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

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


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 medical coverage.

"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 accounts.

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 point and the thirty-year Treasury is off 1 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 NASDAQ. Overall

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 to $90.05.

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 expanding.

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 www.realmoney.com.

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:
Intent to 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.

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.
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:
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?

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.


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