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30 June 2005 Daily Comment We are doing some tag end buying in accounts to get them aligned. And then we are going to await the Fed decision which supposed to be a raise of 25 basis points and no change in language of gradual tightening. This morning’s news had Jobless Claims at 310,000 which are down 6,000 and the second best of the year. Personal Income was up 0.2% and the chain deflator (inflation) on a year over year basis was 1.9%. Thursday’s Markets June 30, 2005 There really isn’t much to do until the Fed speaks. The markets are meandering and when oil was down earlier this morning the major measures were positive. Now that oil has moved to the upside the major measures are lower. Treasuries are firm with the five year at 3.72% and ten-year at 3.95%. "The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Although energy prices have risen further, the expansion remains firm and labor market conditions continue to improve gradually. Pressures on inflation have stayed elevated, but longer-term inflation expectations remain well contained. "The Committee perceives that, with
appropriate monetary policy action, the upside and downside risks to the
attainment of both sustainable growth and price stability should be kept
roughly equal. With underlying inflation expected to be contained, the
Committee believes that policy accommodation can be removed at a pace that is
likely to be measured. Nonetheless, the Committee will respond to changes in
economic prospects as needed to fulfill its obligation to maintain price
stability."
3:02pm and even with Boeing up over $4 per share which is worth 25 Dow points the DJIA closed 103 points lower at 10270. The S&P 500 lost 9 points to end at 1191 and the NAZZ dropped 13 points to 2056. Breadth was positive on the NYSE and negative on the NAZZ at the bell. Crude Oil ended down 72 pennies at $56.50. Treasuries were better with the five-year at 3.70% and the ten-year at 3.92%. Treasuries are suggesting a slowdown which flies in the face of what the Fed is saying. And tomorrow is tomorrow so let
the games begin.
29 June 2005 Daily Comment It is wondrous how a good night’s sleep, a large cash position and
an up day in all our stocks can freshen the spirits and make the coming trading
day one of interesting anticipation.
The final number for first
quarter GDP was up 3.8%. More
importantly the Chain Deflator (Inflation Measure) was an annualized 2.8% which
was below the expected 3.2%. Personal consumption was up 3.6%.
This morning the gurus on CNBC
are saying the $60 spike was all speculation. Two days ago they were saying the
$60 spike was oil shortage, Nigerian war, and no refineries. Those who follow
CNBC are doomed to confusion.
Oracle had good numbers last night and that should help in the tech
area.
Morgan Stanley raised Motorola to overweight from equal
weight.
Applied Materials was named one of Lehman Bros “uncommon values” for 2005-2006. We have never had a stock
we own on the list. We don’t know whether to worry or be happy.
BankAmerica lowered its price
target on Sara Lee to $20 (its now
at $19.61) with the comment that SLE has embarked
on a significant transformation plan that would cause near-term business trends
to suffer further. They see profits declining in every business segment for the
company, except in meats, in the first half of fiscal 2006. We agree, but
Duh! That’s why the stock is priced where it is. We think this restructuring
will be the last and the best. Meanwhile we hope to continue collecting the 4%
dividend which is supporting the stock and we think the company knows that.
Moreover, there are a lot of long term shareholders of SLE from the many
acquisitions made over the years who depend on the dividend for income.
A client questioned why we sold JP Morgan yesterday when it
goes x dividend on Friday. It is a good question. Our response was that we don’t want to own JPM on Thursday when
the Fed makes its announcement. If the Fed raises a quarter points and doesn’t
change the wording of its press release we think stocks will go lower. In all the recommendations we hear for JPM
the first thing mentioned is Jamie Dimon and the fact that he is going to make
the company’s stock a $100 per share stock. We don’t disagree but JPM doesn’t
exist in vacuum. Dimon isn’t even totally in charge of the company yet. Their second
quarter report is going to be a dog. That has already been announced so the bad
news should be in the price of the stock. But momentum players would rather buy
JPM at $42 on a technical breakout to new highs on good news than at $34 on bad
news. And momentum players currently rule the markets. We were going to hold
the stock for the dividend as support to wait for the eventual recovery in the
share price. That strategy was based on our belief in a summer rally and a strong
market. When the markets failed last week at resistance and quickly rolled over
on big volume we reconsidered and decided to raise cash. When we raise cash we
have to sell stocks, even ones we like.
Investor’s Intelligence has bulls at 55% and bears at 19%. That is
a contrary indicator and is a negative. The move of bulls above 53 last week
preceded the quick 2% to 4% drop in various measures over the next five days.
9:30am and CNBC has on the screen the countdown to the announcement of the crude oil inventories for the week. The Hunts could have had a lot more fun with gold and silver prices with this type of coverage. Well folks, gasoline, distillates and crude oil inventories were up. The oil traders were expecting a drop in crude oil inventories and less of a build in distillates. Oil is now down $1 per barrel at $57.20. Stocks have turned positive on the
news after trading in the negative column for the first hour.
9:56am and the major measures are higher in tepid trading. Oil is now down only 59 pennies. Treasuries are firmer today with the ten-year at 3.95%. The S&P 500 is fixed on the 1202 resistance number and needs to penetrate that today and move up through 1212 by week’s end to reverse the negative downturn of last week. The only way that is going to happen in the next few days given the upcoming holiday and the fact that traders seem averse to getting long is for the Fed to take unexpected action tomorrow. This morning we sold Bristol Myers at $25.25 for scratch
loss if the 29 cents dividend ($25.53 total) is included that we earned as the stock is today trading x dividend. Since
we read the proposed settlement of the phony numbers pumping of the early
2000-2002 period by BMY management and learned that neither the board nor
management were going to be punished we have wanted to get out of the stock.
The only reason to hold it is for a takeover and Pfizer and Merck have so
many problems of their own that we think any acquisition of BMY is a ways off. And
we just don’t like what management and the Board did to save their hides
through the pocketbooks of shareholders. This was an easy pick for raising
cash.
We sold Dycom at $20 for a small gain and added a few shares of Schwab to accounts. With the DY sale and SCH purchase
we have basically placed accounts in the position we want them for quarter end.
We have a good cash position and relatively large holdings in a few stocks like
Motorola and TLAB that have been bucking the downtrend of the last few days.
2:08pm and entering the final hour two large cap stocks, General Mills down $3.50 and Monsanto down $4 are acting as rally
extinguishers. Oracle remains up about 90 pennies or 7% and Google is doing a repeat
of yesterday when it dropped $7 in the last few minutes of trading. Today it is
down $7 after being up $2 in the early going. That drop is not a big one for a
$300 stock but it does show that the momentum guys and gals may have decided to
take their profits and head to the sidelines until Uncle Alan’s note to all tomorrow
at 1:15pm CST.
