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30 June 2003
8:50am and stocks are higher in light trading. Breadth is strongly positive but it is early.
We are going to buy ANDW back for trading accounts. We don't mind owning at this price since the merger will close in fifteen days and we don't see stocks
falling off a cliff in that time period. And we expect a pop after the merger closes.
9:46am and the Chicago Purchasing Managers index was announced at 52.5 a tad below expectations. The boys and girls don't seem to want to trade on that
number since the DJIA is now up only 3 points after being up 50 in the early going. Trading remains muted.
12:55pm and it really is slow. Summer has arrived and with no real market moving news in store this week the only event of interest is the rebalancing of various
indexes at the close today. We don't know how to play the rebalancing so we are going to stay on the sidelines.
We sold HPQ at $21.25 for a scratch 20cents per share profit. The way stocks are trading it looks like we will be able to sell the AOL and SGP but we will
probably hold the ONE and WAG we own. Alliant Energy remains above $19 and so we are going to wait to purchase more.
The DJIA is up 75 points and breadth is 5/4 positive. Volume remains light.
2:01pm and entering the final hour it is boring. The DJIA is up 41 points. SGP has sold off on news of a warning label that will be applied to a new drug they
are offering with MRK. So it looks like we will be holding for a few days. AOL is floating along and we aren't inclined to sell. We completed purchase of
ANDW at $9.45 for our trading accounts including 1000 shares for The Model Portfolio.
3:02pm and at the bell there were many crosscurrents at play. The DJIA closed up 2 points at 8990. The S&P 500 lost 1 point to end the quarter at 975
and the NASDAQ dropped 3 points to 1623.
And tomorrow is another day.
30 June 2003 - Morning Comment
6:15am and under the banner of simplifying government and improving health care our civics lesson for today involves the just passed bills in the U.S.
House and U.S. Senate to improve Medicare drug coverage for seniors. From the NYT we borrow the following brief descriptions of the gist of their bills:
The insurance premiums under both bills would be about $35 per month. This is on top of the $300 per month that seniors pay per person for supplemental
"U.S. House of Representatives by one vote: Under the House bill, the beneficiary would typically pay a $250 deductible, 20 percent of drug costs from
$251 to $2,000 and all costs from $2,001 to $4,900. Medicare would cover all drug costs beyond that.
U.S. Senate by a 76/21 margin: Under the Senate bill, the beneficiary would typically have to pay a $275 deductible, half of drug costs from $276 to $4,500
a year, all costs from $4,501 to $5,813 and 10 percent of costs beyond that."
It seems to us that under either bill the senior is going to have to hire an accountant to keep track of who pays what and when. Including the premiums in the
Senate plan a person with $5000 a year in drug bills would pay $3287 including premiums thus saving $1782, while under the House plan the savings
would be $1200. It's when drugs exceed the $5000 level per year that the plans work as catastrophic insurance.
As with National Health Care we don't understand why the government can't come up with a catastrophic insurance plan that tells folks, that the individual
citizen is responsible for the first $20,000 (pick a number) of health costs in any 12 month period and then we citizens of the U.S. will pick up the rest of
the costs. After all it is only bad luck for you and good luck for us that we didn't suffer a similar fate. The government offers such aid for other catastrophes,
9/11 being a good example.
Then citizens or companies could buy private insurance at reasonable rates to absorb the potential costs or chose to take the chance on the first $20,000
and the U.S. Government could put the catastrophic insurance coverage out for bid in various areas of the country as it now does with its insurance
program for government employees. The actual cost to all citizens would then be shared as civic duty. That concept is basically just an expansion of the
original idea of fraternal insurance organizations.
The total out of pocket cost would go down under this plan because of efficiencies and assurance of payment without lawsuits and collectors of the
majority of the money owed.
Coupled with this plan and in keeping with the "we are all in this together" philosophy, no fault medical coverage would create regional boards to assure
health and social care for whatever period needed- up to life-with monetary compensation for those citizens who through malpractice or just bad luck have
untoward outcomes from medical procedures.
We know there are difficulties with this plan but the solutions are workable among folks of good will seeking the best possible outcomes for the most citizens.
6:50am and now we move on to the stock and bond markets on this last day of the second quarter.
As we noted last week the DJIA is unchanged and the S&P 500 is up 3% in the last twelve months. The Model portfolio is up about 22% in that same time period.
