-Tresy, 10:30 AM
12:30pm and stocks continue to meander at lower levels while Treasuries rally on the expectation of a 50 basis point cut next Tuesday.
1:25pm and we cancelled our buy of DIA at $92.05. Since we are buying for a day trade we don't want to buy them in the last hour if the markets are dropping.
Breadth is 6/3 negative on both venues and new highs won't reach 170 either place. The big techs are seeing some buying but drug stocks are red today as are the
financials
2:02pm and entering the final hour the DJIA is down about 100 points and the NASDAQ is off 16 points. The techs are starting to turn red and Lehman and
GE are near their lows for the day.
The next rate cut by the Fed will be its thirteenth in a row. The last twelve haven't worked although we made a lot of money selling the stock rise caused by the
first one.
European stock markets closed 1% to 2% lower on Thursday.
3:02pm and the DJIA closed down 120 points at 915. The S&P 500 lost 16 points to end at 994 and the NASDAQ gave up 26 points to finish at 1650.
And tomorrow is Quadruple Witching Day.
19 June 2003 - Morning Comment
6:44am and we wish a happy 36th birthday to our daughter Lisa. This morning we also received an email from our daughter Kelle asking what
"Triple Witching" is.
Triple Witching is the day on which options and futures contracts on stocks and indexes expire. A lot of traders don't buy or sell stocks out right; they
buy/sell an "option" to buy a stock at a set price, or they buy a contract for "future" delivery of a stock at a set price. Traders can also buy/sell an option or a
"futures" contract on an index like the S&P 500, or an average like the Dow Jones or a stock like General Motors.
Both options and futures contracts have specific times when the right to sell or buy the underlying stock or index expires.
Some Options contracts expire on the third Friday of every month and four times a year the expiration of "futures" on stocks and "futures" on indexes coincide
with the options expirations. Until late last year there was no trading in futures on individual stocks, hence when options on stocks, and options on indexes, and
futures on indexes expired the three simultaneous expirations came to be know as Triple Witching.
Because contracts for future deliver of individual stocks now trade, Triple Witching should probably be called Home Run Witching hour since four sets of
trading vehicles are involved.
Triple witching can sometimes cause turmoil in the market place because of the interrelationships that exist between futures and option and individual stocks.
7:02am and Asia was mildly higher over night while Europe is mixed. There are a bunch of economic statistics today which will give traders something to trade on.
For now the index futures are mixed and there is no clear indication of how the stocks will open.
But open they will at 8:30am and then the games will begin.
18 June 2003
8:26 am and Morgan Stanley reported better operation earnings excluding an aircraft impairment charge. Best Buy reported better earnings excluding a charge
from selling Musicland. It's obvious from these two reports that the managed earnings games is still alive and flourishing.
11:58am and the stock markets have been floundering since the opening. The drug stocks are the place to be again today while EK, UTX and the financials are
weaker. Breadth is negative 6/4 on the NYSE and new highs won't exceed 200 today. Volume is light and Triple Witching begins tomorrow night.
Stocks were lower in early trading and then rallied on news that the number two man in Iraq had been captured. We don't know why Iraq news should move the
stock markets for any period of time since Iraq is history as far as traders are concerned.
The ten-year Treasury is up to a 3.34% yield.
1:05pm and the DJIA remains lower because EK is off over $3, but tech stocks are edging higher and it looks like at least the NASDAQ will close higher on the
day. Obviously those late to the party want to snap up some "bargains" in the tech arena and also force the shorts to endure more pain. Breadth remains negative
and trading remains muted.
3:02pm and today the market was bifurcated with the NASDAQ positive all day and The DJIA mostly lower. At the close, breadth was 2/1 negative on the
NYSE and 5/4 negative on the NASDAQ. Down volume exceeded up volume 2/1 on the NYSE and was the reverse on the NASDAQ. Both venues have about
200 new highs.
At the close the DJIA was down 30 points at 9291. The S&P 500 lost 2 points to end at 1010 and the NASDAQ gained 9 points to close at 1677.
And tomorrow is another day.
18 June 2003 - Morning Comment
7:31am and we are back at computer central set for a day of watching and wondering. We have stepped to a cash position and hope to hold that posture until the
fall. As one long time client remarked by e-mail, he'll believe it when he sees it.
We would second that thought because we are always alert to opportunities to trade for profit. Our statement of the other day included some frustration in not
being able to grasp the current trading psychology. Coupled with triple witching and Quarter End, we have decided that the cross currents are too confusing for
our mind at this time.
For example, we sold Duke Power on Monday and on Tuesday it jumped $1 on news that its bond rating had been lowered to the level just above junk. That
bad news was good news because if it had been lowered to junk, DUK would have had a difficult time financing its capital needs.
This morning Banc of America raised its rating on DUK from sell to neutral with a price target of $18. Since DUK is selling at $20 we would suggest that BAC
go back to a sell since they think the shares should be trading $2 lower than they are.
EK announced an earnings shortfall and so it will be interesting to see how the markets react.
Overseas trading has been mixed with a positive bias, and stock futures in the U.S. are suggesting a muted opening.
As always we are open to trading opportunities for our aggressive accounts, but for most accounts we plan on watching, for now.
So let the games begin.
17 June 2003
Tyco restated earnings again back to 1998 with the result that the old years get the reduced earnings and the current year and forward receive the improved
earnings. And so after initially selling off, Tyco is trading higher this morning. There are many fallen angels but this is one fallen angel with accounting from hell
that we have never had an interest in because we never could get a handle on how 5 years of crooked accounting could ever be resolved. This new $380 million
charge is a surprise but the stock markets are in a forgiving mood.
Freddie Mac is also beginning to creep higher as bargain hunters and late comers seek value in an extended stock market.
Back in 1987 we had many discussions with our partner Don Yarling about moving to cash because the markets were becoming over heated. We remember his
constant refrain that we wouldn't have the gumption to stick with our conviction as the market roiled higher. And he was right. And so we concocted a mixture of
stocks and convertible bonds and Treasuries to try and mitigate the downside risk while participating in the upside. Popular investment theory at that time and the
present suggested that a mixture of stocks and a good dose of converts would offer downside protection. By October of 1987 our accounts were up 37% and
then of course the Crash occurred and in the blink of a couple of days our accounts were minus for the year. We did manage to close the year in the black but the
ride was wild and we were younger.
In the 1987 Crash converts performed worse that the underlying common and should the 2000-2003 bear market resume coupled with a rise in interest rates
converts will perform even worse this time around.
Currently we have a substantial amount of money that we and clients have made over the years. We are less willing to risk giving that money back in any major
sell off than we were when we were younger and we were in the process of building our assets. In that respect our investment philosophy has changed from
trying to outperform markets to making a reasonable return on the assets we have. And for that reason we have been leery of taking new assets under
management this year because folks who are moving their money are looking to recoup what they have lost while we are managing our accounts to keep
what we have earned. And at the conjunction where the bear market may be morphing into a bull market we remain committed to preserving the gains we
have made rather than trying to extend our already substantial assets. For we find it easier to make money when others are selling than to make money when
everyone is chasing the pot of gold at the end of the rainbow.
We learned in 1990 that when we perceive risk in the marketplace it is better to go to cash than to try and ride out the rough spots.
One consequence of our trading is that in taxable accounts we very seldom make it to long term and the lower tax treatment. Over the last five years not too
many folks have complained since any gain, even a taxable one, was considered to be a triumph. But if the markets are truly moving into a bull phase, long term
gains will again become the buzzword and we won't be able to accommodate those folks who require only long term gains for lower taxes. That's because we
manage account to make money and limit risk.