And tomorrow is tomorrow so let
the games begin.
28 June 2005 Daily Comment Google is above $300 and Oil is above $60. One of them is overpriced. Which one? Tuesday is beginning on a slightly up note with the major measures looking to open slightly higher. After selling SBC yesterday and raising a bit of cash that we think we’ll sell another big cap income stock today if we get a pop. We own these stocks for the dividends and if the markets are going south holding a dividend paying stock is like writing a covered call. You receive the 4% dividend and lose 10% on the share price. Folks who write covered calls always say that they planned on holding the stock until it return to parity. Our response is that we never buy a stock with the expectation that it is going lower. They often do go lower and when they do we have to make decisions. But when we buy stocks we are looking for 25% gains over a two year period. With the markets playing chicken with us at this time our thought is to raise some cash from stocks with the lowest upside return potential in any summer rally that develops. We do not want to be long a lot of stocks going into September and our fear is that the summer rally will go the way of the January rally this year. By that we mean there won’t be one. And so we are raising a bit of cash while there is some buying interest before quarter end. We are no longer measuring our
performance against our year end closing prices in making buy and sell
decisions. We are in a preserve the
capital we have left mood and will let the gains take care of themselves in
the future. This is our money too and the drop in value hurt us but it is spilled
milk and we find that concentrating on reaching a certain number rather than
concentrating on what the markets are willing to give is a no win game.
This an interesting article by Bill Gross, the man from Pimco, who
manages about $500 billion in bonds.
http://www.pimco.com
9:31am and after an hour of trading the major measures are higher
with the DJIA up 78 points and the S&P 500 at 1198. Guru Ville has 1202 as
resistance for the S&P 500. Treasuries
are a tad weaker with the ten-year at 3.95% and Oil is down $1.39 at $59.53. Breadth
is 2/1 positive. How long can it last?
The Conference Board reports that
June Consumer Confidence is a three year
high.
We sold our JPM holdings for a profit and raised a good deal of cash in the
process. If the Fed doesn’t raise rates on Thursday or changes the wording of
its comments to suggest an end to raises then JPM will probably move higher. If
the expected rate increase and no change in wording occurs then JPM faces a lousy second quarter
earnings report and we don’t know how much the stock reflects that reality
especially if the markets are in a funk at that time. Moreover should the Fed
slow down or cease the interest rate increases our remaining holdings will
benefit from that action.
In our cash raising mode into
quarter end we sold Verizon at $34.70
and Estee Lauder for scratch profits/losses.
To raise cash we have to sell when folks
are buying.
And tomorrow is tomorrow so let
the games begin.
27 June 2005 Daily Comment In an effort to change our luck and make a bit more sense we are now posting
on the evening we write the comment so that we don’t get caught up in the wrong
tenses and days in our writings. Thus today’s June 27 post was written
during the day of June 27 and posted in the evening of June 27. It makes more
sense to our better half and we hope it does so for our readers.
$60 oil is the new cocktail conversation. Markets crash, women shriek, grown men cry and pundits have hours of fodder for talk. And we would hope that Uncle Alan will take the price of oil into account when he and his band of merry men and one woman meet this week to set Fed policy for the next two months. What do they talk about for two days? Gloom pervades the street as all
the media and gurus have proclaimed that there is too much bullishness. How
quickly moods change. Last Tuesday at Our favored tech guru has 1141 on the S&P 500 as a line in the sand. The fact that 1141 is 4% lower than Friday’s close gives us pause but doesn’t seem to bother him. But then he is probably all in cash. Often in the past when things looked dicey we would move entirely to cash but this time we have been taking a different approach. Different times suggest different methods and we want to hold most of the stocks we own and make substitutions by selling weaker stocks on news and go with our stronger holdings. We did this with Micron to Motorola last week and we think it is a strategy that will work this time around. It is also the way we managed our accounts in the 1980s and early 1990s. One caveat to our steadfastness in maintaining our stock positions through this correction is that we felt the same way at year end with disastrous results. At year end we were looking for a rally as we are now. The difference is that this time we own a different class of stocks of much better quality than the stocks we owned at year end. Anything is possible and to be cautious we are going to do some selling
into Quarter end. We are always
measuring risk versus reward. A 20% cash position is not going to save us from
a severe correction but since the markets failed at resistance and rolled over
last week we decided it is prudent to have some cash on hand for adding new or to
existing positions with better gain potential than those we are selling.
Now the second case of mad cow disease has been reported. Our guess is that mad cow disease has been around for a long time but since only one in 10,000 beef animals were semi-tested the odds for discovery were minimal, especially since no one at the Ag Dept or in the Cattle Industry wanted to find the disease. We don't each much beef but we doubt that this discovery is going to affect beef consumption although it will affect beef exports. Monday’s Markets Short interest on the NAZZ rose 2.1% as of June 15. That is usually
considered a bullish statistic. NYSE
short interest declined 1.2% in the same period. The opposite is true and
so we have a wash sale.
Overnight Sunday Asia was lower with the Nikkei down 1%
and Europe is lower catching up with
Fridays’ downdraft in the U.S. markets U. S. futures are suggesting a lower opening
and with the OPEC ministers saying there isn’t much they can do (nor do they
want to) we would expect the malaise to take the markets lower in the early
going.
The only potential save this week
is Greenspan not moving on rates and even that would be temporary since the
only reason to stop raising rates is because the economy is softening. And that
is why we have a good chunk of money in 4% plus dividend paying stocks.
The Fed will announce their decision on Thursday at 9:52am and the major
measures opened lower but now have moved to higher except the NAZZ which is off
1 point. Breadth is slightly better than at the opening but still remains
almost 2/1 negative. Oil is firmly over $60 and Treasuries are firm with the
ten-year at 3.91% and the five-year t 3.70%. The dollar is lower today against
the euro and the pound as rumors of an ECB bank rate cut fade.
12:16am and with no news the markets are meandering with the sell
off of the last few days casting a pall on any bullish action. Oil is trying to
get trough $61 on the upside while Treasuries are a bit better on the long end
as the yield curve flattens. Bu flattening we mean that Short maturities are
rising a bit in yield while long maturities are falling in yield and so the two
year yields 3.58% while the ten-year yields 3.90%. European stocks ended lower
with Italy and France down over 1%.
