is not a normal occurrence. According to some technicians, in the
past when this has happened the markets are always higher two months out. We certainly
aren’t going to argue with history or say it is different this time but we do
wonder if the up days occurred in July in the past.
We have the urge to trade a few
shares of stock in our very large accounts. There have been some substantial collapses
in quality stocks that we think might offer a trading opportunity. We are buying
3M, DuPont, UPS, Wrigley, General
Electric, Intel, Cisco, Netflix and Vicor in 1000 share amounts in our million
dollar plus accounts. All these stocks
are down substantially from their recent highs and we think the trade profit
potential warrants the risk. There is an old saying that one should not make a
trade into an investment. We are buying these to trade but because of their
quality we may give them for longer than our normal trading period if we don’t
get the move we want.
MMM ($67.85) is down $4 today on its earnings announcement after
being off $8 on July 7 on a warning of what was coming and UPS ($68.98) is down $11 today. We think those are overreactions which
will be reversed in the next few weeks. Both are very high quality stocks.
DuPont ($39.95) earnings were better than expected but the company
did not raise guidance. The shares are off 70 cents on the guidance issue and
down 10% in the last month while being at a price ($40) from which they have
bounced higher 6 times in the last three years.
Wrigley ($43.65) was downgraded on July 12th by Credit Suisse and
has dropped 18% in price since March. The share priced reached a 12 month low
of $43 last week. WWY announced earnings
today and they were lower on charges but revenue was better than.
General Electric announced excellent sales and earnings for all its
division except NBC. The stock was over owned in the Welch Dynasty ears and has
been under distribution for a few years. The price has been mired in the $32 to
$35 range for the last year and we are buying ($32.55) at the low end of that
We are also buying Intel ($17.55) and Cisco ($17.86). Intel is at its yearly low and has already delivered
the bad news for this quarter. INTC should participate – because of programs-
in any move higher over by the major measures over the next week and the same
goes for Cisco. CSCO announces earnings on August 8 and depending on market
conditions we may be in or out of it by the date.
Obviously NFLX is not the quality of the other stocks we have purchased
today. Netflix ($19.11) is the company that sends movie CDs by mail and
announcedgood earnings today but
gave tepid guidance going forward and the shares are off $4 and down $12 from
their yearly high. Management has refused to raise guidance before and beat the
estimates and we think the reaction in this stock is also overdone.
We bought Ford at $6.65, just because. Mother Merrill said all the bad news is
in the stock.
Vicor is down $3.50 today to anew 24 month low of $11.35 and its
high for the last 12 months is $23. Insiders own 50% of the stock and the
company has no debt and $2.50 in cash per share. VICR owns the design for a
chip that allows the miniaturization and easy to design-to-suit configuration
of power converters. The chip allows a stable stream of direct current to
electronic devices to allow them to work efficiently. Earnings were higher but
book to bill was lower than expected. This is a small company with a unique
product and we bought 500 shares per account as a speculation on a bounce.
Existing home sales were a tad higher than expected and the
Conference Board’s Consumer Confidence
was 106 when 104 were expected. Treasuries are giving a little ground on
The major measures are lower
after an hour of trading but breadth is 2/1 positive and new highs are
exceeding new lows.
In the now you tell me department
Mother Merrill upped Merck to a buy
with the shares trading at $39 up from a twelve month low of $25.
Oil ended down at $73.85 in NYC and Gold closed up at $618. Treasuries
were a couple of ticks higher in yield across the board with the two-year
at 5.12% and the ten-year at 5.06%.
The major measures rallied and we sold the UPS for a $2 per share
profit, the WWY for a $1.30 per share profit and the DD for a 45 penny per share
profit. We sold one half our NFLX trade for a 40 penny per share loss.
We are holding the rest of the NFLX and
other stocks at least for the night. We think the markets are going to be up
The DJIA closed up 53 points at 11104. The S&P 500 closed up 8 points at 1268 which was comfortably above
the 1260 support/resistance level. The NAZZ
was up 12 points to 2074.
Breadth ended 2/1 positive and new highs exceeded new lows for the
day. Volume was moderate.
The casino is open for business
24 July 2006 Daily Comment
The world did not disintegrate
over the week-end (it never does and if it does stocks won’t matter anyway) and
so the stock futures are indicating a higher opening. The action on Thursday
and Friday was negative for the bulls but the major measures remain above
collapse territory and the markets could still move higher this summer.
We can’t remember a time since we
have been in the business (1965) when a significant rally of any duration began
in July or August. We do remember more than a few that ended during those
slightly mixed overnight and European bourses are slightly higher. Treasuries
are giving a little ground and Gold is $615 with Oil at $73.65.
Merger Monday brings the buyout
of HCA by the founding family
(Senate Majority Leader Bill Frist’s family) and some buyout firms. This will
be the second time the company has been taken private. These are nice fees for
the investment banks since it is a $31 billion deal including debt. After the
deal is completed HCA will have $27 billion in debt up from $9 billion.
Schering Plough had good numbers and the shares are trading over
$20 this morning. The company may have turned the earnings corner and will get
a bit more attention from us.
Home Depot’s price target was lowered to $38 by Lehman. Dell warned late last week and fell out
of bed on Friday to under $20.