Among the best performers in the last year have been U.S. Treasuries with the Lehman Govt. Bond index up over 13%. And with interest rates as low as they
are individuals have been extending maturities to obtain more yield. As with the stock market in 2000 we would suggest that bond prices are at unsustainable levels unless the economy is going into recession again. The risk reward ratio in both stocks and bonds has moved us to cash. Cash has no return at the resent time but it does preserve capital which is our main aim in managing client funds. There is a time to assume risk but after a 20% plus move in stocks over the past three months now is not that time.
In reviewing our trading over the week end we noticed that we had violated our rule of waiting for the DJIA to move down 100 points before initiating a position
in the DIA or SPY. We lucked out on Thursday doing that but were caught on Friday. The damage wasn't bad and it occurred only in our aggressive trading
Today is the last day for mark ups but it is also the beginning of the summer vacation season with only a 31/2 day trading week. As a result we don't have any idea
what is going to happen.
Stock futures are higher and so let the games begin.
27 June 2003
9:02am and the DJIA is down 48 points. Breadth is positive and volume is light. Today is the start of the Fourth of July Holiday for many traders and so the
stock markets will be thinning out and subject to more volatility. Some gurus expect the mark ups to end today but our guess is that we'll see them Monday,
A client just called and asked what's happening with AMR. It's up another 60 cents today to $11 and change. We said it must have been the great advice we
gave our niece to avoid the stock at $2 that got it moving higher. Luckily she and her husband ignored us and so they are happy campers. AMR has $23 billion in
debt and will lose over $2 billion this year, but hey, that's down from a much higher loss estimate.
We are back trading SPY at $98.65 and DIA at $90.67. We also are chasing AOL higher and now own stock at $15.97. And we bought a few shares of
Bank One at $37.75. All these trades are for are large aggressive trading accounts.
10:37am and the DJIA is positive and up 16 points. Stocks seem to be following yesterday's script of down early and then up. The University of Michigan
Sentiment Index final number came in at 89.7 for June versus a preliminary 87.2. Surprise and hooray! That's the last trading number of the day. The final
number is still down from May's final 92 plus number.
Word is that it is sunny and cool in NYC and given that the Holiday next week starts on Thursday at noon, next week is going to be a real sleeper. And
volume is tailing off today.
12:28pm and it is interesting that in the last 12 months the DJIA is unchanged and the S&P 500 is up 3%. The June 30 Quarter End is the end of the
fiscal year for many charitable organizations.
The DJIA is down 26 points and we are kicking ourselves for not taking our trading profit in the DIA and SPY earlier. Spilled milk.
1:51pm and as we enter the final hour we are hoping the bulls have one more charge left in them today although it is not looking favorable. Our trading has
kept us awake but the stomach is churning a bit right now. We are going to hold the HPQ and SGP we bought yesterday but we plan on exiting our SPY,
DIA and one half the AOL purchase before the close. We'll hold the ONE. Sometimes making money too easily one day leads to bigger losses the next
and a hard loss lesson.
2:51pm and we sold the DIA at $90.05 for a 70 cents per unit loss. We sold SPY at $97.93 for a 73 cents per share loss and we sold half the AOL at
$15.82 for a 20 cents per share loss. We went to the well once too often. Ah well we have the week end to recoup.
3:02pm and the DJIA closed down 88 points t 8990. The S&P 500 lost 10 points to finish at 976 and the NASDAQ dropped 9 points to end at 1625.
For the year the DJIA is up 7.9 %, the S&P 500 is up 11.1% and the NASDAQ is up 22%.
The Model Portfolio is up 13.1% and is 94% cash.
And tomorrow is another day.
27 June 2003 - Morning Comment
6:45am and please be advised that we didn't buy two sets of HPQ in our trading accounts yesterday. The purchase at $19 was Schering Plough and the incorrect
trade will be canceled and re-billed today.
7:02am and we present below today's civics lesson courtesy of the website http://atrios.blogspot.com/
Roosevelt knew that to stimulate the economy, you boost workers and their families; you don't pile on tax cuts for millionaires and billionaires.
For decades, the minimum wage and worker productivity rose together. Between 1947 and 1973, worker productivity rose 108 percent while the minimum
wage rose 101 percent, adjusting for inflation.
Since then, workers have put in their fair day's work without getting their fair day's pay. Between 1973 and 2000, worker productivity rose 52 percent, but the
minimum wage fell 17 percent and hourly average wages fell 10 percent, adjusting for inflation. Between 2000 and 2002, productivity rose 6 percent; the real
minimum wage fell 4 percent.
The current minimum wage of $5.15 an hour is lower than the real minimum wage of 1950 ($5.71).