3:02pm and as a first step in rebuilding a bit of a cash position we sold our SBC holdings at $23.58 for a scratch profit or loss as the case may be (including the dividends). And Google made a new high today at $304 per share for a market capitalization of $82 billion. Their search engine is not powered by oil. For the day the DJIA gave up 4 points at 10295. The S&P 500 lost 1 point to 1191 and the NAZZ lost 8 points to 2045. Oil ended at $60.54 up 70 pennies and the ten-year Treasury closed at 3.91%. There are some interesting bets being made this week. Breadth improved into the close on the NYSE to about even while on the NAZZ it was still 5/3 negative. And tomorrow is tomorrow so let the games begin.
25 to 27 June 2005 Weekend Comment Yesterday was not a good day for
the bulls or our accounts. The S&P 500 broke support at 1208 and closed at
1200 with only 1198 out there as final support before correction city becomes
the word of the day. It seems like every time the Model Portfolio breaks through
the $540,000 level to the upside as it did yesterday morning gremlins arrive to
test our resolve. With oil at $60 and folks worried about We do think the oil price level
is reminiscent of the energy crisis in The talk is that the current rise
in the price of oil is demand driven, not supply driven. Back in the 1970s OPEC
cut the supply of oil and that caused prices to rise. This time around
supposedly The potential for that to occur in the future is the reason for the rise in oil’s price according to the gurus. But economic theory would suggest that as the price of oil rises there is a point where folks use less oil and so demand weakens. No thought of that phenomenon is being accounted for in the current pricing. The last $20 rise in oil is
trading and momentum driven and with record supplies on hand the current oil
crisis is as phony as the 2001 California Energy Crisis. And just as the
1970s-early 80s commodity shocks ended so to will this crisis and within a few
years the same experts will be wondering how low the price of oil will go. But the getting from here to there is the
tricky part.
By the by, Scott Reamer at www.miyanville.com has been asserting for
a while that there is not co-relationship between the price action in oil and
the action of the overall stock markets. He has presented back tested data to
support that thesis. Our only comment is that when that data was compiled CNBC
was not displaying the price of oil on a minute by minute basis and its
announcers were not ascribing stock market price changes to the changes in the
price of oil. Since investing over the short term is mainly psychological we
would guess that the continual harping on the price and the damage it may do
can’t be a positive for stocks.
Thursday night Micron disappointed big-time and the shares
are off 60 pennies at $10.30 this morning in early trading. We knew MU was a volatile issue when we bought
it since it depends on DRAM pricing for its profits and has for a number of
years. With last night’s report we were obviously early and must reevaluate. It
will probably be best to get out and reconsider.
J&J has a signed agreement to acquire Guidant Technology at
$76 cash. Unfortunately one of GDT’s pacemakers doesn’t work and GDT knew that
when it sold them. Now it is trying to figure out what to do and we would
imagine that J&J is thinking about the merger. It is a good soap opera
except for the folks with the defective devices.
IBM is laying off 13,000 workers in the Durable goods orders were up 5.5%
but ex transportation they were down 0.2%. No heated economy there and with the
price of oil placing the brakes on growth the bulls best hope is an end to Fed
tightening next week.
9:23am and stocks opened lower. Micron opened at $10.60 above its pre opening computer trading
level of $10.30. We decided to sell the shares and consider ourselves twice
burned with that stock.
10:25am and stocks remain lower but the major measures are above their lowest levels of the day. We are investing the MU funds in Motorola at $18.75. Yesterday it was one of the strongest tech stocks trading rising to $19.23 before succumbing to the DJIA drop by moving back to up six pennies on the day at $18.86. We are concentrating our tech holdings in the strongest stocks. Motorola has almost $5 per share in cash in the company and new management has turned it around and caught the fancy of “the street”. We are also picking up TLAB at $8.94 for the SGP sales of
yesterday.
All that is next week so for now enjoy the week-end. We own what we like and like what we own. And on Monday let the games begin
again.
24 June 2005 Daily Comment We hope our early departure
yesterday wasn’t the cause of the down close on the DJIA. Early indications
Thursday morning are of a lower opening. Overseas Fed Ex announced ‘less than’
earnings this morning and suggested that next year will be more difficult. The
company is still going to earn over $5 but the bears are wailing that the miss
by FDX is proof that the price of oil is having an effect on commerce and
earnings and so the markets have to tank. Our more bullish view is that FDX is
going to continue to earn a good deal of money and will have to adjust. By the way, Fed Ex’s profits were up 9%. CNOOC which is 70% owned by the Chinese government made an offer
for Unocal. And now the talk of Ford and GM are warning that SUV and truck sales are going to be lower. Well, DUH! Those folks must not read the papers. Gasoline prices are rising and SUVs get half the mileage of less guzzling vehicles. American car buyers aren’t that stupid—we think. And the auto companies want to blame the losses they are suffering on worker health care costs which amount to about 5% of sales. Funny thing is that the auto companies were flush with SUV profits when they signed the last contract that included those worker benefits. Now, suddenly when the companies can’t sell cars the benefits are the tproblem. How about dumb decisions on which
cars to build. We know that SUVs are more profitable than cars; but when the writing
is on the wall that gasoline prices will be rising for the foreseeable future someone
in First time claims for unemployment were 314,000 versus and expected
330,000 and continuing claims were 2.6 million which is down from the 2.9
million at the beginning of the year. They are going in the right direction
again.
9:01am and existing home sales fell 0.7% in May to 7.13 million annual rate. That was a tad less than expected. Uncle Alan and Mr. Snow make a nice couple and they are testifying before Congress this morning about China-U.S. relations. In the early going big cap tech stocks were higher and DJIA type stocks weakly higher to lower. Breadth is now negative and the DJIA is down 40 points. The gurus are calling for a failure at this level where the markets failed in March. A drop in the price of oil or the
Fed not raising next week is the type of catalyst needed to allow the major measures
to push to substantially higher ground. Next week also coincides with quarter
end and we would guess that not a few big boys and girls are hoping that the
major measures can close near these levels. And they have a lot more money to
play with than we do.
11:11am and after visiting minus territory this morning the NAZZ is now trading above the 2100
level which is an important technical resistance area. A close above that level
on good volume 2/1 positive breadth would force the bears to endure a sleepless
night. Unfortunately breadth on the NAZZ
is negative at the moment and some gurus are ascribing the tech rally to window
dressing although it seems a bit early for that. The DJIA has recovered from a down 50 points move but is still off 28
points. Volume is moderate and breadth on the NYSE is slightly positive while
it is slightly negative on the NAZZ. Oil
is up $1.26 at $59.40 on its way to $60 as the pushers keep pushing and the
momentum folks are enjoying the move.