In a reprise of last Wednesday
stocks are strong out of the gate with the DJIA up 100 points and the S&P
500 at 1251 up 11points after one hour of trading. Breadth is 4/1 positive.
Friday was an options expiration day so this morning’s move may just be
reversing the down of Friday. The bulls are breathing a bit easier and the
bears are probably sweating, and not because of the temperatures.
stocks remain higher with strong internals and good volume. Europe
ahs also moved up on the good action in U.S.
stocks and most bourses are up 2% heading into their close.
Crude oil is now higher ion the
day in NYC with the price at $74.65. Oil issues are moving higher.
Gold ended at $613 and Oil
was up to $75.10 at the New York
close. Treasuries were basically
unchanged on the day with the two-year at 5.09% and the ten-year at 5.04%.
We are heading out a bit early
today and will be for the next few weeks as we enjoy our grandchildren’s visit.
the DJIA was up 140 points at 11105.
The S&P 500 was flirting with 1260 resistance
and the NAZZ was 32 points higher at
Volume was active for a summer Monday and Breadth was 3/1 positive. New
lows at over 160 exceeded new highs
The bulls need follow through on
the rally in tomorrow’s session. The casino will be open for business as usual.
19 July 2006 Daily Comment
Dr Katie Lemley is helping Dr Christine Lemley move into
her new home in Grinnell Iowa. We will be traveling there
tomorrow after all the heavy lifting is completed to assist in sightseeing GrinnellCollege and the surrounding area. We’ll
be home Friday evening in time for the
Prince and Princess to arrive on Saturday so that we may attend the
Crawford County Fair with them Saturday night. And so there will be no posts tomorrow
or Friday. We will be at our desk on Monday morning July 23.
Overseas most Asian stock markets
were fractionally higher overnight and the same trend is holding true in Europe.
Traders have now placed the Lebanon
conflict in the same old,same old file and have moved back to
worrying about the Fed and the price of gasoline. Treasuries are flat ahead of
the news today and Gold is down to $624 with Oil at $72.90.
The markets rallied late
yesterday on a lower oil price and the fact that they had been going down long
enough. This morning brings CPI in a
few minutes and then Benanke at .
Those two events will set the tone.
There were 450 new lows yesterday
which is the largest number of this current sell off. The last rally in June occurred
with about 600 new lows the day of the rally. Further rallying from this level
will depend on the testimony of the Fed Chairman and the price of oil.
The conundrum is that a higher
stock market and lower oil price increase the odds that the Fed will continue to
increase rates to fight inflation. If the stock markets are in a tailspin when
the Fed meets in August or September we would posit that they would be less
likely to add fuel to the fire.
Also the fact the Goldman’s Henry
Paulson is now the Treasury Secretary and in a position to massage the data
should not be ignored. Savvy fellows like Rubin and now Paulson who know how the street thinks obviously know what the street wants to hear.
On the earnings front Mother Merrill, JP Morgan, IBM, Coke, and United Health were all in line or a bit better.
Yahoo disappointed big time on its advertising revenue and is trading
$7 lower (24%). *****
June CPI was 0.2%, Core
CPI was 0.3%. Year over year CPI was up 4.3%, Core was 2.6%. June Housing
starts were down 5% but May starts were revised upwards. . Stock futures and
Treasuries are lower.
Stocks are higher out of the gate
and Treasuries are lower in price higher in yield on the CPI number and before
the Bernanke Show.
Growth is moderating according the new Fed
oracle and as a result stocks are moving higher wit the DJIA up 110 points and Treasuries
now lower in yield higher in price on the day. Traders take Bernanke’s
statement to possible mean a pause or one more increase at the most.
A Reuters headline says that gold
is rallying (up $14) because of Bernanke’s comments. The dollar is lower and
short covering in gold as with stocks is moving both up. Two hours into today’s session the major
measures are all much higher in active trading. Breadth is 4/1 positive.
As the Fed Chairman continues to
testify the action of Treasuries seem to be saying that there will be no rate
hike in August. The two-year is at 5.12% and the ten-year is at 5.07%.
Short covering began today’s
market move but we would guess that as the major measures hold their gains long
buying is taking hold. We are observers.
Oil closed at $72.90 in New York
and Gold ended at $642.80.
Treasuries closed higher in price lower in yield after a wild day
in the bond pits in Chicago. The yield
on the two-year ranged as high at 5.25% before ending the day at 5.11%. The
ten-year finished at 5.06%.
The DJIA jumped up 215 points to 11015 for its best up day in three
years according to CNBC. The S&P 500
gained 23 points to close at 1260 and the NAZZ surged 38 points to 2080. Breadth
was 4/1 positive most of the day long and volume was active.
New highs and new lows were about equal at 130.
The Casino will provide 2 more
day of fun while we are away. We’ll be back on Monday. *****
18 July 2006 Daily Comment
The Producer Price Index (PPI) which is the manufacturing cost side of
the inflation picture was up 0.5% and Core PPI was up 1.9%. The Core PPI number
strips out food and energy. The year over year numbers were 4.9% and 1.9%.