7:10am and we were watching Charlie Rose last night and he had Floyd Norris of the NYT and Jim Glassman, chief economist at JP Morgan as his guests. The
discussion was about the economy and the Fed rate cut. Norris opined that he thought the economy was showing nascent signs of recovery and Glassman is
predicting 3% to 4% GDP growth by the 4th Quarter. They also talked about the housing boom and that discussion tweaked our brain a bit.
The latest figures showed a 6% gain in the sale of new housing and a 1.7% gain in the sale of existing housing. It is a given that housing has been the savior of the
economy for the past two years, keeping it from rolling back into recession. We surmise that the difference in the sales figures is that existing housing is more
expensive and that new housing usually has much better purchase terms. We have seen some new housing advertised with 5% down. The only difference between
that type of purchase and a credit card purchase is the amount of money and interest rate. Both are very highly leveraged transactions and involve a degree of faith
on the part of the lender. Any kind of slowdown in housing sales could easily wipe out the buyers equity.
Unlike the stock market though, as long as the homeowner continues to pay the vigorish he keeps the home. With stock folks are required to put up more
money or they have their stock sold out from under them.
Another point the panelists made is that the rising stock market is foretelling an economic rebound since the stock market anticipates economic activity 6
months in advance. As Don Rumsfeld might say that is true when it is true and false when it is false and one does not know whether it is true or false until 6
months and many dollars plus or minus later.
One final point on the economy. In the latest GDP figures the government adjusted the sales figures for computer sales upward by $16 billion when the
actual number was an increase of about $800 million. This harmonic adjustment was to take into account the increases in speed and memory for the price
paid. The government uses this legerdemain on other item in GDP and so that may be where the disconnect from what we perceive and what is reported
occurs. This last though is a paraphrase of an article by Bill Fleckenstein on www.thestreet.com.
7:25am and in the early going the stock futures are suggesting a higher opening. We are looking to exit our two trading potions today or Monday.
7:32am and Personal Income for May which we thought was coming yesterday came today and was up 0.3%. Personal Spending for May was up 0.1%.
The University of Michigan Sentiment number comes at 9am. These are the numbers the boys and girls will use to spin the wheel today.
So let the games begin.
26 June 2003
6:52am and the WSJ and NYT discuss an IRS report that the top 400 earners in the U.S. in the year 2000 earned $70 billion. This amounted to 1.09% of
all adjusted gross income earned by all taxpayers. Their average tax rate for federal taxes was 22% because capital gains were a large part of the total. With
the new tax bill just passed their average tax rate would have been 17% or about half of what a family of four earning $80,000 per year would pay if FICA
were included in the calculation.
In the morning post about GE and the sale of its Japanese insurance business we neglected to mention the GE will receive a special $440 million dollar pre
closing dividend. Again we ask the question of special items and managed earnings and when will accountants require full disclosure or "the Street" realize that
there is a difference between earnings from operations and special items when valuing a stock?
7:30am and final first quarter GDP was revised down to 1.4% from 1.9%. That's old news. First time claims for unemployment dropped 22,000 to 404,000
which are bullish for stocks and negative for bonds. We bet that number is revised higher next week. The ten-year is off 12 basis points in yield on that news.
We are going to trade the SPY and DIA in our aggressive trading accounts on the jobless news.
9:12am and the DJIA is up 20 points. The S&P 500 is holding above 973 and so we are taking positions for our aggressive trading accounts. We bought
HPQ at $20.95, SPY at $97.83, DIA at $90.22 and we are bidding on SGP. We bought the HPQ and SGP for month end mark-up. SGP declared its
dividend but said all financial policies are under review.
Alliant Energy announced this morning that it is selling 15 million shares of stock from a shelf filing. The shares are off 60 cents to $19.45 and we are picking
up stock at that price. We will place it around if we have a chance to buy enough. With a 5 % yield and going x-dividend next month we think there is at
least $1 upside over the short term after the stock is placed from the level at which we are buying. That's a potential 5% return with or without the dividend in
less than a month. And by selling the shares the company is saying that there is no untoward news in the offing.
We also picked up a few shares of PNC at $47.90 in large trading accounts. We weren't able to buy as much as we wanted before the stock moved higher.
10:27am and we bought the SGP at $19 in our trading accounts only. We bought 500 SGP, HPQ and DIA in the Model Portfolio.
The DJIA is up 40 points and the NASDAQ has gained 1%. Breadth is positive and up volume exceeds down volume on both venues.