We ourselves have never minded paying taxes because we remember our lean farmer/hippie years in the mid 1970s when taxes were not an event for us
become income was a foreign concept. And ever since then we have always been delighted to pay up on April 15 and the more the better. And, many of our
accounts are tax deferred IRAs which incur no tax liability until funds are withdrawn. And at withdrawal there is no differentiation between how the gains were
obtained.
7:32am and CPI was announced as unchanged with the Core Rate up 0.3%. Building permits for homes were up 3.7% in May to 1.77 million homes. Stocks
like that number and bonds didn't. The ten-year Treasury has lost a full point since yesterday morning. And now folks are suggesting that the FED will only cut
25 basis points at the June meeting. One of the negatives for the overall markets is that if the stock markets remain strong, the Treasury markets may begin to
reflect the mounting federal deficits and the week dollar versus the euro. That relationship is a discouragement for European investors buying dollar denominated
assets.
Industrial production rose 0.1% in May and capacity utilization was 76%.
8:33am and as the SPDR Tech Trust opens 20 cents higher today we moan to ourselves about what a difference a day makes. But then we remind ourselves
that that is why we sold, because we were out of touch with what is happening. The stock markets have moved into the never-never land of maybe bull/maybe
bear and we never do well in this area. And so we just sigh, and say oh my, and watch.
9:01am and the profit taking has begun but buyers are ready to buy.
9:49am and the markets are now giving in to some heavier profit taking. By the way, the bull came back to our farm yesterday. We should have taken that as a
sign. Unfortunately for him we found him during our evening walk and he is now locked safely in the barn awaiting his trip tomorrow to the end of the road. As
our grandson Tyler says when a calf is born, if it's a boy it's McDonalds, if it's a girl it's a life of clover and alfalfa. And so, tomorrow at least, one bull's run will end.
12:20pm and the DJIA is up 14 points. The action today is in the drug stocks which are higher. Breadth is even to slightly negative and new highs are in the 350
range for the day on the NYSE. Volume is light. Treasuries are lower with the ten-year at a 3.23% yield, up from 3.08 yesterday morning.
2:17pm and entering the final hour the DJIA is up 12 points. The drugs remain leaders and breadth is mixed. Volume is a bit better but still summer light
3:02pm and the DJIA gained 4 points to finish at 9323. The S&P 500 was up 1 point at 1011 and the NASDAQ gained 2 points to end at 1668.
And tomorrow is another day.
17 June 2003 - Morning Comment
6:37am and first we have the bad news for folks who check their accounts each day. We did not sell Qwest at $8.90, we sold it at $4.90 and so you'll have to
multiply the number of share sold by $4 and subtract from your equity figure to get the true value of your account today. And that value will of course be lower.
The good news is that it is a relatively simple calculation and the figure you finally arrive at will still represent a significant gain for the year in your account.
With our sales yesterday most accounts are mostly cash and we plan on staying with this posture for the foreseeable future. We have no feel for either the stock
or bond markets at this time. Both seem to be overpriced to us, but given the nature of trading and momentum a move higher by either would not be surprising.
We don't see the stimulus from the tax cuts that many do. Moreover our trading style suggests that we move to large cash position at this time of year. This
strategy has worked for us the past five years and with our comfortable gain for this year we look forward to building on that gain in the fall.
As of this morning the Model Portfolio was 99% cash and had a value of $520,203 which represents a return of 13% from the beginning of the year. Most
accounts are up from 8% to 17% for the year with the aggressive trading accounts having the better record.
The overseas markets are higher and U.S. stock futures are indicating a continuation of yesterday's rally. So we would suggest up early and then some consolidation.
So let the games begin.
16 June 2003
8:10am and the New York Fed released economic data that showed its Empire State Manufacturing Index came in at 28.8 versus a consensus forecast of 8.
That number placed a bid in stocks and Treasuries initially sold off but have since rebounded with the ten-year at a 3.09% yield.
9:45am and we have to sell when there is buying. (See Morning Comment 16 June 2003.) And there is a bit of buying today and so we are selling. We'll post our
results later.
10:49am and our sell program is completed. We sold all our stocks except Andrew Corp. We sold the SPDR Tech at $17.21 for a 25 cents per share loss in
many accounts and a scratch in a few of our smaller accounts. That loss was the result of our excess optimism and lack of discipline last week when we
neglected our trading philosophy in favor of greed. That happens. The same lack of discipline applies to the 30 cents per share loss in both Duke and SBC
from mistimed purchases last Thursday. We sold 3Com at $5 for a scratch loss and Q at $4.90 for a scratch profit.
12:29pm and we sold GPS at $17.03 and so we are down to Andrew Corp a portion of which we sold today at $9.43 for a 20cents per share loss. We are
keeping a few shares in aggressive accounts since we think there will be a pop in the stock after the July 15 merger. And we are reducing holdings so that we
may buy more if it sells off with the general market.
The Model Portfolio is now 99% cash and has a value exceeding $520,000. It is up 13% for the year.
We are going to take a few days rest from trading to regroup and rethink our strategy for the rest of the year.
2:04pm and the DJIA is at the high for the day up 161 points. Breadth is over 2/1 positive and up volume exceeds down volume by 4/1. New highs on the
NYSE are 200 shy of the 550 highs of several weeks ago. And volume is summer light but good for a Monday.
The rallies have been narrower each time the DJIA has rebounded higher over the past few weeks. But the strength today looks like it can carry stocks higher.
We'll be happy to watch from the sidelines.
Treasuries have weakened a bit as the stock markets have strengthened.
3:02pm and the DJIA closed up 197 points at 9314. The S&P 500 gained 21 points to end at 1010 and the NASDAQ rose 38 points to finish at 1664.
And tomorrow is another day.
16 June 2003 - Morning Comment
6:33am and over the weekend while weeding the potatoes we realized that we had repeated our error of several weeks ago by buying on Tuesday instead of
selling. We were annoyed by our surrendering our June gains by trying to make a few more bucks before retreating to the sidelines for our summer siesta to
await the fall jamboree. Well its spilled milk now and we'll have to hope for a Tuesday treat to allow us to extricate our positions from the red before we head
off into the sunset till fall's fall.
On the positive side we are only 20% invested, up 12.8% for the year and the stocks we own should participate in any rally. This morning US stock futures
are lower continuing Friday's sell down.
So today is one of hope for a rally and then opportunity to say good bye to stocks until the fall. We may even do so if there is no rally.
So let the games begin.
13 June 2003
7:33am and Wholesale Prices dipped 0.3% and the Core Rate was up 0.1% and disinflation is alive and well in traders mind. Now the Michigan Sentiment
Number is around the corner.
9:14am and the University of Michigan Sentiment indicator came in at 87.2 in May down from 93 in April. Stocks sold off on the number.
10:03am and the DJIA is trading lower down 88 points. Breadth is negative and stock traders would probably rather be playing golf. The recent rally has had
the wonderful effect of disheartening both bears and bulls. And that is what bear markets do.
Crude oil is lower but still above $30 per barrel. That's a continuing hidden tax increase that affects everyone especially low income folks. The ten-year
Treasury is at a 3.08% yield and continues to forecast stagflation.
11:59am and we haven't been posting today because we are in thought over whether to take a chunk of money off the table, if we can. The stock markets
haven't been acting as we thought and the trouble at the 9200 level on the DJIA and 1000 level on the S&P 500 is disconcerting. We have a nice realized
gain for the year.
This morning we added a bit more SPDR Tech to accounts with the idea that we would sell four or five of our individual stocks to get our market exposure
lowered. Unfortunately the stock markets were too thin and the stocks sold off before we could accomplish the second leg.