GE announced that it would meet estimates this morning and the stock has sold off. Coupled with the FDX $5 plus per share drop the big boys and girls may decide to sit on their hands or take a few profits if they have any. We sold shares of Cisco in larger trading accounts and we
bought TLAB with the proceeds only in the Model Portfolio in an
aggressive move. Since TLAB is up today against the markets trends we are going
to wait a day to see if TLAB backs off so we can invest the other CSCO money
below $9 per share.
1:36pm and immediately after our last post the DJIA dropped another 50 points to down 100 points and has stayed around the down 100 mark since. The confluence of the failed push through resistance, the oil spike and the approaching quarter end have made for interesting markets. We sold our SGP holdings for a 50 cents gain more to raise cash than
to lock in the profit although this year any profit is appreciated. We would
like to have some cash in our aggressive accounts for any new bargains if the
sell off continues.
Some of our tech holdings fought the trend and closed higher and even DreamWorks found support today for the first time in two weeks. So there were some positives. We are not under the illusion though that a general sell off won’t take our winners today lower. It is just nice to have some on a day like today. And today is tomorrow and it is
Friday so let the games begin and let’s get this week over.
23 June 2005 Daily Comment The stock markets are setting up for a strong opening on Wednesday the 22nd and that will provide an idea of the bull strength versus the remaining bear power. We readjusted a bit yesterday going to a more conservative BLS from BSX and with that switch we are in good shape for a rally or a continuation of the meandering move higher that has been occurring over the last month. We are sacrificing potential quick gains by edging to more conservative stocks but we don’t have the stomach to try and hit home runs to get all our drop of early January give-up back in one swift up move. That’s because a down move would place us in a more precarious position. And so we are going with stocks we know and looking for bunt singles. Being down 6 runs is no fun but this game has no time limit on innings played except the arbitrary ones of quarter and year end imposed by folks who are running other folks money and not their own. We too are running other folk’s
money but most of those folks are friends and our own family money is invested
right along and we want to recover and grow our own money as well as all the
other folks’ money in a prudent manner. Our approach now will do that.
9:16am and stocks opened higher out of the gate but the major measures are stuck at fractionally higher. Breadth is strong and Treasuries are also better with the ten-year at 4% down from 4.05% at yesterday’s close. Oil is up 11 pennies at $59.20. After doing a bit of reading this morning we have come to the conclusion that the BSX/J&J fight is not over and that the jury verdict may be the straw that leads to a takeover of BSX by a cash rich drug company that wants some or more medical device exposure. Since such an idea is speculative at best we are repurchasing the shares of BSX only in our more aggressive accounts and in much smaller amounts than we originally owned. The same holds true for Eyetech which announced higher sales projections for Macugen for the year to $175 million from $150 million and in the past week has exhibited a desire to take the fight to Genentech over the efficacy of the two company’s competing eye drugs. Again, we are repurchasing stock in much smaller amounts only in aggressive accounts. CNBC has announced that E-Trade
is going to bid about $7.5 billion for Ameritrade.
AMTD has revenues of $1 billion and holds total assets of less than $100
billion. It has not debt. Contrast that with the $1 trillion in assets that
Schwab holds, the $4 billion in revenues and a market cap of $16 billion
including $1 billion in debt. Schwab is
cheap on the price of the potential E-Trade/AMTD deal.
10:48am and crude oil inventories were down 1.6 million barrels
which was less than expected and that has caused oil to move down $1.04 to $58.
Stocks can’t get out of their own way and are plus or minus even on the day in
light trading.
11:32am and it is too nice a day not to head out for a bike ride. We own the stocks we want and there is not much to do but watch and wait. Being absent prevents us from over thinking our strategy. How’s that for a rational for taking the rest of the day off. As we leave the major measures are mixed and breadth is slightly negative. And tomorrow is today so let the
games begin.
22 June 2005 Daily Comment June 22 is the day of the full moon. Today June 21, the day we are writing this missive to be read on June 22 is the Summer Solstice which means its time to begin preparing for winter since the days get shorter beginning tomorrow and winter is only 180 days off. In our mindless discussions this morning we were wondering when the last time the full moon and Summer Solstice occurred on the same date and what the odds of such an occurrence were. Since there are 28 days in the moon cycle and 30 days in June we think it must not be very often. Leap year probably enters the calculations also. Anyone who knows will be credited with the discovery. We are happy that the Solstice and full moon don’t coincide today because we are sure that the auguries would predict doom and gloom for the markets and that the price of oil would zoom to $100 per barrel. But since the coincidence is not going to occur we would guess that today is going to be more of the same summer doldrums - which sure beats a market crash. Yesterday we mentioned that we didn’t think the price of oil was justified by current conditions. We neglected to acknowledge that markets are anticipating mechanisms and while the present may be rosy the markets are usually looking out any number of months and trying to decide what conditions will be then. We understand that but we continue to compare this period to the periods in the late 1970s/ early 1980s when commodities including oil were on the rise, when real estate prices quadrupled between 1970 and 1980 and when inflation was also the bugaboo. Inflation is still the bugaboo for the Fed and the way the government figures it now a 4% inflation rate is supposedly as scary as the 12% inflation rates of the early 1980s. The argument is being made that oil is not overpriced because in constant dollars it is only a bit pricier than it was in 1980. The only problem with that thought is that many of the folks buying gasoline are making the same dollars working as they did in 1980. Not adjusted dollars but the same dollars... folks living on Social security are one example. Auto workers and other manufacturing workers who now have service industry jobs would be another. But when all is said and done the markets will eventually recognize reality, and while OPEC members are wringing their hands on the way to the bank about how terrible the high price of oil is for world economies, we are hoping but not predicting that momentum might turn south for the oil trading complexes in the not to distant future. We are not shorting or going long
oil or oil stocks to affirm our hope, but our exposure to common stocks is a
chicken way to play the belief. Also, the rise in the price of oil will be a
drag on the economy and may be enough to get Alan and the gang to announce an
end to rate increases next week or at least slyly suggest the end by August.
On Foreign markets were higher overnight
and 9:30am and stocks are lower. Gold is down a few pennies and
Treasuries are a smidge higher in price, lower in yield. Volume is muted.
10:40am and a Chinese firm is bidding $16 per share for Maytag and all the analysts who said it was a sale at $14 are agreeing that the bid makes sense. The Major measures are plus and
minus the close by small fractions, breadth is flat and volume remains summer
light. Treasuries have improved a bit more and oil is down 59 pennies.