11:30am and we sold our SPY at $98.62 for a 70 cents per unit profit and our DIA at $90.80 for a 55 cents per unit profit. Obviously our
conviction is less than rock solid.
We bought a bit of LNT in our larger accounts at $19.45 but we are going to hold off till tomorrow or Monday on any more purchases. We
probably will have time on the day after underwriters price the additional stock for sale next week to pick up shares at this price or below.
The ten-year Treasury is down ¾ point and the thirty-year Treasury is off 1 ¼ points. That's a pretty good one day move and demonstrates the
volatility and risk in bonds at these low yield levels. We are going to be moving some money to three month Treasury bills at a 0.90% yield over the
next week because they are yielding about 50 basis points more than money funds and we have an excess of cash in most accounts for any needs until the Fall fall.
2:16pm and we bought Walgreen at $30.26 in large trading accounts for the next few days. We are tempted to try ONE but it has already moved $1 off its low
today so we will see what tomorrow brings. We are only renting these stocks for the next day or two and so we are only placing in our most aggressive accounts.
We'll be gone by July 1 except for the LNT which we may spread around in many accounts if it breaks to under $19 on the share offering next week.
We sold the PNC at $48.66 for a 70 cents per share profit.
3:02pm and the DJIA closed up 65 points at 9075. The S&P 500 gained 11 points to finish at 986 and the NASDAQ gained 32 points to end at 1634.
Mark up time is upon us.
Breadth was 2/1 positive at the bell, up volume exceeded down volume 3/1 on both venues and there were 75 new highs on the NYSE and 135 on the
And tomorrow is another day.
26 June 2003 - Morning Comment
6:27am and the NYT reports that FERC, the Federal Energy Regulatory Commission found widespread manipulation of prices by energy wholesales in the
California energy market but still is requiring the taxpayers of California to honor $12 billion of energy contracts signed during that period. And the beat goes on.
The talking heads spent a week discussing a 25 basis point cut in the Fed Funds rate and now it looks like they are going to spend another week discussing a 25
basis point cut in the Fed fends rate.
The sell off in the stock markets and even the erosion in Treasury prices after yesterday's action was not expected by most gurus. It remains our belief that there
still may be a "mark up rally" in the next three days as mutual funds and money managers try to improve their record for reporting purposes.
But whatever occurs the fact remains that the Fed said it sees no sign of sustained economic recovery. We've been saying that all along but the Fed receives a
bit more media attention than we do.
This morning we await final first quarter GDP figures expected to be 1.9%. Jobless claims for the week ended 6/21 are expected at 415,000 and Personal
Income is guestimated to rise 0.3%
So those are the numbers on which the spinning wheel will concentrate today.
GE is selling its Japanese insurance business for $2 billion. Can anyone say managed earnings? Lehman Brothers is taking a look at buying Neuberger Berman,
a large money management firm.
Japan was slightly lower overnight and Europe is mixed with a blackout in Italy.
So let the games begin.
25 June 2003
8:29am and as the stock markets opened mixed and in light trading Treasuries are showing some strength.
Most of the companies reporting earnings today are meeting or exceeding estimates. General Mills needed a little special item help to do so. Goldman Sachs
bested estimates and raised its dividend and AOL was upgraded by Citigroup.
With the cross currents in the stocks markets we want to react rather than anticipate. We are bearish because we have seen nothing that implies recovery.
Lowering interest rates to force prudent savers to buy speculative stocks in order to raise the stock markets is the ultimate form a crass behavior. Folks have
been told from time immemorial not to spend principal, and it is unprincipled to use lower interest rates to suggest that investors violate that cardinal rule.
Luckily we have enough trading gains this year that our investors have been able to increase their principal and have still have money to spend from those
trading gains. Happily we've been able to do that most years for our clients.
8:38am and after an initial pop higher stocks are giving ground. Goldman Sachs is lower even though earnings were good. One reason is that a bunch of stock
held by insiders is now available for sale and traders expect to see some of that stock offered in the near future.
Breadth is positive and up volume exceeds down volume on both trading venues in the early going
9:11am and new home sales jumped 12% while existing home sales rose 1.2%. The new home sales are a positive for the bulls. The DJIA is up 45 points
and the NASDAQ is 1% higher.
11:01am and stocks are going nowhere till after 1:15pm and Treasuries have eased a bit prior to the announcement.
Stocks that are on their lows for the quarter are in the red today while stocks that are on their highs are seeing additional buying. This action suggests that
window dressing may continue through June 30.