And so we are hoping for a rally into the close but trading has thinned.
12:23pm and breadth is 2/1 negative and volume is light. Rain in NYC may be keeping some traders at their desks but it sure looks like a summer time Friday.
1:18pm and we sold our HPQ at $20.65 for a 50 cents per share profit in many accounts. We wanted to sell the Hewlett because we have such a large
position in tech stocks through our purchase yesterday and today of the XLK. We also sold AOL at $15.50 for a scratch 30 cents per share profit. And we
reduced our GPS holding by selling a few shares at a loss of $1 in our aggressive trading accounts. In those accounts we have an outsized amount of XLK and
we want to maintain our cash/equity ratio.
We know it is a lazy Friday in the summer but other than window dressing and Triple witching volatility over the next two weeks we are growing increasingly
uncomfortable hoping for a bit of a bounce. We have been trading and itchy on the trigger but we fear having overstayed our welcome and while we have made a
bit more money the last three weeks we aren't sure it has been worth the sleepless nights. And today we have given the gains of the last three weeks back.
3:02pm and the DJIA closed down 80 points at 9118. The S&P 500 lost 10 points to end at 988 and the NASDAQ dropped 27 points to end at 1626.
For the year the DJIA is up 9.3%, the S&P 500 is higher by 12.4% and the NASDAQ is up 21.8%.
The Model Portfolio had a bad stock day and is now up about 12.8% for the year and is 80% cash.
And tomorrow is another day.
13 June 2003 - Morning Comment
7:17am and we wish a happy Friday the 13th to all. We are getting a late start this morning since we partied till after 10pm last night.
Asia closed higher overnight and Europe is mixed. Traders liked the news from Oracle and it is trading higher while Adobe is trading lower. This morning
Deutsche Bank lowered its rating on Intel and Thomas Weisel lowered its rating on the RBOCs including yesterday's purchase SBC.
We continue to expect a rally into month end and the DJIA 9250 and NASDAQ 1675 are levels the market has to pierce to keep our thesis alive.
So let the games begin.
12 June 2003
7:33am and jobless claims dropped 17,000 to 430,000. Retail Sales rose 0.1%. The drop in energy prices helped. Snore.
8:23am and we have been informed that a stopped clock is correct twice a day. Let us be perfectly clear that the clock we were referring to in the Morning
Post was a clock with a daily calendar as part of the presentation.
9:02am and the DJIA opened 50 points higher but now has turned negative. The S&P 500 and the NASDAQ are also down. Breadth is positive and up volume
is more that 2/1 positive. The drop looks like profit taking which is a catch all phrase. We are buying SBC under $25.85 and Duke Power at $18.95 for month
end trades in many accounts. We are also purchasing RDC, Rowan Cos, at $25.30 for our aggressive trading accounts.
More stocks are turning red as we write so maybe the profit taking will create a tradable rally this afternoon, or a bull trap?
9:54pm and the big Techs like IBM are beginning to move and we are going to buy the SPDR Technology Trust to try and catch the move. We are paying
$17.47.
1:04pm and we have been watching the markets and writing tickets to go with our purchases. We took the bull at the front porch of our office this morning as a
sign that there is one more flip higher before the fun ends. We are as fully in play as we want to be. The XLK position uses a lot of money but in doing so
mitigates risk and reward and with the markets at these levels it is the prudent way to play the big tech game.
2:06pm and entering the last hour of trading the DJIA is down 26 points. Breadth is slightly positive on the NYSE and negative on the NASDAQ. Down
volume exceeds up volume both places but new highs are respectable at 400 on the NYSE and new lows are 4 at both placed. Volume is light. We'll see
what the last hour brings. Europe closed higher with Germany up over 1%.
3:02pm and we blew out our RDC trade for a 25 cents per share loss. We took too large a position even for our aggressive accounts and so the loss is
hopefully a relatively cheap reminder not to get carried away. At the close the DJIA was up 13 points at 9197. The S&P 500 gained 1 point to 999 and the
NASDAQ rose 8 points to end at 1364.
And tomorrow is another day.
12 June 2003 - Morning Comment
6:34am and like a stopped clock we guess even Bill Safire can write a column once or twice a year that we agree with. This morning in the
NYT, Safire takes
Martha Stewart's side albeit with the usual snide comments about Hillary Clinton that are de rigueur for emasculated conservative commentators these days.
6:59 am and as we were writing the above words a real live Holstein bull arrived at the front door of our office in the field. We don't know whether we should
take this as a sign that the bull market has returned. We did take it as a signal to fetch the neighbor whose bull it is since we have a herd of very demure young
heifers that we don't want to meet with the opposite sex until at least another month has passed.
Overnight Japan was strong and Europe is higher. U.S. stock futures are also indicating a higher opening and with the ability of the popular measures to ignore
the minuscule corrections the last few days it looks like higher is the easier course for the next move.
We don't know whether to try and catch the breakout of the final run of the bear rally or to rest on our already satisfactory return. We presume market action
will give us a clue.
So let the games begin.
11 June 2003
7:36am and the ten year Treasury and mortgage rates are back to levels last seen in 1952. We wonder if black and white TV and Uncle Miltie will make a return.
9:05am and the Chartcraft.com Investors Intelligence Survey found only 16% bears which is a very low number and an obvious contrary indictor. But like the
University of Michigan Sentiment Survey, both are only questions of sentiment as opposed to measures of action and so we tend to take them with a grain of salt.
When we sold MSFT the other day, we inadvertently placed an incorrect settlement day on the trade ticket and so all clients are going to receive a cancel and
re-bill on this trade. We apologize for any confusion.
9:54am and the DJIA is up 36 points in light trading. Breadth is positive but the markets are somnambulating. We re-purchased our trading position in HPQ at
$21.25 as the tech stocks are off on bad news from Texas Instruments and Nokia. We continue to expect the migration of money from IBM and other large
techs to HPQ because we view HPQ as a new story for tech money that wants to move.
11:48am and we sold the trading account AOL at $15.46 that we purchased at $15.40 last week. We are keeping the shares we added to many accounts at
$15.15 the next day. We know we are trading a little tight in our trading accounts but the confluence of contrary indicators has us a bit nervous and we don't
want to press our case too hard.
The DJIA is up 51 points. Stocks seem to want to go higher but the Freddie Mac confusion is a negative today after a dead cat rebound yesterday.
2:02pm and the DJIA is on its high for the day up 90 points. Breadth is 2/1 positive as is up volume versus down volume and new highs are expanding. The only
negative is that volume remains light.
2:33pm and we just copied this from: http://atrios.blogspot.com/
"The Senate just rejected
an effort to strip loan guarantees to the nuclear power industry, estimated at $16 billion, from the current energy bill. The loan-guarantee provision will put
taxpayers
on the hook for 50% of the cost of new nuclear plants in the event of default. The 50-48 vote was
largely party line.
Why does the nuclear industry deserve this, you ask? Why, it's simple:
Industry representatives have argued that the government
safety net is needed at least for the first group of reactors now that the electric power industry is in transition from highly regulated to competitive markets.
Got that? Because the energy industry got what it wanted --deregulation-- we now have to protect them from the effects of deregulation."
2:41pm and it is our belief that the FED will cut interest rates to force folks in money funds to make the terrible decision to invest in bonds and or stocks to
get any return possible. Once more Alan Greenspan is using savers and retired folks to save the profligate tax cutters and banks from their own folly. We will
forego the push, but we have the luxury of seven years of fat while many investors have suffered through three years of lean and think they can't withstand
any more.