Supposedly the core number
adjusts for the volatility in food and energy prices but since energy prices
and now food prices are increasing at a consistent rate that reasoning leaves a
bit to be desired.
One big reason for having a core
number with the Consumer Price Index
(CPI) the consumer side of the inflation picture which will be announced tomorrow
morning at 7:30am is that Social Security benefits and many other public and
private plans adjust their payout for inflation (CPI) and so the smaller number
mitigates the adjustment needed.
was down 3% and the rest of Asia was lower and Europe
is mixed. Treasuries are weaker on the PPI number and Gold is up a tad to $654
and Oil is back above $76.
Target lowered its July sales forecast.
Johnson& Johnson beat by a penny.
Redbook Retail Sales though mid month were down 2.2%.
Wells Fargo was a penny shy.
The New York Times met expectations but is firing another 350
folks. It is also reducing the size of the paper by 1 ½ inches which will save
$42 million a year.
Schwab was 19 cents versus 20 cents expected but revenue was above
This morning as bonds tailed off on
the greater than expected PPI we repurchased a portion of the
two year Treasuries we sold last week.We invested about one third
of the cash in our larger accounts at a bit under par for a 5.15% yield.
We realized over the week-end
that we had been buying the Treasuries for a trade instead of a two year
investment and that is why we were uncomfortable holding them. We also realized
that we did want to commit some funds in larger accounts for a two year period
at over 5%. But in our last purchase we had invested much more money per account
than we wanted to at that level. As with stocks sometimes we have to experience
ownership and sale before we understand our purpose.
We don’t know whether the Fed
will stop in August or September but we think they will stop for a while because
the stocks markets are under pressure and we think stocks will remain so. And
when the Fed stops the two-year will move lower in yield. Even if the Fed increases the rate to 5.50% in August and the two-year
moves above 5.30% we will have funds available to commit more money if we so
Currently we are reserving the
balance of the funds in accounts for stock investment in September and October
in the stocks we mentioned last week which we again list below. Yellowed are new
additions We do have price levels in mind and if the stocks reach those
levels before the October time period we will get our toes wet. The prices we
have in mind are all about 10% or more below current levels. Truth be told we hope bonds move higher
in yield from here because we may invest a good chunk of money left in the
two-year or five-year Treasury.
General Electric (GE), St.
Jude Medical (STJ), Boston Scientific (BSX), Schering Plough (SGP), DuPont
(DD), Sprint/Nextel (S), Verizon (VZ), Pfizer (PFE), Cisco (CSCO), Intel
(INTC), Texas Instruments (TXN), Kraft (KFT), Home Depot (HD), Tiffany (TIF),
Time Warner (TWX), Wrigley (WWY), IBM, DreamWorks (DWA), Fifth Third Bank
(FITB), New York Times (NYT), Alcatel (ALA) which is buying Lucent, Microsoft
(MSFT), DELL, Williams Sonoma (WSM) which is Pottery Barn, Talbot’s (TLB), Ford
(F), QUALCOM (QCOM), Symantec (SYMC), Starbucks (SBUX), and Whole Foods Market (WFMI). *****
Stocks opened higher out of the
gate and after an hour and one half of trading they have given up their gains
and are in negative territory. Oil is up $1 as the big boys and girls have some
fun. Breadth has turned negative.
gold is down $16 and oil is up 50 pennies and the major stock measures are
lower with breadth slightly negative. Volume is moderate and traders seem to be
waiting for tomorrow’s news on CPI and Bernanke’s testimony.
We are heading out early today
because we have guests coming. At 1pm the markets remain lower in tepid
trading. Our guess is that not much happens until tomorrow when the data and
talk will set the tone for the rest of the week.
And the Casino will be open for
business as usual.
17 July 2006 Daily Comment
Newt Gingrich called the Middle
East crisis World War III over the week-end and Sally Krawchuck,
the CFO of Citigroup, just repeated the phrase on CNBC. So that term is the new
scare word for this election season if it flies. We don’t think it will but if
it does and becomes part of the lexicon of the fall elections then the
psychology of investors is going to be negatively affected.
Overnight Hong Kong
was lower, Japan
was closed and the rest of Asia was off over 1%. Europe
is lower to begin the day.
There may be a WW III but the Lebanon
crisis is not it. The markets sold off on Friday because traders didn’t want to
be in stocks over the week-end. And stocks may rally today but the markets have
been selling off because the economy is cooling and inflation is growing. Well
actually inflation ahs been growing for many years but the CPI is now beginning
to reflect that as rental prices rise with housing prices and sales stagnant.
The earnings numbers being reported are history it’s what is coming that
Citigroup had good numbers but not
what the street wanted and is trading
lower. Treasuries are a tad weaker as the end
of the world trade is unwound.
The big number of the week is the
Consumer Price Index (CPI) which comes on Wednesday. The Producer Price Index
(PPI) is announced on Tuesday.
Capacity Utilization for June was 82.4% up form 81.2 % in May and a
tad more than expected. Industrial
Production was up 0.8% up from 0.5% and more than the 0.4% expected. These
higher numbers were offset by the New York Empire State Index at 15 when 21 was
Out of the gate stocks are higher
(except oil stocks) as traders and newbies get long. Citi is down 75 pennies and that is not a good sign for a bullish
Oil is $76.12 as the Lebanon
stuff becomes old news to all but those who are in the midst of it including
25,000 American citizens. Gold is also lower at $660.