We are awaiting a thunder storm that looks like it will begin around the time of the Fed announcement. Maybe we'll play Wagner's "Flight of the Valkyries"
at the same time.
12:55pm and we had to power down because a super cell passed through with another on the way. Hope that isn't an indication of the stock markets
reaction to the coming announcement. We may miss it since the clouds in the West are ominous again. Approaching the overly hyped moment, the DJIA is
moving back to even although the NASDAQ remains 1% higher.
1:13pm and breadth is 6/4 positive and up volume is 3/1 over down volume on both venues.
1:16pm and the Fed cut 25 basis points saying risk of deflation is greater than risk of inflation. No market reaction yet although Treasuries are a tad weaker.
1:23pm and the DJIA is down 30 points and the ten-year has dropped more in price. Stocks seem to be turning negative which makes some sense because the
Fed seems to be implying that the economy is still in the tank. But the markets are confused right now so this sell off might reverse on a dime.
1:55pm and entering the final hour stocks are trying to rally. The DJIA has rallied back to even. Volume is light and we would guess that window dressing is the
only support left for stocks right now. Since the quarter ends on Monday mutual funds and money managers may be keeping their powder dry today. We don't
expect a sell off till next week at the earliest. But the fundamentals are so dicey that we think the odds don't favor trading the Fed news.
3:02pm and it was a good day. We received over an inch of badly needed rain and now our garden will be the showcase of Clayton Township. If our potatoes
continue on their present course we'll be able to send those as holiday presents instead of the usual jams. Joke!
The DJIA closed lower on the day down 98 points at 9011. The S&P 500 also lost ground dropping 8 points to end at 975 and the NASDAQ dropped
3 points to end at 1603. Breadth remained positive at the close on both venues while down volume exceeded up volume on the NYSE and the reverse on the
NASDAQ. New highs were 85 on the NYSE and 111 on the NASDAQ. The 973 level on the S&P 500 is an important support level.
And tomorrow is another day.
25 June 2003 - Morning Comment
7:26am and on a hot and steamy morning - more St Louis weather than Wisconsin - we await the Fed decision at 1:15pm CDT today. 25 basis points helps the
markets higher; 50 basis point and the stock markets move lower; no cut and after an initial sell off a decent sustainable rally ensues into quarter end.
At least that is our game plan and we will only be tempted to make some trading buys if the last scenario occurs. If not we'll just watch and wonder about the
meaning of carrots growing.
Freddie Mac is restating earnings for the past few years and going forward and the restatement will be somewhere between $1.5 billion and $4 billion. Now
there is a little room to play.
Asian markets were mixed overnight as are the European markets and all await the Chairman's decision
Durable good orders were down 0.3% for May. April durable goods orders were revised to down 2.4% from a previously reported negative 2.2%. The Street
had been expecting a plus 1% number for May.
So the table is set, the players are ready and it is time for the games to begin.
24 June 2003
8:29am and the stock markets are about to open. We've been reading about the $13 billion GM debt offering scheduled for Thursday. The investment banks
have better sources than we do and so we presume there will be at least a 25 basis point cut to help the GM offering sell well. A good sale on the GM deal will
encourage other companies like Ford to do some refinancing of their own.
We are trying our DIA and SPY trades of yesterday since we continue to expect a bounce off support. We have the SPY in to buy at $97.80 and the DIA in
9:23am and The Conference Boards measure of Consumer Confidence was basically unchanged in June and that has taken the bid out of stocks.
The DJIA is up 20 point. Breadth is 2/1 positive and up volume exceeds down volume. Trading is light.
Now is the time to do nothing.
9:51am and we are canceling our SPY and DIA buy orders. As we said above, now is the time to do nothing.
11:31am and the DJIA is up 37 points while the NASDAQ is still slightly negative. Breadth which was 2/1 positive in the first hour is now negative.
Trading volume is light.
This is what is known as a slow news day.
Japan was down over 2% and Europe is slightly lower.
1:34pm and we wish we had something more to write but until tomorrow we presume the meaningless meandering will continue. Gurus are still expecting
month end markups by the mutual fund boys and girls, and stranger things have happened.
3:02pm and as we prepare to venture out into the 90 degree weather we report that the DJIA gained 37 points to close at 9110. The S&P 500 rose 2
points to end at 983 and the NASDAQ dropped 6 points to finish at 1606. Breadth was positive at the close and there were 75 new highs on the NYSE and
85 on the NASDAQ. Up volume exceeded down volume 6/4 on the NYSE and was the reverse 4/6 on the NASDAQ.