2:50pm and we have to leave a bit early. The DJIA is up 125 points at 9180. The S&P 500 is up 13 point at 998 and may make 1000 by the close. The
NASDAQ is up 19 points at 1646.
And tomorrow is another day.
11 June 2003 - Morning Comment
6:58am and the CBO has raised the projected budget deficit to $400 billion this fiscal year from the $300 billion estimate several months ago. Can anyone say
$500 billion?
Last night an erudite reader of the website, (aren't they all?), suggested that our use of the term simulate in reference to the budget deficit was incorrect and that
we meant to say stimulate. That reader was of course correct for we were writing that the recently enacted tax cuts would not "stimulate" the economy.
But our error in using "simulate" got us thinking about the 1983 Reagan tax cuts which were to stimulate the economy while at the same time reducing the deficit.
In that regard, the verbiage surrounding the justification for the 2003 tax cuts does "simulate" the verbiage surrounding the 1983 cuts. And the results will be even
more drastic on the deficit and in encouraging goofy and dishonest tax evasion schemes because of the disparity in tax rates created by the new tax bill.
Merrill Lynch added IBM to its focus list this morning with the stock trading at $82. The pop from that addition should keep IBM from breaking its 200 day
moving average for a while longer and should also bring Merrill some much needed investment banking business.
The Nikkei was up over 1% overnight and Europe is also up. U.S. stock futures are slightly weaker but we would guess that the move this morning will be up
after an initial sell off.
So let the games begin.
10 June 2003
9:05am and the DJIA is up 70 points. We sold our HPQ trade of yesterday in our large trading accounts for a scratch this morning at $21.70. We own a good
chunk of stock in all accounts and we are acting on the side of caution and cash right now. If APC gets a pop this morning we may let it go. We tried earlier but it
backed off.
10:38am and we are selling most of our APC trade of yesterday for a scratch profit. That gets us down to 6 stocks and close to 90% cash in most accounts.
Had we stayed more fully invested in the March to June rally we would be up about 25%. But that isn't our style. We have been too quick to sell these past four
years and that action is why we have outperformed the S&P 500 by 100%. Until we see the economy stabilizing and can understand how the economy will grow
its way out of recession we are going to remain tentative in our trading.
Airlines can't increase passenger traffic, hotel business is down, commercial real estate construction is dormant, manufacturing continues to shed high paying jobs
as does the financial sector, and the tax cut is not stimulative. Crude oil is back over $31 per barrel and Greenspan says natural gas prices aren't coming down soon.
And so we are continuing our trading for singles and hoping for one last rally at month end to eliminate the positions we still hold.
12:59pm and we were out overseeing the new fence we are having built. In our absence stocks did nothing. Breadth is 2/1 positive, up volume exceeds down
volume by 2/1 and new lows are 2 on both the NYSE and NASDAQ. Except for the low volume the bulls have to be happy with the way stocks are trading.
3:02pm and our posts were few and far between today because there just wasn't much happening. At the bell the DJIA was up 72 points at 9052. The S&P
500 gained 8 points to finish at 984 and the NASDAQ was up 23 points at 1627. Breadth remained 2/1 positive into the close but new highs disappointed
and the anemic volume was a negative for the bulls today just as it was a positive yesterday on the sell off.
And tomorrow is another day.
10 June 2003 - Morning Comment
7:36am and a nice summer rain kept us bed bound a bit longer than usual this morning. Fortunately, the summer doldrums arrived in the stock markets yesterday
and even the news of Freddie Mac's over/under/who knows revenues, did little to panic the stocks markets.
For sure, a down day following Friday's reversal was not what the bulls wanted to see but the net effect for the two day brouhaha was a net loss in the stock
markets of 40 points on the DJIA.
Japan closed lower overnight and Europe is mixed. Stock futures are indicating a higher opening. There hasn't been any more market moving news over night.
Bank of America has downgrades the semi-conductors and Merrill downgraded Gillette and some other staple on price.
So let the games begin.
9 June 2003
7:45am and CNBC is reporting the firing of the CEO, COO and CFO of Freddie Mac Corp. This is or was a $40 billion company. There are audit problems with
this company.
FRE makes a secondary market in residual mortgages, by guaranteeing and securitizing such loans. Can anyone say derivatives? This is may be a big story.
Last week the State of Illinois issued $10 billion of tax free bonds to make pension payments and to fund unfunded future pension liabilities. These pension payments
should be coming from investments not made and tax revenues not raised. This financial legerdemain is similar to folks refinancing their home mortgages and taking
the money out and spending it, or using the extra money to pay down credit card debt, so they can go out and spend with the credit cards again.
These actions are the Greenspan and Bush answer to leading the economy back to full employment. It used to be called guns and butter. Now it is cut taxes and
drop bombs.
8:41am and the stock markets have opened lower but without any panic. We are bidding $21.50 for HPQ that we sold last Friday at $22.50 and we are also
bidding on Anadarko Petroleum which is down $7 per share in the last week because of questions about when it can start producing its gas reserves in a difficult
part of the Gulf of Mexico. We are buying both in our trading accounts.
10:49am and we bought some HPQ back at $21.64 with a further bid in at $21 for the shares we sold Friday at $22.50. We also have picked up some APC at
$44.68 with a bid in at $44 for more shares.
Breadth is negative 6 to 4 and down volume exceeds up volume 3 to 1 on the NYSE. New highs are at 164 while new lows are 5. Volume is light which is good for
the bulls. Financials, which had been the leaders last week are lower but not by much. Freddie Mac is down 13 points in heavy trading. The fact that the FRE news
hasn't led the stock markets lower is viewed as a positive sign by the bulls and as a reemerging bubble sign by the bears.
12:02pm and the stock markets continue to drift lower. We have a feeling we'll get down about 125 points by 2 pm and then rally to even into the close. If we
don't we'll be wrong. How's that for prescient market analysis.
It's Monday in summertime and we can't do better than that. We are content with our 13% in stocks and especially happy with our 86% cash when stocks head
lower.
980 was minor support and is now minor resistance on the S&P. 950 is the level that needs to hold for the rally to resume, or so the gurus say.
12:31pm and Freddie Mac is falling like a rock. Chairman Greenspan says we have nothing to fear from derivatives, but we haven't read much of the FRE story
and we will guess that the only way there can be a revenue recognition problem is because of how the company was using derivatives. This imbroglio will get
Tom DeLay and friends in the House on the warpath against government guarantees, implicit or real. So FMN should also be hurt. And the banks won't be far
behind. Need a reason for an intermediary top? FRE may provide it.
In a similar vein we wonder how long it will be before Walmart's recognition of supplier discounts as revenue and in which time period will begin to come under
scrutiny. We have never looked at the WMT balance sheet but we are willing to bet that supplier discounts are a large part of profit and growth each quarter.
2:02pm and the DJIA is down over 100 points as we predicted earlier. Now comes the hard part of that prediction. The cheap tech stocks are heading lower
almost as fast as they jumped last week. Sic transit Gloria.
2:50pm and stocks didn't rally. ABS had been up all day and so we are trying to sell our holdings at $19.40 not because we don't like the stock but as we said
last week we were buying for a pop after a one day sell down and we shouldn't have done that near the top of the market.
3:02pm and we were able to sell ABS at $19.40 for a 20 cents per share loss. That raises a bit of cash on a down day. The DJIA did rally slightly but closed
down 83 points at 8980. The S&P 500 lost 12 points to end at 975 and the NASDAQ dropped 24 points at 1604.
And tomorrow is another day.
9 June 2003 - Morning Comment
7:25am and we wish a happy 36th birthday yesterday to the mother of the prince and princess of Taylor Mill. All three are in Florida with others of the Bezold
clan getting some R&R on the beaches of Panama City while dad toils at basketball camps at NKU.