GM merging with Renault,
or even talking to Renault about combining is …..
The Fed Chairman testifies before
Congress on Wednesday. With IBM, Johnson& Johnson, Coke, Mother Merrill & Yahoo
earnings tomorrow and BankAmerica, Motorola, Intel plus a slew of others on Wednesday and later in the week
there will be enough data points for the traders that are around to have some
Three hours into the trading day
the major stock measures are slightly higher, the dollar is strong, Treasuries
remain a tad weaker and breadth is 5/4 negative.
McDonald’s is up $1.75 and Boeing
is up over $2 and those two are helping the DJIA to be up 35 points. Breadth remains
5/4 negative as we enter the contra hour. Volume is summer moderate as traders
await the earnings and data rush of Tuesday and Wednesday.
Oilended in New York down at $75.30 as the world didn’t
implode over the week-end. Gold
finished in New York at $651
which was down a chunk on the day.
Treasuries were slightly lower in price with the two-year at 5.11%
and the ten-year at 5.07%.
Europe closed fractionally lower on most bourses. Mexico
was up 1% near the close and Brazil
was down 1%.
At the bell the DJIA was up 8 points at 10748. The S&P 500 lost 2 points to close at
1233 and the NAZZ was unchanged at
New lows were over 350 and new
highs were under 60.
Volume was moderate and breadth
was 3/2 negative.
Tomorrow brings PPI. The casino
will be open as usual for fun and games.
Bastille Day 2006 Daily Comment
We wish all our French relatives
and other fellow travelers a Happy Bastille Day.
Asia was 1% to
2% plus lower overnight playing catch up to the European and U.S.
stock markets of yesterday. European markets are lower but only fractionally
Gold is $66.25 and oil is $77.31.
The Bank of Japan raised its
discount rate to 0.25%. The Mid East is in turmoil. Retail sales were lower and
that has pushed stock futures higher because in traders minds it means the Fed
Texas Pacific Group, which made a
huge return by buying J Crew several years ago, is paying a 50% premium to buy
PETCO, the animal supply stores for $1.9 billion which is a 50% premium over
last nights close. They bought J Crew at the bottom of the market, they are
paying top dollar this time. There is too much money sloshing around in the
The S&P 500 hit 1237 which is
a few points above the 1235 level support. After an hour of trading the S&P
is above that level but breadth remains 2/1 negative and volume is moderate.
GE reported increased earnings but the outlook was less than
expected and the shares are down a bit but then so are most stocks. Borders Group, the office supply and
book store, warned of a larger loss and is trading lower.
The JulyUniversity of Michigan
preliminary Consumer Sentiment reading was 83 down from the final June reading
of 84 and below the expected reading of 85.
Two hours into the trading day
the S&P 500 has broken support at 1235, next stop 1220 where the June rally
started. The DJIA is down 135 points and traders are beginning to look for the
rally. If it were any day but Friday we would say that the day is setting up
for a last hour rally.
European bourses closed more than 1% lower across the continent.
In the contra hour the DJIA is
down 125 points and the S&P 500 is down 10 points. Most trader types have a
till Monday attitude.
Oil closed at $77.03. Gold was $668. Treasuries closed better with the
two-year at 5.10% and the ten-year at 5.07%. *****
There was some short covering
near the close and at the bell the DJIA was
down 10 points at 10745. The S&P
500 lost 6 points to 1236 and the NAZZ
was off 16 points to 2037.
Breadth was 2/1 negative at the bell and volume was moderate.
New lows expanded to 450 and new highs were under 60.
The casino is closed for the
13 July 2006 Daily Comment
has moved deeper into Lebanon
gaining control of its international airport and as a result oil is at $75.77 which would be a new
The United Nations has given Iran
a few weeks to give up uranium enrichment and that too is part of the rise in
which buys Iranian oil is trying to soften the impact on Iran
and our guess is that China
won’t go along with the UN Security Council when and if push comes to shove. Iraq
continues to suffer from random killings and that place is a mess but not on
the traders radar screens.
The Israeli incursions in Gaza
and Lebanon are
worries both for the Israelis and the world. It is sort of you own it now what do you do with it
situation similar to the U.S.
position in Iraq.
picked followed the down U.S.
markets of yesterday to lower levels and Europe is doing
the same. Gold is up to $654 and Treasuries are 2 ticks better. U.S.
futures are suggesting a lower opening.
Pepsi had good numbers last night. It is trading higher re-opening.
Federated is going to sell its bridal
and formal wear stores for over $1 billion to some buyout firms. Again we say
that the buyout of retailers is assuming risk for management fees. The reward
may be there but only if the economy hums along for the next few years. The
rush to retail flies in the face of any recessionary possibilities.
Jobless claims for last week were
332,000 with 322,000 expected.
SAP the large European software firm disappointed and so that won’t
help the tech area at the start of trading.
One hope of Bulls is that
earnings season which begins in earnest next week will get the juices rolling.
With summer vacation upon us all and a lot of institutional money going the way
of the buyout funds that hope may be wishful.