11:44am and we sold our trading position in
12:35pm and we are placing the BSX
money in BellSouth which is also
down 35 pennies today and has a 4% dividend yield and will go x dividend the second
week in July. Every time we visit the city we are amazed at the number of folks
walking and driving while talking on their cell phones. And we would guess that
the cell phone business is only going to get greater. Prices will come in but
Cingular and Verizon are in the lead and with the capital costs involved should
maintain those leads. Moreover, BLS has been careful with its dollars and is in
an area where its combination business (DSL, cell, land lines and cable channels
on telephone lines) is doing well. In effect we are lowering our potential
reward by selling BSX but also our risk profile is lowered substantially. The
high for the year in BLS is $29 and with a 4% dividend that is a potential return
of over 14% if the shares move to new highs which would still be substantially
below the 8 year high. The three now adult Bells BLS, SBC and VZ are going to return to favor at some
point and we will own them (unless we trade out at a 10% plus profit) at that
time and collect the dividends until then. Also when the Fed quits raising in
the next few months yield stocks such as BLS
will engender interest from the income oriented.
And today is tomorrow so let the
games begin.
21 June 2005 Daily Comment We wish you a happy longest day of the year and Summer Solstice. And we also want to wish a belated Happy Birthday to our daughter Christine (Kelle) on June 19. She is 36. We have returned to the land of milk and honey with our stocks in a holding pattern. We continue to lag the major market measures but remain content that the stocks we own will move us to the positive side before the summer or year is out. But with oil toying with the $60 mark and light volume and the Fed meeting next week we would guess that not much of interest to our accounts is going to happen over the short term. Oil is being played by the momentum boys and girls and it is the only game in town with good daily up nd down action so we presume the volatility will continue. With record stores of gasoline and oil we don’t think the price makes sense but as always the markets are the final arbiter of price. We have to water the garden and walk the dogs so we will end for now. And today is tomorrow so let the
games begin.
15 June 2005 Daily Comment We are heading off to Thoughts We have now completed our restructuring of the portfolios and now it is a matter of letting time and our judgment play out. We like what we own and for the near future any buying will be adding to existing holdings, and hopefully taking some profits. But we think that for the most part we will be somnolent for the summer months and let our summer rally theme play out. Even if we are wrong in our
judgments we plan to hold since all our stocks are quality in good financial
shape. And in the future we plan on sticking with this type of issue since we
are getting to old to hit home runs and will have to rely on singles and
doubles for our scoring.
Applied Materials develops and sells fabrication equipment for the
semiconductor industry. The company manufactures systems that perform all the
primary steps in the chip fabrication process. AMAT also manufactures systems and testers for making flat panel
displays used in notebook computers and such. The company sells its equipment worldwide. AMAT has a market cap of $28 billion
with $6 billion of net cash on hand. Trailing twelve month revenues were over
$8 billion. Most analysts don’t see a pickup in the chip equipment market till
early 2006 and that is the reason the shares are at this level. In the 2000
mania AMAT shares sold over $55 per share and in the collapse of 2002 the share
price dropped to $12.50. Revenues topped out at $9.5 billion in 2000 and
dropped $4.5 billion in 2003 before beginning a rapid recovery.
BellSouth is one of the surviving Baby Bells. Interestingly, BLS has not done any large acquisitions
like the other Bells and yet has managed to grow its business. It owns a 44%
stake in Cingular Wireless (which also owns AT&T Wireless) with SBC
Communications which owns the rest of Cingular. With a yield of 4% at our cost
we are holding it for income and appreciation.
Boston Scientific manufactures and sells medical devices and is one of the two companies (Johnson & Johnson is the other through the purchase several years ago of Cordis) that makes drug coated stents for cardiac usages. JNJ and BSX are suing each other over patent infringement. J&J says BSX is using stents that are copies of its stents and BSX says J&J is using its drug coating process. Our guess is that eventually if BSX stays down or moves lower that another large drug company will buy them. BSX has doubled revenues in the last three years to $6 billion and
has a market cap of $24 billion. Earnings will approach $2 this year.
Bristol Myers Squibb has been around forever and used to be well
run. Current management is terrible and has dons a terrible job running the
company and should be fired. They won’t be but hopefully they will decide to
sell out the company and take a nice large go away payoff. Until that happens
the dividend provides a 4.4% yield and we are guessing management won’t cut it
since they are sitting on a ton of cash and because they don’t want
shareholders madder at them since the dividend is one the main supports for the
price of the stock.
Cisco is run by John Chambers. He hasn’t done much better than
Carli Fiorina but he is a white male and so he has kept his job. CSCO was the darling of the tech mania
of the late 1990s. Back then the share price was over $50 versus the current
$19 and change. Revenues in 2000 were $22 billion and will be about $24 billion
this year. CSCO has no debt and $6 billion in cash on hand. The market cap is
over $116 billion and earnings per share will approach $1 this year versus 65
pennies in 2000. The share price has always been comprised of 60% reality and
the rest hope but CSCO is the leading equipment manufacturer of networking
computer systems and will continue to be and so you have to pay if you want to
play. At least now we are paying half for twice the earnings and growing
revenues versus the pricing in the year 2000.
DreamWorks Animation has been more of a nightmare for us since we
began purchasing it a month ago. But back in Pixar’s early years we saw the same type of price action. Ownership
of these shares is only in the animation part of DreamWorks and not the human
being movies. With earnings projected at $1 which is the same earnings per
share as for PIXR, DWA is priced at
half of PIXR. We like it as a speculation. No debt and bright folks run the
company. We think the reward potential outweighs the risk and we own it close
to the IPO price of $28 after which it ran to over $40. There has been some
quarter end ‘we want to look smart’
selling occurring the last few days but unless the markets tank we expect to
make good money in the shares.
Dycom Industries has the call letters DY which are the initials of out late partner Don Yarling and that
is what caught our attention when we say the symbol crossing the tape down $4
one day. DY builds facilities and
lays fiber optic cable for the telephone industry. The company has a backlog of
over $2 billion. The shares are priced at one times sales with no debt. This
year is a slow year and earnings will be flat at $1.10. The company has been
chosen by Verizon to lay fiber optics to the premises and the other Estee Lauder is run by two very rich sons of Estee who just passed
away. The product is excellent and we bought to own for a move back to the
upper $40s as we did successfully several years ago in a few accounts.
The Gap is an old friend that we have purchased sparingly in s few
accounts to be able to say we own a retailer. GPS is not cheap but it is out of favor. It is a huge company and
has a lot of cash and has paid down debt. Folks give credit to the Fisher
family for the success of GPS but the real mover was Mickey Drexler who left
the company several years ago to run J Crew. We own for a trade.
Hain Celestial manufactures yuppie teas and chips and other organic
products. Heinz owns 22% of he
shares at about $30 per share. HNZ said they will write down their ownership
cost at year end 2005 if the share price doesn’t move back to the cost price.
We think that magically the share price will move to the mid $20s at least
either through levitation or a buy out.