Asia was higher overnight and Europe is lower. U.S. stock futures are indicating a lower opening and Treasuries are higher. Today and tomorrow will set the
tone for whether the stock markets move higher or retrace some of their gains of the past month.
We really don't have a clue as to where stocks are going but we'll be here watching and waiting for any opportunity to make a few pennies.
So let the games begin.
6 June 2003
Today is the 59th anniversary of D-Day. My uncle and not a few clients served in that terrible World War and for the risks and pain and fear and suffering they
endured we are thankful.
7:01am and the Wall Street Journal reports that an independent accounting report says that Bernie Ebbers and the folks at WorldCom colluded to inflate revenues
and cover up more then $10 billion in losses. But Bernie is from a Red State called Mississippi and no indictment yet. Maybe Martha lived in the wrong state since
another Red State crook from Texas named Ken Lay is still walking around.
Erbitux the infamous maybe cancer drug is now on the fast track at the FDA and maybe CEO Dolan at BMY will be able to wipe some of the egg from his face.
7:32am and with the Treasury ten-year trading to yield 3.3% and the stock markets roaring higher traders are in the manic phase of the bear market rally.
Nonfarm payrolls declined by 17,000 and the unemployment rate was 6.1%. Construction job gains rose and manufacturing lost 53,000 jobs. Average hourly
earnings were up 0.3%. Since jobs peaked in 2001 the nation has lost 3.3 million jobs.
8:25am and Treasuries have turned lower. Stocks are going to open higher and any stock with software in the name or game is screaming higher. We are trying to
sell our MSFT in keeping with our raising cash in nutty market and doing so by selling the stocks not acting well philosophy
9:52am and the DJIA is up 152 points, breadth is strongly positive, volume is heavy and we sold our SGP trade from yesterday for an 85cents per share profit.
We also sold our MSFT holdings at $24.45 for a scratch in most accounts and a 20cents per share loss in our large trading accounts. We sold our first trading
position in HPQ bought at $19.98 for a $2.40 per share profit. We continue to have a sizable holding in HPQ in many accounts.
10:08am and Paul Krugman in the NYT
picks up on our theme of the difference in tax rates providing incentives for accountants and lawyers to begin creating tax
shelters to take advantage of the 35%-15% difference. And contrary to the Bushies exploiting that difference is not capital efficient because companies and
individuals are making decisions for tax reasons rather than economic reasons.
"Second, the tax cut - originally billed as a way to reduce abuses - may well usher in a golden age of tax evasion. We can be sure that lawyers and accountants are
already figuring out how to disguise income that should be taxed at a 35 percent rate as dividends that are taxed at only 15 percent. Since there's no need to show
that tax was ever paid on profits, tax shelters should be easy to construct."
10:19am and S&P is reviewing Albertson's bond ratings for possible downgrade. That has taken the bid out of the stock. We'll watch the situation, but we don't
view it as untoward.
11:21am and in thinking about the ABS trade, the right trade yesterday would have been to buy Safeway which sold off on the ABS news, or do nothing. The top
of a tech driven rally isn't the place to be playing rebounds. We are stuck for now and hoping for a big close to rescue us. We are never too old to make mistakes
or to learn from them.
11:38am and the stock markets are losing their gain. The frantic trading of this morning has turned desultory. Breadth remains positive. The opening gap has been
closed so now the stocks can decide what they want to do for the rest of the day. Traders may be so exhausted and confused by the week's action that nothing
much will happen.
2:02pm and entering the final hour the DJIA is up 63 points. The NASDAQ is down 7 points after being 30 points higher in early trading. The last hour should be
interesting.
2:30pm and it looks like today may be called a reversal day. The NASDAQ is going to trade just short of 3 billion shares and close lower on the day. The same is
true of the S&P 500 and may be true of the DJIA which is now up only 12 points. The bears may be going to win one. Not the Chicago Bears, the market bears.
We used the sell off to buy AOL at $15.15 in accounts where we sold MSFT this morning. The MSFT is 60cents per share lower from where we sold and the
AOL is 24 cents lower on the day. So in our strange way of thinking we are buying AOL 84cents cheaper than we could have yesterday. Actually since MSFT
was up 36cents today from yesterday's close when we sold, we are buying the AOL with $1.10 more or is it less dollars than we had yesterday. Or something like
that. It's been a long week.
The reversal today may be the beginning of a correction but we think the bulls have a little more fire power left for next week. Techs and biotech are really
undergoing a bout of serious profit taking this afternoon.
3:03pm and the DJIA staved off bull disaster closing up 21 points at 9062 after being up 170 points at one time earlier this morning. The S&P 500 lost 2 points to
end at 987 and the NASDAQ dropped 18 points to finish at 1627.
For the year the DJIA is up 8.4%, the S&P 500 is up 12.3% and the NASDAQ is up 22.1%.
The Model Portfolio is 86% cash and has a value exceeding $523,000 and is up 13.6%. We will post the updated Model Portfolio in the morning.
And tomorrow is another day.
6 June 2003 - Morning Comment
6:36am and Asia was higher overnight with the Nikkei at a four month high up over 1% at the close. Europe is higher and the U.S. stock futures are indicating a
higher opening.
Last night Intel said everything was on track and narrowed the range but in effect raised its revenue estimate for the quarter. Initially shares of INTC sold off but
within and hour the shares were trading higher up 50 cents from the close by 6pm. That action is setting the tone for today's markets.
Also helping is that Oracle is offering $16 a share or $5 billion for Peoplesoft. That's going to get takeover blood boiling on top of the already extended market
and should make for an interesting day.
We hopped back into AOL yesterday because we are trying to look for laggards that have a story that the big boys and girls will use as a reason to buy. We
traded out of AOL a few weeks ago when there was talk of spinning off the AOL part. That doesn't make any sense to us. AOL has any number of subscribers
who pay $10 to $20 per month by credit card debit. That's a beautiful business it just never was worth $100 billion. Our thought is that if Yahoo which doesn't
charge for content is valued at $17 billion in the market place then AOL is worth at least that much. And so we are back in the stock and may buy more today.
Today, up early and then higher into the close. So let the games begin.
5 June 2003
7:07am and Asia was higher overnight with Japan up 1.2%.
Many technical indicators are giving readings rarely seen. Some technicians are going back to the 1960s and 1970s to compare performance after the positive
indicators currently manifesting themselves. The indicators are screaming that markets are overbought, but with the three year bear market taking many stocks to
extremely low price levels versus the ridiculous levels at which they had been selling, it is not untoward to expect an overshooting bear market rally.
Anecdotal evidence from friends in business for themselves does indicate a pickup in order flow from the depressed period of the first quarter.
We are not going to fight the tape, we have learned over the years that that is folly, and so we will continue to pick our spots and look to continue hitting our singles.
Sammy's other 76 bats didn't have cork and so maybe it isn't Sosa. Or as one more than one sports writer suggested, maybe he always kept 76 good bats and
one corker on hand.
Morgan Stanley raised HPQ's price target to $24 from $21 although since the shares closed at $21.05 we would presume that most Morgan Stanly customers
sold yesterday.
Intel's mid-quarter update is tonight.
Yesterday Daimler Chrysler cancelled and re-priced a 5 year $2.5 billion bond offering after they announced worse than expected earnings and Moody's
suggested they were placing DCX's bonds on watch for a possible downgrade. The fact that DCX re-priced the issue is a feather in their cap, and the fact that
bond buyers ignored the re-pricing is an example of the manic demand for bonds at this time.