And tomorrow is another day.
24 June 2003 - Morning Comment
7:21am and we will be brief since we are having a load of wood unloaded. We think stocks will open lower and then rally after the S&P 500 hits support at 975.
After that it is anyone's guess.
The Fed begins its two day meeting today although for the life of us we can't figure what they will talk about for two days. Rather the time will be used to build
suspense over whether cut # 13 will be 25 basis points or 50 basis points or nothing as we believe. And if it is nothing we think the markets could have a
sustained rally because the Fed would be confirming that the economy is improving and justify the two month run the stock markets have already enjoyed.
So let the games begin.
23 June 2003
8:58am and the stock markets have opened lower but are meandering more than dropping. It looks as if stocks aren't going anywhere until the Wednesday
Fed news. Breadth is negative and volume is light with new highs looking to be under 100 on both venues. One positive is that new lows have not started
The question now is whether the markets are in a correction in a new bull market or beginning to resume their bear market tendencies.
10:10am and the DJIA is down 130 points. The NASDAQ is off about 2%.
Treasuries are slightly better.
Last week we wrote a few words about GM borrowing $13 billion to fund pension liabilities. Since 1995 GM has paid out over $10 billion in dividends.
Since 1995 GM has spent over $10 billion repurchasing stock outstanding. Now GM is going to the marketplace to borrow money to fund its pension
liabilities after having spent $20 billion plus in earnings on other items. Moreover on the stock GM bought back it is showing a loss of at least 25%. With the
help of investment bankers who are earning the fees selling the bonds and will earn continual fees managing the assets GM thinks that by playing the stock
market with borrowed money it can earn enough to offset the interest expense and grow the pension assets to reduce future funding needs. In this case we
hope past performance is not an indication of future performance.
11:14am and breadth is 3/1 negative and down volume exceeds up volume by 9/1. New highs won't make 100 on either venue at today's pace. We are
watching. We do have a trading buy in for SPY at $97.75 which is at 975 support on the S&P 500 and also a smaller buy on DIA at $90.10. Both buys
represent about a 175 point drop in the DJIA. The buys are for trades in our large aggressive trading accounts only.
11:45am and we are removing our bids for DIA and SPY. We don't feel like being trading heroes, especially on Monday.
1:03pm and the paint isn't dry yet. The DJIA remains down 130 points and breadth is still 3/1 negative. Down volume exceeds up volume 8/1 and volume is
running summer light. No news is bad news today but we'll wait to see what the final hour brings before passing judgment.
Asia closed mixed over night but the European Bourses are lower on the U.S. sell off.
1:46pm and entering the final hour of trading stocks are on their lows for the day. So now we'll find out whether the bulls have any buying money left today
or whether they are going to keep their wallets dear till after the Chairman does his thing.
3:02pm and the DJIA closed down 128 points at 9073. The S&P 500 lost 14 points to end at 981 and the NASDAQ dropped 34 points to end at 1610.
At the close breadth was 3/1 negative; down volume exceeded up volume 8/1 and new highs were 60 on the NYSE and 85 on the NASDAQ.
And tomorrow is another day.
23 June 2003 - Morning Comment
7:51am and we are getting a late start cause it's summer and sitting on the back porch drinking coffee and talking seemed much more enjoyable that trotting
down to the office to watch a tape we've seen before.
With Home Run Witching over for another three months, the focus this week is on the Fed announcement at 1:15pm on Wednesday and on whatever reversals
of Friday's expirations occur today.
On the news front, Idec is acquiring Biogen for stock which should give the arbitrage boys and girls something to do for the next few months and also start the
rumors swirling about fifteen of the next two mergers in the biotech area. And if biotech is merging can the ethical drug makers be far behind? So, SGP and
BMY may also get some play.
We are cash and loving it, although we won't hesitate to participate if trading opportunities present themselves.
So let the games begin.
20 June 2003
8:19am and in the tradition of the U.S. government, General Motors is going to issue $13 billion in various debt maturities to fund pension liabilities. And so the
pension liability on their books will now become a debt liability. Hopefully the pension assets will grow faster than the interest paid. GM will be able to deduct its
interest cost as an expense and so the U. S. taxpayer will pick up part of the tab. And the money borrowed will also be a deduction since it will be contributed to
the pension plan and so the U.S. taxpayer will face a double whammy.