JP Morgan is our largest position. It is the combination of too
many banks to mention and is run now by Jamie Dimon who is out to prove that he
is a better manager than his mentor Sandy Weil who unceremoniously dumped him a
few years back when Jamie wasn’t business nice to Micron Technology manufactures dynamic random access memory chips
a/k/a as DRAM. Earnings fluctuate wildly depending on need for this commodity
chip. MU was another darling of the
mid to late 1990s tech boom and is priced at 25% of its high in those
years. DRAM chips are currently in
oversupply. We own for a trade when conditions change and MU is in the chips
again.
Motorola fired the founder’s grandson and brought in someone else
to run the company last year and that action is beginning to show results or
the company is just catching the sweet spot in its product cycle at an
opportune time for new management. Whatever, analysts are in love with the
company and so we own for hopefully a more profitable trade than the last time
we owned MOT.
SBC is the Sara Lee is the company nobody likes right now. SLE has been restructuring for the last five years or more but
new management says this time will be the last. Plans are to jettison the
European Apparel, European Meats, Direct Selling and U.S. Retail Coffee
businesses. SLE will also spin off its Branded Apparel businesses. This will
shrink revenues from $20 billion to $12 billion and raise cash to pay down debt
and form a more manageable company. Brand names remaining will be Hillshire
Farms, Jimmy Dean, Schering Plough is the drug company that we think is being cleaned
up for sale. Deducting cash of $9 billion from market cap ahs the shares priced
at 3 times revenues which is 30% cheaper than larger drug companies. We have
traded - mostly profitably - over the past five years and currently own the
shares for a trade.
Schwab has over $1 trillion in assets on its books. SCH has lowered
commission rates to compete with the deep discounters and is an asset gatherer.
A bank or financial institution is going to purchase this company when Charlie
Schwab who is in his late 60s (which, by the way, is not as old as we used
think it was) decides to enjoy his billions.
Tellabs is in the telecom equipment manufacturing business. With
over $1 billion is cash and sales approaching the net of market value less cash
we think the stock price is cheap. It is the only low priced stock we have and
we expect to make some decent money this time around.
Time Warner is cable and AOL,
and magazines and other stuff. We own because we think the AOL portion is worth
$20 billion based on the market prices of Yahoo and EBAY and the stock market
thinks AOL is worthless based on a $17 price per share for TWX. One of us is
wrong but we have not much downside if we are wrong and lots of upside if we
are right.
Tribune owns a lousy Chicago paper, a decent paper in LA, the TV
stations including WGN, a goofy television network and of course the hapless
Cubbies who are probably worth $1 billion with Wrigley Field thrown in. down
form $45 this year and $65 when folks were nuts for TV companies we think it is
an interesting value at $36. At a lower price it will be more compelling and we
will buy more shares.
Verizon is our second largest holding. We own for the dividend and
recovery to the mid $40s where it sold in the last twelve months. It is the
largest Wild Oats is a sorry imitation of Whole Foods in the organic grocery business. We have traded the
stock profitably over the years and plan to continuing to do so. It is a real
anchovy. We re-purchased this last time because a fellow from And that’s it folks.
PPI (Producer Price Index) was announced as down 0.6% with Core PPI up 0.1% these were weaker than expected. At the time of the announcement the Treasury ten-year was at 4.09%. Retail sales were down 0.5%, ex cars down 0.2%. These were all May figures. Gasoline was down 1.7%. Gasoline sales are a large part of retail sales. The ten-year is at 4.06%, and
stock futures are a bit higher on the news and the hope that the Fed may quit.
10:52am and The DJIA is
20 points higher while the NAZZ is
down a few dollars. Treasuries are weaker with the ten-year at 4.12% and crude
oil is off 34 pennies at $55.28. Breadth is positive and volume is light. We
bought shares of
3:02pm and the DJIA closed up 28 points at 10550. The S&P 500 gained 3 points to 1203 and the NAZZ was unchanged at 2069. Breadth was 2/1 positive on the NYSE and 5/4 positive on the NAZZ; Treasuries sank with the ten-year ending at 4.12% and the five-year at 3.89%. Oil lost 62 pennies to close at $55. And tomorrow is today so let the
games begin and continue in our absence. Happy
Quadruple Witching to all.
14 June 2005 Flag Day Daily Comment Trading seems to have entered the summer doldrums last week but the end of this week sees Quadruple Witching on Friday and the end of the month brings another closely watched Fed Meeting. Will they and if they do will they hint it is the last? These are the questions that weigh on the minds of traders. Of course June 30 is month and quarter end and so the usual eliminations and additions will have to be made for the big boys and girls to show they owned the right stocks during the last quarter. We are completing our re-working
of accounts today and tomorrow and then we plan to fade into the bright summer
haze as we let our selections work their magic over the next few months or
longer. We will of course trade a bit but in the main we are invested as we
wish to be.
Purcell is out as CEO at Morgan Stanley Dean Witter and he will
leave with a nice bundle of cash to salve his wounded ego. His imminent
departure, if one can call by February 2006 imminent, was breathlessly
announced by Maria the Mouth at Babe Ruth’s baseball contract (the contract was 7 pages) which was the
instrument that transferred Ruth from the Boston Red Sox to the New York
Yankees back in the 1920s was sold at auction for $997,000 last week.
Fidelity now owns 10% of Google
in its various funds and managed accounts. That could be one reason for the run-up.
Tuesday the economic numbers for inquiring minds are PPI (Producer Prices for May) and Retail Sales, also for May, and Business Inventories for April. Wednesday has CPI
(Consumer Price Index), Capacity Utilization, Industrial Production all for May
and the Fed Beige Book at Thursday has Building Permits and Housing Starts. Thursday and Friday are Quadruple Witching.
We are adding JPM, DWA, VZ, TWX, BSX, DY, MU and SBC to some accounts to round up or
fill out. We have also added two new stocks, Cisco and The Gap to accounts.
The DJIA was up 12 points at 10525. The S&P 500 rose 3 points to 1201 and the NAZZ gained 6 points 2068. And tomorrow is today so let the
games begin.
11-13 June 2005 Week-End Comment Intel offered its mid quarter report last night and raised revenue
guidance to over $9 billion for the quarter and had some other positive
statements and so in a good old fashioned sell the news reaction the shares
sold off in after hours trading and are down a few pennies this morning. We
don’t think that negative reaction will last since the report was very positive.
For the first time this week both
Asia and European markets are higher. Oil is off a few
pennies and media folks have a nice tropical storm in the Gulf of Mexico
to babble about 24/7 unless the Michael Jackson Jury comes up with a verdict.