7:33am and Jobless claims were up 16,000 to 442,000 in the 5/31 week. The four week moving average is up 3000. Continuing claims dropped 18,000.
Gap Stores same store sales were up 10% in May. GPS still has the advantage of the terrible numbers from last year so the comparisons are relatively easy.
That won't change till the fall. But traders and many folks have short memories and so today's comp number should help.
8:03am and there is a lot of comment about the large increase in insider selling. Surely part of it is because prices of stocks have recovered, but another part of
the equation is that the recent tax cut means that the tax bill on sales is 5% less than it would have been several months ago.
8:27am and Bank of America has removed MSFT from its focus list. That's interesting and it is a big move by the Bank. MSFT is trading down 40 cents on that
news and the neutral to negative comments by Steve Ballmer. Our question is why did BAC wait till three years into the bear market to remove the stock?
We have a bid in at $18.50 on ABS. The first indication was $18 to $20. Now the specialist is showing $19 to $21. That's an indication of the buying pressure
still extant in the markets.
9:46am and stocks don't want to go down. Breadth is slightly negative but volume is good and there are buyers.
We added some GPS to aggressive accounts at $17.85. MSFT remains lower and we are just watching it.
All the techies and us included are looking for a pullback but maybe the mutual fund boys and girls are so far behind the popular measures that their game of
catch-up won't let it happen till after month end.
11:04am and Howell Raines is out as Executive Editor at the NYT. The firing couldn't happen to a more deserving fellow. He hounded the Clintons on
Whitewater for years as the editor of the editorial page of the NYT. What goes around comes around.
11:56am and we edged back into SGP in our larger accounts at $18.30. The shares never closed below $18 this week on last Friday's news and we think the
big boys and girls will begin to chase laggards while they look for performance.
The DJIA is now unchanged and the S&P 500 and NASDAQ are positive. Breadth is 5/3 positive on the NYSE and volume is active.
We are buying Albertsons at $19.55 in many accounts. ABS is down 10% from yesterday's close. The stock has a 3.8% dividend at this price and sells at
eleven times reduced forward earnings.
1:58pm and entering the final hour the DJIA is down 21 points and trying to mount a rally. We shall see.
3:02pm and the DJIA closed up 2 points at 9041. The S&P 500 gained 4 points to finish at 990. The NADAQ was up 11 points at 1646.
And tomorrow is another day.
5 June 2003 - Morning Comment
6:40am and Europe is lower as are U.S. stock futures. Wal-Mart same store sales were up 2.1% in May. GPS sales haven't been released as we write.
Microsoft is being cautious in its comments today and the stock is weak as a result. We are going to give it a few more days to work and then use it as a source
of cash if we decide to get a little more liquid. Since we have raised cash to the 87% level in the Model Portfolio we feel we can stay with MSFT for a while longer.
All stock are anchovies and it may be that MSFT is bad Karma for us.
The Model Portfolio
is up 13.3% for the year at $521,000 and we are pleased with that performance. Most of our accounts are up 10% to 18%.
The only negative in yesterday's markets was the failure of the NYSE to register more than 500 new highs. We are also entering earnings warning season and so
we would expect some upsets. Albertson's disappointed today with their forward earnings forecast lowering full year earnings expectations to $1.75 from over $2
and so we would expect a pullback. At $19 we would be interested again. ABS closed at $21.80.
The ECB cut interest rates 50 basis points to 2%. We'll see if that puts more of a bid in bonds since there had been talk of King Alan going along with an
inter-meeting cut in the U.S.
This morning profit taking early and then up? There is talk of the big mutual funds who are lagging the stock markets needing to play catch up by quarter end
June 30 and so that may extend our rally timetable for another three weeks. We will continue to trade on the edges and leave the smaller accounts in cash for the
autumn shopping season.
So let the games begin.
4 June 2003
8:25am and CSFB has raise Disney's price target from $23 to $27. A $27 price is 35 times earnings that have gone nowhere in eight years. They must be going to
do a convertible bond offering for DIS.
We are going to buy some more HPQ today because we think it is going to break out to the upside. In the process we will probably sell EK or BMY since we
don't wish to increase market exposure.
9:54am and the DJIA is up 100 points and through 9000 on good volume. Breadth is 3/1 positive and it will be interesting to watch new highs today. The last
100 point up day saw 550 NYSE new highs.
We sold our EK at $31.19 for a $2 per share gain including the dividend to be paid at the end of July. With the funds we bought HPQ at $20.25. We will get
more action for the dollar from this stock if the markets are going higher. We also sold the PNC for a $1.25 per share gain and ONE for a $1 per share gain
that we bought yesterday in a few trading accounts. We are trying to sell the BMY.
11:22am and we sold BMY at $26.05 for a scratch 30 cents per share profit. We sold our trade in BAX for a 90 cents per share gain.
The DJIA is moving back over 9000 again and we are taking money off the table as the averages climb. The markets remain strong and in these markets the
only time we can get size sold is when there is strength.
We are now over $521,000 in the Model Portfolio value and up 13% for the year and we want to play defense here. We have some low priced stocks for the
speculators to buy from us and we have MSFT and HWP and GPS for the big boys and girls to buy if the DJIA gets near 9500. Unlike Sammy we don't have
any cork in our bat and so we are content with bunt singles to move ahead.
12:20pm and in keeping with our sell some losers when we sell winners philosophy, we sold portions of our COMS and Q holdings to reduce positions in many
accounts. We are taking a 10 cents per share loss on the COMS and a 15 cents per share loss on the Q. The sales place the percentage of each holding in line
with the percent holdings of the other stock we have left.
12:34pm and The Institute of Supply management number came in at 54.5 for May versus 50.7 for April. That indicates a higher order flow and is a positive
for the economy. But then why is the Fed going to cut again if the economy is recovering?
12:46pm and we read that the Feds analyzed Martha Stewart's brokers ink to discover that he wrote "sell at 60" with a different pen than he wrote other items
on a piece of paper. We wonder whether the Feds are using the same analyst who saw all those WMDs in Iraq.
The Martha Media Madness reminds of the Whitewater mania of the Clinton Years. That the FBI has spent over a year investigating this matter is ridiculous. The
same thing happened with the Clintons. Talk about misplaced priorities. No wonder the Oklahoma City bombing and the World Trade Center bombings occurred.
It's almost as if the media is running the FBI. Right now CNBC is showing a press conference in which 5 highly paid folks are talking about a $40,000 gain that
was legal. The only argument is whether Martha got scared when the FBI questioned her and didn't follow her lawyer's advice.
1:37pm and we sold our C trade of yesterday for an 80 cents per share profit. Interestingly, MSFT and DELL are having trouble staying in positive territory at
the DJIA rallies. It could be that folks are unloading these former market leaders to move to more cyclical stocks, or to more fancy ones like International Game
Technology which is up $5 today on a 4/1 stock split announcement. IGT makes slot machines so it is fitting that it is leading the stock markets higher.
2:28pm and Chartcraft.com reported 56.5% bulls versus 20.7% bears. That contrary indicator confirms our desire to continue raising cash. We don't think the
stock markets are going to turn on a dime but there is a point where the buyers will pause.
Treasuries continue to rally and their rally is not consistent with a rising stock market unless one is projecting the perfect world scenario. We aren't.
3:02pm and the DJIA closed up 116 points at 9038. The S&P 500 gained 15 points to end at 986 and the NASDAQ gained 31 points to finish at 1634.
And tomorrow is another day.
4 June 2003 - Morning Comment
7:12am and things cannot be right with the world when the umps find cork in Sammy Sosa's bat. On top of that Martha does the "perp" walk today.