In our review of stocks we are watching we didn’t mention the ETFs we
may be adding. Those are the Powershares Pharmaceutical ETF (PJP), the Tech ETF
(XLK), the Russell 2000 ETF (IWM). *****
We are reprinting the stock list
from yesterday and will do so weekly adding or subtracting as the case may be:
GE, St. Jude Medical (STJ), Boston Scientific (BSX), Schering Plough
(SGP), DuPont (DD), Sprint/Nextel (S), Verizon (VZ), Pfizer (PFE), Cisco
(CSCO), Intel (INTC), Texas Instruments (TXN), Kraft (KFT), Home Depot (HD),
Tiffany (TIF), Time Warner (TWX), Wrigley (WWY), IBM, DreamWorks (DWA), Fifth
Third Bank (FITB), New York Times (NYT), Alcatel (ALA) which is buying Lucent,
Microsoft (MSFT), DELL, Williams Sonoma (WSM) which is Pottery Barn, Talbot’s
(TLB), Ford (F), QUALCOM (QCOM) and Symantec (SYMC). *****
After on half hour of trading the
DJIA is down 100 points and breadth is 4/1 negative and down volume exceeds up
volume 9/1. This quick sell off may set up a rally situation. The S&P 500
is at 1250. The last good rally into
quarter end on June 30 came from the 1235 level which will take another day to
reach. A sell off all day into tomorrow would be a better set up. *****
Wheat and Corn are at multi-year
highs and so there is talk about inflation in the price of food which constitutes
23% of the CPI. Since the cost of most food products is mostly packaging and
advertising and not the contents the flow through of these price increases will
be negligible. Moreover the brand items are now competing with generic and so
the price elasticity isn’t as elastic as it used to be.
the DJIA is down 70 points, breadth has improved to 2/1 negative and new lows
are not expanding above yesterday’s number of around 220. The major stock
measures attempted a rally about an hour ago that failed but we think another
is in the cards for this afternoon. If that one fails and stocks drop in the morning
we may try a few trades in some big cap names like DD, GE and VZ. All three are
at their June lows and may be worth a point or two in a rally. But we want to
buy off the 1235 level on the S&P 500 not the 1250 level where it is
It's clear the markets are prepping for a U.S.
consumer recession, which is expected to swamp
tech companies across the board. The recession probably is coming next winter;
the clock started ticking in September when the U.S. housing market peaked
after one of the biggest property run-ups in history.
recessions following major property bubbles have often started roughly 12
months after the housing peak, so June's weakness in U.S. retail and car sales probably
was a harbinger of the coming consumer crash. Not all housing peaks trigger
recessions -- that's the element of uncertainty. But the blow off phase of this
housing cycle was so incestuously linked to overall consumption growth that
it's hard to believe retail won't get hit hard this winter. *****
Crude oil is at a new high of $76.20. Maybe $80 will come before
$40. We still think the markets need $40 (or at least under $50) for a real
bull rally to come.
How times change. Intel is involuntarily retiring 1000
managers. It’s time to hire folks in India.
The question for the afternoon is
do traders want to try and rally the markets with the unknowns in the Israeli
situation and will they want to carry those longs over the week-end. We think
the answer to that question is easy.
The more difficult question is
whether the Israeli incursion and fighting means anything more to the markets.
We know it is terrible for the folks involved but we think the market swill slough
off the worries and treat it as the same old same old on Monday if it doesn’t
get any worse. But we would guess that traders will wait until Monday to act.
New YorkGold closed at $654.40 which is a
six week high. Oil ended at $76.68
which is a new closing high. Treasuries
rallied on the bad news and down market with the two-year at 5.12% and the ten-year
Ford cut its dividend to 5 pennies a quarter from 10 pennies a
All the European bourses closed over 1% lower and Mexico was down 3% while Brazil lost 2%. *****
The DJIA closed down 165 points at 10845. The S&P 500 lost 16 points to end at 1242 and the NAZZ dropped 35 points to 2054.
Breadth was over 3/1 negative and volume was active for a summer day.
New lows exceeded 330 and new
highs were about 50.
And there is one more day at the
casino this week.
12 July 2006 Daily Comment
was down 1% while the rest of Asia was better with India
up 3%. We don’t mean to be crass but in India
the calamities both man made and natural seem to come all too often and so the
Indian markets seemed to shrug off this latest disaster. Also U.S.
traders who sold the news yesterday in the U.S.
markets were probably scrambling to cover their sales by buying in the Indian
market overnight once Indian stocks stabilized after an initial sell off.
higher as the U.S.
trading day begins with France
and Germany up
over 1%. Treasuries are weaker as the dollar is stronger, oil is $74.24 and
Gold is $647. We are going to cease giving the ups and down for gold and oil
since they trade for 24 hours a day and close in different markets at different
Investors Intelligence shows a gain in bulls to 42% from 39% and a
drop in bears to 32% from 33%.
Genentech’s disappointed last night and it is down $3 on an $80
price tag. Prudential and Deutsch Bank downgraded the stock to hold from buy. Supposedly
the earnings and sales were OK but Avastin sales were suspect. That has given a
soft tone to the opening.