10:49am and stocks have been meandering all morning with the major averages as sleepy as our dogs are today with the temperature in the high 80s and 100% humidity. With news that the Chairman of the Board resigned we sold our Eyetech speculation for a slight to $1 per share loss and bought Micron Tech with the proceeds. Last night we were thinking about which of our stocks we wouldn’t want to own in a lousy market and the answer was obvious. Moreover, while we think that EYET’s drug is probably better than Genentech’s we are not willing to bet a million dollars on it. And so we will keep EYET on our screens with Elan to see how events unfold into year end. We also added some shares of Sara Lee which now has a 3.9% yield as
it dipped under $20 to a new low for the last 12 months and various small
amounts of stocks to round up or add to positions in various accounts.
3:02pm and the DJIA, helped by a $2.30 gain in GM on rumors of concessions by the UAW, rallied in the last hour to close up 10 points at 10513. The S&P 500 lost 3 points to 1196 and the NAZZ lost 13 points to end at 2076. Volume was summer Friday light. Oil ended down 74 pennies at $53.54. Breadth was 5/4 negative at the bell and Treasuries closed lower with the ten-year at 4.04%, the five-year at 3.83% and the two-year at 3.69%. And tomorrow is Saturday and this week-end we celebrate June Dairy Days in the land of milk and honey. We are going to the Tractor Pull and horse show. Excitement Galore! Our next post will be Monday
night.
10 June 2005 Daily Comment Eyetech has adopted a shareholders rights plan to protect
management from being fired in a takeover and to prevent shareholders from
seeing their share price rise unless management decides it’s OK. Ain’t Capitalism great?
Jobless claims were down 21,000 to 330,000. Remember the Fed Oracle
is speaking today at 10:13am and stock traders have greeted Greenspan’s testimony with a
yawn. Treasury traders have pushed yields higher and prices lower during the
testimony as Greenspan gives no indication of quitting the 25 basis point raise
at every meeting. The major measures are lower and breadth is 2/1 negative. Oil is up 86 pennies to $53.40 and with
the gyrations in that commodity so unpredictable we wonder if many oil traders
are making money. The volatility surely has been there but the movements up and
down seem too random to game.
GREENSPAN - IN RESPONSE TO QUESTION ON "NEUTRALITY"
We added shares of Motorola and Applied Materials to some accounts this morning with funds raised
from yesterday’s selling.
1:21pm and in the contra hour the major measures are slightly
higher but below their best levels of the day which were reached as folks
celebrated the end the Greenspan’s testimony. Breadth has climbed back to
5/4 positive and Treasuries have
firmed. Oil is now up $1.66 to $54.20 supposedly
because the first tropical storm of
the season is moving into the We bought a few shares of BellSouth in larger accounts and added
to our Micron holdings in some accounts that already own the shares. We did not
add to many new accounts because we are paying up for this tranche of stock and
it makes more sense to add it to accounts that own shares at a lower price.
And tomorrow is today so let the
games begin.
And we end the day with some
musings sent to us by a friend. We always wonder who has the time to sit around
and think up these things. Actually we should make the time to do so. It is
sort of like the old hippie advice for slowing down: lay on the ground and watching a carrot grow.
Enough
9 June 2005 Daily Comment With the S&P 500 having trouble at 1200 again we are more serious
about raising a bit of cash.
10:11am and the major measures are higher and Treasuries are
unchanged. Crude oil was off early this morning but is now higher up 79 pennies
at $54.65. Breadth is positive and volume is moderate.
We sold one half our EL holdings to reduce our exposure.
It’s a good company or we would have sold all because of our disgust at the price
the bought back a family member’s stock.
We also eliminated our holding of
Fifth Third in all but our largest accounts
and even in them we reduced the amount held. JPM has become our bank stock and we are hoping to deploy some of the
FITB money to BellSouth if it moves a bit lower.
Today we took our lumps on Brocade selling the rest of the position
for another loss when the company announced today that they are not going to be
filing their quarterly earnings report on time because of accounting issues and
the SEC investigation. We don’t own
companies that can’t file quarterly reports on time. And once again we
learn that buying speculative stocks involves risks. We didn’t think Brocade
was speculative even though it was a low priced stock when we purchased it. The
financial data seemed relatively conservative but we should have paid more
attention to the accounting issues. After
all, if the company and its auditors didn’t account for options correctly what
else is lurking in the books? We once asked the “old stockbroker” (when we were young and he was the age we are now) why he didn’t buy speculative issues except for one exception at year-end 1974. He said that for every winner in speculative stocks purchased there is usually a loser and when you own a speculative issue that is not acting well you spend all your mind time thinking about it rather than concentrating on the larger picture. Today we wholeheartedly agree,
although we wonder if we have finally learned our lesson. Often a seemingly financially
OK stock becomes speculative as
happened with Brocade today because of its
inability to file a quarterly report. Until the filing issue was made
public today we were on the fence and thought a relatively small position was
worth holding. With the filing issue
selling the shares is an easy, even if unprofitable, decision. We also sold Siebel this morning when the company announced that they are going
to initiate 10 cents per share annual dividend, fire some folks, and may buy
back some stock in the future. Something good may happen with this stocks but a
dividend is not why we owned it. Maybe Icahn will force a takeover but again we
are not going to stay invested on hope and prayer.
We are taking our lumps in stocks that are not acting well because if
they aren’t acting well in an up market they probably will act worse in a correction? 11:56am and the major measures are inching higher in slow trading.
CNBC has a show on right now talking about the auctioning of baseball memorabilia. If folks are worried about the
real estate bubble they should take a gander at baseballs autographed by dead
players going for $10,000 and up at auction.
And tomorrow is today so let the
games begin.
8 June 2005 Daily Comment
Happy 38th birthday to our daughter Lisa. She has always made our life a joy as has her sister Kelle.
Greenspan’s talk on Monday night,
actually Tuesday morning in JP Morgan hired a 20 year veteran of Morgan Stanley Dean Witter to
run its proprietary equity division. That should be a positive for JPM.
We are going back into Applied Materials today as two more
brokerages recommended the stock. As with Motorola,
momentum is working, especially in tech and AMAT is one we have wanted in portfolios. We were waiting for a
pullback but it looks like we had better buy and add to if we get the pullback.
The wonder merger of Sears and K-Mart to create Sears
Holding reported first quarter results that were a disappointment. We think
there are more disappointments in store for Eddie Lampert who bought K-Mart
coming out of bankruptcy and has sold the Street on the value of the properties
versus the efficiency of the retail operations.