When we sat down this morning the stock futures were higher but now they are lower as the productivity report was revised to up 1.9% from 1.6% for March.
Don't know why that would cause a sell down.
There was an explosion near the stock exchange in Paris and maybe that is having some effect. Asia was a non event overnight and Europe is mixed.
Today markets will be down early and then the bulls will need to reassert themselves. Palm is going to buy Handspring for stock.
So let the games begin.
3 June 2003
8:09am and HPQ has offered positive guidance going forward. That should help the markets. We think the IBM inquiry is a non starter but it will prevent IBM
from reaching new highs for a few days if not longer.
10:15am and the stock markets have been fluctuating around unchanged all morning. Breadth is negative and volume is moderate. IBM is the big drag on the DJIA
with the shares down $3.36.
We repurchased the EK we sold yesterday at $30.90 and we also bought COMS at $5.08 in many accounts. We added HPQ at $19.98 to our aggressive trading
accounts since we think it is breaking out to the upside. Also we like Carli and we think some IBM money may begin to migrate to HPQ. Carli is doing a good job
of quieting her critics. And she has made it past the second round.
Layoffs of workers were down 53% in May as reported by Challenger and Grey.
11:37am and the markets don't want to go up nor do they seem to want to go down. We are taking very small trading positions in three bank stocks in very large
accounts. The three bank stocks are Citigroup at $42 on a momentum breakout, PNC at $48.30 on a pullback to support from a breakout last week and Bank
One for no technical reason at $37.90.
Breadth is even and volume is moderate and new highs are expanding a bit and now number 200 on the NYSE. But the going is tough.
1:37pm and the paint is drying very slowly. Maybe the last hour will give an indication of where tomorrow will take us. Treasuries rallied strongly today with the
ten year dropping to a 3.30% yield. Greenspan commented that he thought the economy was beginning to recover but there was also a hint of a final rate cut this
month. So he is of course talking out of both sides of his mouth. With the way Treasuries are acting we would expect the stock markets to be heading south. But
they haven't, yet.
In our trading accounts we repurchased the BMY at $25.75 that we sold yesterday.
2:37pm and the DJIA is slightly positive. We purchased a bit more Andrew Corp at $9.70 for our larger trading accounts. We are entering this stock slowly
because we want to acquire a large position over time.
3:02pm and the DJIA managed to eke out a gain up 25 points at the close at 8923. The S&P 500 was up 4 points at 971 and the NASDAQ gains 12 points to
close at 1603.
Breadth was slightly negative at the close and new highs on the NYSE were about 320 while new lows were under 5.
And tomorrow is another day of watching Martha Stewart clips on CNBC.
3 June 2003 - Morning Comment
7:23am and just when it was getting too easy, the markets did their thing and confounded everyone. The reversal in the last hour yesterday was a downer for the
bulls but confirmed our feeling that the game and rally is getting a bit long in the tooth. New highs exceeded 500 on the NYSE for the first time in the rally and that
is the point at which the DJIA turned lower.
Yesterday we thought the turn was caused by Intel lowering prices selectively. After the close we learned that the SEC is investigating IBM revenue recognition
numbers for 2000 and 2001 when wonderful Lou Gerstner was running the company. That caused IBM to sell off $3 after hours and has cast a slight pall on this
morning's market. That also was the probable cause of the afternoon sell off as the big boys and girls received word of the investigation before the rest of us peons.
This morning comes news that the U.S. attorney in New York is going to indict Martha Stewart for lying to investigators. Of all the people in the top echelons of
business Martha is the least likely candidate for jail. There is a vendetta because she won't plead to something she didn't do. We know the situation because we
were in it ten years ago. When the investigators want you they will get you even if you are innocent. Luckily we weren't a famous name like Martha and we had a
great lawyer and so we were able to preserve our dignity while the NASD still got its ounce of flesh. Our only satisfaction was that six months later the NASD
admitted and was part of a billion dollar fine settlement that in effect said what that we had been accused of doing was the only thing we could have done to get fair
price execution for our clients in the OTC markets of those times.
Asia was mixed overnight as is Europe. Treasuries are a bit firmer and the stock futures are suggesting a lower opening. Then we will see how much strength the
bulls have left.
So let the games begin.
2 June 2003
7:03am and Imclone Systems is up another $6 today and so we have hopes for our BMY trade. Genentech, which was up $18 in the last week, is up $7 again this
morning. The salad days are back again. For how long is the question. And what is the risk?
We said we were looking forward to an interesting week because in bear and bull markets we always trade from the long side, never having mastered the art of
selling short. And as that "ole" bullish feeling sweeps the marketplace trading long side opportunities should be easier.
But we do think the major economic problems remain and while the recently signed tax bill has positive aspects for the markets, we don't know that it does all that
much for the real economy. Now maybe the stock markets have become the economy and if that is the case then we should be bullish.
In our readings over the weekend we noticed that reported unemployment in Japan is 4.5%. Now we don't know if that number is more understated than the U.S.
unemployment number which is probably 4% higher than the 6% reported figure. But we did have the thought that even with only 4.5% unemployment Japan
remains mired in a 14 year miasma. That doesn't mean that the Japanese stock markets haven't provided good trading opportunities during the fourteen years, for
they have. There have been many 25% moves and even a few 50% moves for nimble traders to take advantage.
So even if our bearish scenario for the long term outlook of the U.S. economy occurs, we are not blind to the possibility of good long trading possibilities. And this
current move may be one. But as the markets move further into overbought territory and the month of June the risk is increasing.
At some point we are going to move to the sidelines and sit on our hands. Our hope is that we have registered a bit more profit in accounts before that happens.
Our greater hope is that our greed doesn't trip us up. Those thoughts are why we have been quicker on the trigger lately.
7:34am and Treasuries are lower on the strong stock market action around the world. The Euro is lower and the dollar is doing better.
9:03pm and the stock markets are higher on good volume. The AAII report showed 63% bulls and 18% bears. The Institute for Supply Management's index of
manufacturing activity came in at 49.4 versus 45.6 and that has put a slight bid in the market. A number over 50 would mean that manufacturing was expanding.
SGP opened at $17.90 and rallied to $18.14 before backing off. We had our trading stock in to sell at $18.15 but managed to change the order to $18.10 and get
the shares off for a scratch loss before SGP headed lower. We are still interested but the media is going to pummel the stock for a while.
We are selling some BMY in larger accounts for a 70 cents per share gain on today's pop on the IMCLE news. We like the stock and yield and so are holding the
smaller amounts we bought Friday and will try to repurchase traded stock if it backs off on the correction which will come later today or tomorrow. We are adding
more MSFT to larger accounts. As the market goes higher we expect MSFT to move to $30 and we are using it as our market participation stock. We think the
big institutions will be comfortable buying the stock to participate.
We tried to initiate a position in 3Com but missed it at $5. COMS has $4 per share in cash and is priced at about twice sales. If it comes back down in the
correction we may try again.
10:47am and the DJIA is up 130 points so the breakout it for real, for now. Breadth is over 2/1 positive, up volume exceeds down volume 5/1 and new highs are
set to get to 450 today. We bought BAX today at $24.95 in trading accounts where we sold BMY. Baxter Labs is off and we don't know why but volume in the
stock isn't huge so we think that the selling is institutional and the stock should pop back up when the seller is finished.
12:17 and NYSE highs exceed 450 on their way to 500 today if the DJIA remains strong. Breadth is expanding to the positive and up volume continues to
exceed down volume by a large margin. Volume is good and the DJIA is up 135 points.
The updated Model Portfolio has been posted.
IBM is at $89 and we are still waiting to see if it can crack $90.
1:11pm and the DJIA briefly climbed over 9000 before falling back.