The weekly oil and gasoline inventory
numbers were down more than expected. Oil is trading at $74.75.
And hour into the trading day
most major measures are lower. Breadth is 2/1 negative and Treasuries are also
lower in price, higher in yield with the two-year at 5.19%.
It’s easier to wait the markets
out when stocks are going down and confirming our view. The days that they rise
we always think that maybe we should be getting our toes wet. But then we
remind ourselves that if we had stayed in cash the last two years after selling
in January we would have had a much more positive return. Moreover cash now yields
over 4% versus the 1% of the prior years and so it is a bit easier to sit on
Talbot’s popped up $4 per share yesterday on news that their losses
from the J Jill acquisition will be
less than expected. The shares had dropped from $30 to $18 in the last six
months after the acquisition was announced. We have owned TLB off and on over
the years and have been watching for an entry point in the fall. Our number is
$15 and yesterday’ bump higher put the cabash on that thought at least for the
present. But TLB has to execute and we think yesterday’s move was short
covering. There is not a large float in the shares and the stocks remains on
our maybe watch list for September/October.
Other stocks we are watching are: GE, St. Jude Medical (STJ),
Boston Scientific (BSX), Schering Plough (SGP), DuPont (DD), Sprint/Nextel (S),
Verizon (VZ), Pfizer (PFE), Cisco (CSCO), Intel (INTC), Texas Instruments
(TXN), Kraft (KFT), Home Depot (HD), Tiffany (TIF), Time Warner (TWX), Wrigley
(WWY), IBM, DreamWorks (DWA), Fifth Third Bank (FITB), New York Times (NYT),
Alcatel (ALA) which is buying Lucent, Microsoft (MSFT), DELL, Williams Sonoma
(WSM) which is Pottery Barn, Ford (F), QUALCOM (QCOM) and Symantec (SYMC).
Treasuries closed about flat on the day with the two-year at 5.17%
and the ten-year at 5.11% and Gold was
$751 and Oil $74.95.
closed before the sell of in U.S.
stocks and was higher across the board.
At the close the DJIA was down 120 points at 11012. The S&P 500 was off 14 points to 1258
and the NAZZ lost 38 points to 2090.
Breadth was over 2/1 negative and volume was moderate.
New lows stayed around the 210 mark and new highs actually expanded over yesterday to over 105.
The casino has two more days of
fun in the cards for folks this week.
11 July 2006 Daily Comment
Alcoa had increased earnings last
night but sales were less than expected and the shares are trading down $1.40
in the early going. AA is the first DJIA to report earnings although 3M warned
last Friday and that warnings set a negative tone for the markets that day and
helped with the sell off.
was fractionally lower as is Europe. Gold is up $6 and
oil is at $73.50. Treasuries are unchanged.
This week has few potential
markets moving numbers and so today’s trading may be as boring as yesterday’s.
In the early going oil and oil
stocks are higher and most everything else is lower.
The Treasury Department is
projecting that the U.S.
budget deficit for fiscal 2006 from $423 billion to $298 billion and in 2008
will drop to $181 billion. And Paulson has only been Treasury secretary for one
day. The magic of numbers and growth projections have accomplished this
projection. W won’t really know until after the elections of course.
After four hours of trading the
major measures are lower and breadth is 2/1 negative. Volume is light.
Gold is up $16 to $642. Talking
heads are ascribing the rise to the bombings in India.
The reality is that folks are buying gold because it went up, in other words
the momentum boys and girls are back in it because that is where the action is
an a slow summer day.
closed lower with Germany
and France both
off over 1%. But that was before the U.S.
Gold closed at $634.10 up
$17. Oil was $74.16 up 55 pennies and Treasuries were better with
the two-year at 5.16% and the ten-year at 5.11%.
The DJIA was up 31 points
at 11135. The S&P 500 gained 5 points to 1273 and the NAZZ was 10
points at 2127.
Volume was light and breadth
was positive on the NYSE and 5/4 negative on the NAZZ at the close after being
2/1 negative both places for most of the day. There were 220 new lows
and new highswere about 95.
And there are three more days
left at the only internet gambling casino the House of Representatives wants to
10 July 2006 Daily Comment
was up 1.6%, Hong Kong 0.8% and the Sensex, which is an
index measure of Asian countries was up 1.65% overnight. European Bourses are
mixed and U.S.
futures are looking higher as the day begins. Gold is down $11 at $624 and oil
is off 50 pennies to $73.50.
Earnings season is beginning and
announcements like 3M (it dropped
$7) on Friday will be movers of individual stocks and indexes if they are big
stocks like 3M during the summer doldrums. 1254
is not to violate support on the S&P 500 and 1290 is get above and watch the markets run resistance.
An hour into the trading day the
major measures are all higher with the DJIA up 65 points and Breadths 2/1
Three hours into the session the
DJIA is holding its gains but the NAZZ is now in negative territory as several
tech stocks have warned this morning. Breadth on the NAZZ is also 2/1 negative.
UBS lowered their earnings estimates for IBM
for 2006 and 2007 and set and $82 target down from $90.