Of course GM will eventually have to earn an extra $13 billion to repay the loan but that's for future management to worry about the same as the rounds of tax cuts
in the last two years are for our children and grandchildren to worry about paying, as we spend their inheritance.
In the good old days of corporate management, pensions were funded from surplus earnings just as tax cuts were funded from government surpluses. But then
those were the good old days that everyone yearns for but no one wants to reprise.
8:30am and yesterday the Washington Post quoted Fed sources as saying a 50 basis point cut was in the cards for Tuesday's Fed meeting. Today the WSJ
quotes Fed sources suggesting that 25 basis points is more likely. So what is a poor bond trader to think? Yesterday Treasuries rallied on that news, today they
are giving ground. Well, no one ever said it would be easy.
Our humble two cents is that the Fed won't cut at all. A 50 basis point cut will put huge pressure on money funds which have become a source of funding for
many institutions. And any cut will be the last bullet the Fed has to jump start the economy. And deep in his heart, if he has one, The Chairman knows that low
interest rates are not the panacea needed or the economy would have rebounded already. And a below 1% funds rate will reinforce the comparison to the negative
Japanese experience of the last thirteen years.
Yesterday on bubble vision a fund manager from Fidelity was presented who is running a fund that is up 80% in the last year. As of June 18, the Fidelity
Leveraged Company Stock Fund had $250 million in assets. The fund was started in late 2000 and as of this date has only a one year record. This fund is an
example of Fidelity's modus operandi that began with Magellan Fund. For the first few years of Magellan Funds existence back in the late 1970s the fund was
not open for public investment. It was during that time that a significant portion of the future out performance of the fund was generated. For all we know,
Fidelity began seven or eight funds during that time frame with different investment objectives and then chose to advertise and open for business the one with the
best investment record.
Similarly, we know we would never have heard of this current Fidelity Leveraged Company Stock Fund if the investment theory of buying highly leveraged low
quality companies had led to negative results. For example if Fidelity had started this fund in 1999 it wouldn't exist today because highly leveraged low quality
companies crashed and burned in the bear market. When buying funds as in most other areas of the investment business the individual investor must remember
that caveat emptor prevails. And the phrase that the SEC requires on all communications that discuss relative or absolute investment performance is more than
just a phrase when it comes to new fangled mutual funds. It is truer than most folks realize. PAST PERFORMANCE IS NO INDICATION OF FUTURE
PERFORMANCE. Just ask Janus Fund and Fidelity Magellan Fund investors.
8:58am and the DJIA is 35 points higher in active trading. Out of the gate breadth is 6/3 positive. We think a mid day fade is in the cards.
12:21pm and right on cue the NASDAQ has turned lower and is leading the DJIA and S&P 500 lower, although the latter two are still in positive territory.
Breadth is positive but new highs on both venues are less than 100.
Treasuries are lower with the yield on the ten-year still a skimpy 3.41% but that's 32 basis points higher than Monday.
2:51pm and coming up to the close, breadth is negative and there are 93 new highs on the NYSE and 115 on the NASDAQ.
3:02pm and the DJIA closed up 20 points at 9200. The S&P 500 gained 1 point to end at 996 and the NASDAQ lost 4 points to finish at 1645.
For the year the DJIA is up 10.1%, the S&P 500 is up 13.1% and the NASDAQ is up 23.5%.
The Model Portfolio is up 13.1% at a value of $520,533 and is 100% cash.
And tomorrow is the Summer Solstice. Enjoy!
20 June 2003 - Morning Comment
6:51am and as we turn on the computer we see a CNBC graphic referring to Quadruple Witching. We have never seen or heard the expirations referred to in that
way except by us yesterday. Whatever!
Yesterdays down stock markets have reversed in the stock futures this morning and it looks like stocks will open higher. It isn't unusual for up/down action to
occur around expiration and so we will be watching and probably napping off and on for the day.
Europe is also higher today. Undersecretary of State for arms control John Bolton told the BBC that military action against Iran is an option to prevent them
from developing nuclear weapons. Here we go again.
7:06am and we have just been informed that the term Quadruple Witching has been in use for some time. And so to continue our iconoclast attitude we are
adopting the term Home Run Witching which term better symbolizes the gaming nature as opposed to investment nature of the event.
General Electric has reaffirmed guidance of $1.55 to $1.70 for the year which is what analysts cut their estimates to yesterday.
The Asian markets were higher overnight as Japan inched higher.
The NYT suggests that Saddam lives.
And on that unhappy note we will await the opening of trading.
So let the games begin.