1:41pm and we sold the EK we have been trading in our aggressive accounts for a 90 cents per share profit. We are maintaining our EK holdings in other accounts.
As we approach the final hour the DJIA is up 125 points and undergoing a little retrenchment. But this is the time of day that usually occurs. The final hour will be
the set up for tomorrow. If the stock markets close strongly then we would expect a strong opening tomorrow.
Intel is not participating in today's rally. INTC is actually down 6 cents per share as we write. They have a mid-quarter update scheduled for June 5.
1:48pm and just hitting the tape is that Intel is cutting some prices. That has led to a pullback in the tech sector. The QQQ are negative after being up 2% an hour
ago.
The talking heads on CNBC have missed the INTC news. That's why INTC was weak. Our computer guru brother received a price cut message two hours ago.
It's strange it took the markets so long to react.
2:20pm and we used the pullback to buy the position in 3COM that we gave up on this morning. We bought shares in our large accounts at $5.06 where we
traded SUNW last month. COMS has $4 per share in cash and makes a decent product. And the price at which we are purchasing is a long way from its $119.75
high on 3/31/00.
3:02pm and on the way back from Chicago we were having a discussion about the phrase "easy come, easy go". The last few days market action may fit that
phrase to a T, or is it tea, or tee? The NASDAQ closed lower on the day down 5 points at 1590 after making a new high. That reversal is not a happy occurrence
for bulls if you believe in charts. It suggests at least a few days of consolidation.
The 9000 level on the DJIA also proved elusive with the DJIA exceeding it for most of the day only to fail in the final hour. For the day the DJIA closed up 47
points at 8897 and the S&P 500 gained 3 points to end at 966 which is resistance.
Treasuries were lower on the day.
And tomorrow is another day.
2 June 2003 - Morning Comment
This is the comment we meant to post last Thursday. It applies to today also.
7:01am and we are heading to Chicago in a few hours for a family wedding. As a result there won't be any more posts until Monday, June 2.
Since we are 94% cash and now is an opportune time for a few days off.
The basic question for our investing outlook is to decide whether the current rally really is different after three years of bear market action. Our honest answer is that
we don't know. We don't believe the last two stimulus packages have done any good.
It is true that the major averages are attempting to crack upside resistance and if they do
there is another 10% gain potential. But the overall return in our portfolios for the year, coupled with approaching resistance suggests prudence and encourages us
to head to the sidelines. For the past five years that has been the correct course of action. We may be wrong this year but as in baseball, we'll stick with the
established trends since we are so far ahead of the game over the past five years. We also see froth in the marketplace.
For example we are amazed to see convertible bond offerings with 1% to 2% coupons being offered at 25% to 30% premiums to conversion. These bond
investors could buy the common stock and if they get 25% appreciation over 5 years they would be way ahead on a total return basis since the bond investor
would only be receiving 1% a year and the bond approaching parity with such a low coupon should only have a 5% to 10% premium. That's because the 1%
coupon on these offerings presumes no inflation or recovery in the economy. If the economy recovers and the demand for money increases and the Fed raises
interest rates the only value for these bonds is going to be par at maturity or the underlying stock value.
The reasons for the convertible bond issuance is that bankers have been able to convince investors that historically convertible bonds offer protection to the
downside while also allowing upside participation. But the coupons on these bonds are so minuscule as to be of little value should prices of the underlying securities
head south when interest rates are rising. And anyone who owned convertible bonds in the Crash of 1987 can tell you that for a time they performed worse than the
underlying stocks in providing principal protection. And should the economy not recover, well any equity security is going to have trouble.
The current convertible craze is a result of burned common stock investors. The same folks who sold them on the wonders of Internet and dot.com stock funds are
now selling these same folks convertible bond funds. We think there is a pattern here
The Internet stocks are again the darlings of the momentum boys and girls. We tried owning a couple of them like Yahoo when the markets were at their lows but
we just couldn't ignore our value background and so sold for minor profits. Now these companies share prices are back in the clouds of hope and we can only
look on in wonder and awe.
What lessons have been learned?
7:35am May 29 and the stock markets look to be opening a bit higher this morning. Japan was up over 1.5% overnight. First Quarter GDP was revised to up
1.9% from up 1.6%. So things were better than we thought they were. Jobless claims dropped 9,000 to 424,000 in the latest reporting week while continuing
claims rose 83,000 to 3,763,000. So things weren't so good for everyone.
8:04am May 29 and NO CHECK IS IN THE MAIL as The
NYT
reports that the compassionate conservative Republicans managed to cut out families
earning $10,000 to $26,000 from the $400 child tax credit increase to $1000. And of course folks earning under $10,000 won't get either $600 or $1000 in a
child tax credit. Guess it's cheaper for poor folks to raise their kids. What's that about let them eat generic rice? They don't vote Republican anyway.
But Steve Ballmer did save $35 million in taxes on his recent sale of stocks and Michael Dell saved $25 million and Gates and Ballmer will save $125 million in
taxes on the dividends they receive from MSFT this year and every year. They probably vote and donate Republican.
8:51am May 29 and we are buying back some of the EK at $30.30 we sold in our trading accounts yesterday. The shares are off more than the dividend and we
think that is just a temporary occurrence related to a dividend capture strategy and someone not doing their homework.
The stock markets are flat with the DJIA up 5 points. One negative is that the stock with the largest market capitalization, Microsoft, has gone nowhere in the
two month rally off the March lows. If the rally is to move higher MSFT would seem to have to participate.
And so we are going to buy some MSFT at $24.50 in accounts as a bet that the DJIA and S&P 500 pierce resistance and move higher. MSFT is a low risk
way to play the move. And since the cheap stocks are moving we are going to revisit Qwest at $4.90 for a low priced speculation. Q hasn't restated earnings
but they just announced unaudited quarterly numbers and are refinancing $1 billion in bonds through Merrill Lynch so for the time period we plan on owning
we think the coast is clear. The Q is going in aggressive trading accounts. We bought 1000 Q and 500 MSFT for the Model Portfolio so it is back to 90% cash.
9:10am May 29 and the DJIA is up 45 points and above resistance as is the S&P 500 at 958. The markets may be on to something. Breadth is positive.
9:37am and we are heading out.
So let the games continue as tomorrow is another day, and the day after tomorrow Mickey and Dan will be husband and wife.
6:46am June 2, 2003 and Mickey and Dan are man and wife and we are happily home in never never land.
On Friday we did buy SGP at $18.06 in aggressive trading accounts. The stories in the NYT and WSJ were a bit scary with big fines and criminal referrals
suggested and so we think the stock may revisit the $17 area. Friday the markets were higher and so SGP participated. If the markets open strongly today
we may exit and reenter and even if they open weakly we may exit. We are going to play it by ear. We are not afraid of the stock over the mediate term but
front page negative stories depress stock prices and that's a fact of trading in the stock markets. Pfizer is being investigated for the same practices but Wall
Street likes Pfizer and so the stories about PFE are not as negative. Or maybe our reaction is because we own SGP for a trade. All stocks are anchovies.
We also bought small amounts of Bristol Myers in accounts at $25.70 on the news that Erbitux, the Imclone Systems colon cancer drug had positive results in a
larger sample. Imclone jumped $5. We had been avoiding BMY because of Imclone and this news has added positive shading to BMY's acquisition. BMY has
a 4.4% dividend and if the markets move higher it will too.
Finally we added Q to more accounts at $4.70. We own it as a low priced speculation.
Overnight the Nikkei was higher as was most of Asia. Europe is higher and the stock futures are indicating a higher opening.
So let the game begin for a full week of what should be interesting trading.