KKR and Apollo Management are in the running at above $30 per share
to take Foot Locker private. The LBO
mania in retail makes no sense to us. We know the buyout firms will only keep
the companies private for a few years at most before trying to sell them back
to the public. But retail is such a volatile area that the risk is only justified
by the huge fees these buyout firms earn from the goofs who give them the
money. In effect, the investors are paying the buyout firms to take as much
risk as possible.
Oil ended around $73.50 and Gold was $627. Treasuries were flat on the
After being up 90 points early in the trading day, the DJIA dipped into
negative territory early in the final hour but managed to close in positive
territory although it gave up much of its early in the day gains.
The DJIA was up14 points at 11105. The NAZZ lost 13 points to close at 2117 and the S&P 500 was up 2 points at 1267.
Breadth was 5/4 positive on the NYSE and was 5/4 negative on the NAZZ. Volume
was summer light.
New lows at 190 exceeded new
highs at 110.
And there are four more boring
days left for trading this week at the big casino.
6 July 2006 Daily Comment
July 7 we will be traveling to Chicago to see clients and celebrate our 40th
wedding anniversary on Sunday. Our next
post will be Monday afternoon July 10.
Weekly jobless claims were down
2000 to 313,000. Overseas Japan
was lower by 1.3% and Hong Kong was up 1%. Europe
is fractionally higher on most bourses and U.S.
futures suggest a higher open. Oil is back under $75 and gold is down $4 to
Treasuries are a tad better in
price, lower in yield as traders await tomorrow’s employment report to see if
the ADP report of yesterday was valid. Traders interviewed on CNBC say that the
markets have priced in a plus 250,000 employment gain. Anything under 200,000 will
engender a rally in Treasuries.
The Bank of England kept its key interest
rate unchanged at 4.5% and the European Central Bank was also unchanged at
2.5%. The Bank of Japan refused to say when it would raise interest rates above
0%. Yes 0% is correct.
The ISM Non-manufacturing Index
for June was 57 when 59 were expected. That is weaker than expected.
In the early going all the major
stock measures are higher. Breadth is 2/1 positive and volume is holiday light.
Phillip Morris received a
favorable ruling in Florida to
the tune of $145 billion and the shares are up $5. That is about 25 points
added to the DJIA.
The conservative business
candidate won the Mexican presidency by 200,000 votes and the Bovespa is up 3%
with the peso also strong. The loser is making noises and may not go away
quietly like Gore and Kerry did.
Traders are hedging their bets in Treasuries which are better today.
Oil finished at $75.14, gold at $629 and the Treasury two-year went out at
5.21% and the ten-year at 5.18%. *****
Today’s meandering trading was an
interlude before tomorrow’s Employment report after which there will be flurry
of trading and then nothing as an early week-end begins for those who worked
The DJIA was up 70 points (it was down 76 points yesterday) to 11225 with
a big assist from a $4 gain in Phillip Morris. The S&P 500 gained 3 points to 1273 and the NAZZ also gained 2 points to end at 2155.
Breadth was slightly positive and the NYSE and slightly negative on
Volume was snoozville and new
highs at 155 beat out new lows at 125 for the first time in weeks.
The big Casino has one more day
for the big boys and girls who are around to play and the Atlantic City
Casinos re-open tonight.
We’ll be back on
5 July 2006 Daily Comment
On Friday with the
Fed statement in mind we decided to buy the two-year at 5.17% in our
larger accounts. This morning the ADP June jobs report suggested over 300,000
jobs were added to the economy. This report which is new has been a good
precursor the three previous months of the Labor Department Monthly Payroll
Report which is coming on Friday. Rather than stick around and see what happens we decided to sell the
bonds today that we bought on Friday for a 10 penny loss net of interest
income. The loss amounts to an overall loss of six days interest.
We have been trying to catch the top in interest rates for the past
five months and four times have quickly abandoned our position when data
suggested that rates would move higher. We want to eventually place money to
work in bonds but we don’t want to lose 1% or more of principal to do it. And
that is the reason we have been quickly selling Treasuries when new data
suggest higher rates.
Treasury Securities had their worst performance in seven years for the
first half of 2006. The Lehman Composite Treasury Index is down 3% and the Long
Term Index is down 6% for the year. In all our trading we have lost a total of
about 20 days interest.
Once again we are on the sidelines. *****
We first review what occurred on Friday and Monday and then present
our take on today’s action.
Friday June 30, 2006:
Friday’s markets were anti-climax
to the strong markets of Thursday. It seems the big boys and girls accomplished
their goals on Thursday for the end of the quarter and were off to the Hamptons or wherever for the long
Fourth of July Holiday week.
The DJIA closed down 40 points
and the S&P 500 lost 2 points. Treasuries firmed with the two-year moving
to 5.17% and the Ten-year to 5.17%.
Part of the reason for the
weakness in the stock markets the last few weeks has been the rumors and
reality of hedge funds selling to meet redemptions. There were rumors on
Wednesday of a large hedge fund liquidating but those have become daily rumors in
the markets. Some very large hedge funds are down 20% and that doesn’t make
performance minded clients who are paying large fees happy.
Kirk Kerkorian’s Tracinda
Corporation suggested that GM make an alliance with Nissan and/or Renault and
that those two companies were interested in taking a $3 billion minority stake
in GM. That caused GM stock to move higher on Friday. GM had no comment.