19 June 2003
7:06am and we were just informed by our wonderful daughter Lisa as we began singing happy birthday to her that it is our wonderful daughter Kelle's birthday.
Katie isn't home to keep us on focus and we did know it was one daughter's birthday and so we will take credit for that. And we love them both.
7:07am and GE missed earnings as its short cycle business was punk. Where are Jack Welch and managed earnings?
7:32am and new jobless claims dropped 13,000 to 421,000 for the 5/16 week. The four week moving average is down 3,000 to 432,000. That's 420,000
newly unemployed folks looking for work.
Talking head Brian Westbury on CNBC is saying that 400,000 unemployed isn't bad because there are more folks employed than there used to be. He and
Dick Hooey have the economy roaring by next year. They both see bond rates higher next year. On that we would agree.
5% real growth next year is in the cards according to Westbury and Hooey. Buy stocks now is their advice.
7:57am and the action of GE today will be a real tell on how the markets are going to take bad news. SGP had its rating cut by Morgan Stanley to equal weight.
Lehman Bros announced bang up earnings and we'll see how it does today also.
Watching stocks that exceed earnings expectations and also those that miss gives a good feel for how the markets are trading.
Regarding the Fed saving the economy on the backs of the prudent saver Bill Fleckenstein says it better than we on
Bill also has a free website at http://www.fleckensteincapital.com
where he answers email questions on a daily basis. He has been and still is a bear on the economy and Alan Greenspan and we have found his insights of value
even when we don't agree with him.
"Fed-Facilitated Speculation: Of course, credit for some of the frenzy goes to the economic war criminals at the Fed. They have totally obliterated the alternatives
for prudent savers by taking overnight interest rates to nearly zero. So, folks who've acted responsibly and saved now find themselves tempted to speculate,
either by owning low-yielding, longer-dated fixed income, or by buying dividend-paying stocks (which can see years' worth of dividends obliterated overnight,
witness today's action in Eastman Kodak (EK:NYSE - news - commentary - research - analysis) , which now yields over 6%). The same Fed that managed to
destroy equity market participants during and after the mania has been slowly destroying savers. The next group to be destroyed will be homeowners who
levered up to live beyond their means against rising asset prices (that at some point in the future will depreciate).
When one takes a step back to consider all the damage inflicted thus far by Alan Greenspan, and the prospective fallout unleashed by his maniacal lab experiments,
the arrogance and incompetence of this man are truly breathtaking to behold. After the Greenspan Fed gives us its 50-basis-point rate cut next week, it will be
interesting to see if the law of unintended consequences rears its head."
9:56am and the Philly Fed is going to give its assessment of the business conditions in its area at 11am and the budget deficit for May is announced at 1pm. The
DJIA is down 51 points. The Conference Board's Index of Leading Economic Indicators came in a little better than expected at up 1.0%. Today's tells are negative
with Lehman down 3% even though their results were better than expected. GE is also lower.
10:52am and we sold our last stock Andrew Corp at $10.22 for a 50 cents to 75 cents per share profit. We are now all cash in The Model Portfolio. We are
bidding on DIA at $92.05 for a day trade in a few large aggressive accounts. That price is basically 125 DJIA points lower than the close yesterday.
11:02am and the Philly Fed index was less bullish than expected and stocks are selling off a bit while the ten-year Treasury has rallied on the negative news since
traders think that news implies a 50 basis points cut next week by the Fed.
12:15pm and on one of the websites we read religiously is http://atrios.blogspot.com
We found the following dialogue comparing the potential sentence and fine for Martha Stewart versus the actual maximum sentence for an executive of a gas
pipeline company who was found guilty of allowing willful safety violations which led to a pipeline explosion that killed several people.
Throwing the Book at 'Em
It's apparently a small book:
send a message to the pipeline industry, U.S. District Judge Barbara Rothstein gave a six-month prison term — the maximum — to Frank Hopf, 55,
the executive in charge of Olympic when its pipeline ruptured on June 10, 1999. Oh,
and this was time such a sentence was handed down in pipeline industry history. Hopf was found guilty of "willful safety violations" in connection with the spill.
But he only snuffed out three lives. It's not like the guy made
$43,000 dumping stock:
The explosion that followed fatally burned Wade King and
Stephen Tsiorvas as they played in a Bellingham park. Liam Wood, 18, fishing in a nearby creek, was overcome by fumes and drowned.
If convicted of all counts, Stewart faces up to 30 years in prison and $2 million in fines.
Tell me how businesses are punitively overregulated in this country again?