News was released on Friday that
suggested that Apple I Pod sales had slowed and both Apple and Computer Associates
were rumored to be under investigation for backdating options. Now we know how
all those executives afford their yachts. It used to be the brokers yachts were
purchased at the expense of clients, now it is the CEO’s yachts purchased by
Buyouts have become the new dot coms as buyout funds scramble to
spend the money they raised before they have to return it and lose all the
marvelous fees they will earn.
Lunch with Warren Buffet was
auctioned for $620,000 on EBay. We are sure Buffet would never have paid more
than $20 for the privilege.
Person Income was up 0.4% in May
when 0.2% was expected. The PCE Deflator (inflation) was 3.3% on a year over
year basis. The core deflator was 2.2% y/o/y.
up big-time on Friday with Hong Kong and Japan both up
The Final (remember there are
three per month) University of Michigan
Consumer sentiment reading for June was 84.9
versus 79.1 in May.
Sliver was up $2 on Friday and
gold was up $16.
Portfolio As of 30 June 2006
UST Note 5.125% due 06/30/08
Portfolio As of 30 June 2006
Portfolio Yearly Performance
Inception 12/31/1983 thru 6/30/2006
Stock markets closed at today. Some futures markets were not trading.
slightly higher on Monday and Europe was mostly
higher. Gold traded up $26 at $616 and oil was close to $74. It looks like the
commodity boys and girls are back in the Casino after bad run at the table in
Our guru says that the big move
on Thursday besides being influenced by the Fed wording was also affected by
the end of quarter shenanigans and the rebalancing of the Russell 2000.
Japan has a two day meeting regarding interest
rates on July 13 and 14. The question is whether they should raise their
borrowing rate above 0%. Far out.
The June employment report comes
Friday at . That will be the
next important tell for the bond and
CNBC reported that Bear Stearns
was “disappointed” in the Fed statement in that the Fed seemed to be backing
off its inflation fight. CNBC also reported that Bear Stearns said that last
Thursday’s rally was a short covering rally and that Bear Stearns sees no sign
of sustainable buying from institutional customers on its trading desks.
BankAmerica raised its rating on
GM to neutral from sell with a price target of $30 raised from $15. GM is trading
at $29.80 so that kind recommendation is a no
brainer and worthless.
Wal-Mart Inc. estimated Saturday
that it will post a 1.2% gain in same-store sales for June, hitting the low end
of its earlier forecast.
of Supply management’s Index for
June was 53.8 versus 54 last month. Any number above 50 implies expansion. The
survey is based on responses from 400 companies in 20 industries. ISM Prices
paid were 76.5, which mean that prices are running high and activity slowing. The
ISM employment component was below 50 at 48.7. Stagflation?
Construction spending was down
0.4% in May versus and expected gain of 0.2%.
Oil ended at $73.93. Gold was
$616. Treasuries were a tad weaker with the two-year at 5.17% and the ten-year
The DJIA closed up 80 points, the
S&P 500 was up 10 points to 1280 and the NAZZ gained 16 points.
Wednesday July 5, 2006
Korea decided to celebrate the Fourth of
July with its own fireworks show and shot off seven missiles. The intercontinental
missile was destroyed after 42 seconds of flight so it is back to the drawing boards
on bombing the Aleutian Islands. Since the U.
S. anti-ballistic missile defense has never
shot down a missile in a true test the failure of the North Korean Missile is
and Hong Kong closed lower, the rest of Asia
was mixed and European markets are lower on the news. Gold is up $14 at $630
and oil is at $73.90. U.S.
futures are a bit lower in the early going.
Treasuries are slightly higher in
yield on long end and flat on the short end.
stock market rose 5% on Monday and 1% on Tuesday as it looked as if the
conservative business backed candidate won the presidential election. Today the
Mexican market is down 2.3%. 3 million votes are supposedly not yet counted.
That sounds like the Chicago way of
The ADP employment report
suggests 329,000 new jobs in June. The U.S. Govt. jobs created report for June
is Friday and bond traders are following the ADP report as a precursor of the
Friday report. Treasuries are lower in price higher in yield after the ADP report
as the potential of strong job growth ahs traders again expecting a move to
5.25% in August. August is a long way off in today’s market terms.
Ken Lay, the former Enron CEO and
Chairman has died. He faced life in prison.
After two hours of trading the
major measures are lower in light trading. Breadth is 4/1 negative.
The next Fed meeting on interest
rates is August 8, and the one after that is September 20.
Oil closed at $75.19. That is a new closing high. Gold ended up $13 at
$629. Treasuries were lower with the two-year closing at 5.25% and the ten-year
at 5.22%. *****
The DJIA closed down 76 points at 11151. The S&P 500 was off 10 points at 1270 and the NAZZ lost 36 points to 2153.
Breadth improved during the day but still was more than 2/1
negative at the bell.
Volume was holiday light and there
were 150 new lows and 1120 new highs.
There are two more days for the
big Casino this week. The New Jersey Casinos are closed until further notice as
the state shuts down for a budget crisis. A Democrat governor is fighting a Democrat
assembly. That’s why Democrats can't regain power in Washington,
they have no party discipline.
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