GM has its annual shareholders meeting today. We were remarking
over the week-end that in Back in 1988 before the collapse
of While NYC real estate values don’t
approach that of the whole country we have read that NYC and We continue to believe that a
slowdown in real estate price gains is needed to cause the 20% of buyers who
are speculators to bring that money back to the stock markets. That’s what
happened back in 1982, 1983.
We bought the AMAT at $16.90 for accounts that owned NCC and also we are both repurchasing Micron and Rite Aid and adding a few shares of Dycom Industries to aggressive accounts. Dycom is going to have flat earnings this year of about $1.10. It has an increasing $1.3 billion backlog of work and has a book of $11 per share. It sells at one times revenues. It is currently a falling knife having dropped from $26 to $19 since May 26. We are leaving room to buy more shares. DY provides contracting services to telecommunications providers in
the We sold some EL in accounts that needed money for the AMAT purchase. We thought about the buyback of Lauder stock by the company (that we mentioned in yesterday’s post) and decided we were not happy with the insider favoritism. Lauder sold 1.9 million shares with no discount for the block movement and we can’t sell 50 thousand shares without moving the share price down 50 cents. We are going to use part of our EL holdings as a source of cash when needed and will reduce the holding in most accounts. We also sold a few shares of FITB for cash purposes. With our large JPM holdings we will reduce the FITB position to fund future purchases
in accounts that need to raise cash to do so.
1:20pm and while we weren’t looking a sell program or something hit
the big cap NAZZ stocks and knocked
the major measures down about 50% from their highs and placed the NAZZ in negative territory even though breadth
remains positive on both the NYSE
(2/1) and NAZZ (6/4). Stocks are off
their highs. Oil is down 75 pennies to $53.76.
And tomorrow is today so let the
games begin.
7 June 2005 Daily Comment We have returned to the land of milk and honey after spending time with good friends in a convivial setting. It is too bad that we can’t say the same about the stock markets and their relationship with the stocks we own. It may be a long long hot summer. There was a decent up day and a down down day while were celebrating and the down day did more damage that the up day did good, but that is the nature of markets. Trader types have been calling for down and ugly and Friday fit that bill. Monday seems to be beginning as a carry over of Friday’s negativity and that may finally lead to the nasty correction that has been called for to clear the air for a further advance. We remain content to hold our
good dividend paying stocks and other choices and have a few dollars left to
add to them as conditions warrant.
Before we begin the trading day we offer a few pictures of our trip to the past.
***** Monday’s Markets 10:32am and we repurchased Motorola
at $17.90. We traded it at lower levels earlier this year but now all the
brokerages are setting $24 price levels on the stock and raising earnings
estimates. JP Morgan raised yearly earnings estimates on MOT to over $1 this
year and $1.18 next year. We are buying in amounts equal to the The major measures are now lower
as selling has taken the upper hand. But volume is summer light. Breadth is 5/4
negative.
While we were away JPM lowered earnings estimates for this quarter because of bad trading results. A brokerage lowered its price target on Fifth Third to $40 which is less that the price at which it is trading. Obviously we think and hope they are wrong. EL bought back 1.9 million shares of EL from a Lauder family member who still has 16 million shares left. EL paid $39.25 for the shares. We haven’t formed an opinion as to whether that buyback is good or bad for the stock or just neutral. Our reason is that we would presume there is no bad news coming because the company bought a relative’s shares but we think they should have discounted the purchase price since there is no way that block could have been sold by a Lauder in the open market at the then current market price. BMY is settling with the DOJ for $300 million for cooking the books on sales a few years back. What were those folks thinking? HAIN announced earnings while we were away and the results were up but a penny below forecast. Revenues were up 16%. HAIN plans to raise prices and cut out its Kosher and weight loss food lines. DreamWorks announced that Brocade ran up 20 pennies in price on last Thursday when Sun Micro announced the takeover of Storage Technology for $4 billion in
cash. Based on that buyout price Brocade is about 25% undervalued. We have
reduced the position to a level where we are going to hold for a while and hope
for $5 or more a share.
We are also adding more Eyetech to accounts today. EYET has traded over 3 million shares this morning and there is a committed seller of the stock with the shares down over $1 in price. We think that seller is Amerindo Investments (the folks whose two founders were accused of converting customer money to heir own use) which probably wasn’t able to act on its position until this week and is selling because managed accounts and shareholders of its mutual fund are asking for the money back. We warned when we began buying last week that the shares would move lower as the momentum investors abandon ship. Today Genentech announced that Lucentis (Genentech’s drug for the treatment of macular degeneration which is still in trials) in combination with Visudyne another already approved drug prevented further macular degeneration and in some cases even led to vision improvement when the drugs were used in combo. But there was a serious adverse side effect. Traders are ignoring that news of a serious side effect. It is our opinion that Genentech
is using its economic muscle and reputation to try and badmouth Macugen which is EYET’s new drug that works.
Breadth was 5/4 positive and oil closed lower on the day at $54.50. Volume was summer light. And tomorrow is today so let the
games begin.
2 June 2005 the this will have to hold you till Tuesday
June 7 Comment We are heading off to There will be no posts till Monday evening for Tuesday Morning June 6. We were thinking last night that with the portfolios well structured we should just stop trading and watching for 6 months and give everything a chance to work out. But then that is not in our control freak nature and we only know what has worked for us in the past and so we will go with that. We own good stocks and with a
little tweaking today by eliminating an unnecessary LTD buy of last week and finishing up our NCC sale we will have
raised bit of cash for any sell off and yet still have a portfolio that will
participate in the rally higher that we see resuming after we and the markets
rest.
One stock that has us intrigued is Eyetech. We traded it last week without losing money and this week we bought a few shares in our own personal accounts but not for clients. That was a positive since we already have a $2 per share loss on our purchase. Eyetech was an IPO early in 2004 at $21 and quickly moved to $40 per share where it floated until just recently. About a month ago the share price began dropping and last week it collapsed Eyetech Pharmaceuticals, Inc., a biopharmaceutical company, engages in the development and commercialization of therapeutics to treat eye diseases. The company has collaboration with Pfizer, Inc. to develop the product candidate Macugen, which is used for the treatment of various types of neovascular age-related macular degeneration, known as wet AMD or neovascular AMD. It also has licensing agreement with Gilead Sciences, Inc. and Nektar Therapeutics to develop, manufacture, and commercialize products containing Macugen. Last week Genentech announced that its new drug for AMD called Lucentis had not only stopped the progression of AMD in 92% of patients but had also improved vision in a number of patients. Wall Street immediately reasoned that once Lucentis gets to market after completing phase III trial in 2006 that Macugen will be an also ran drug. But the trials that Genentech reported on were not on the same subset of patients that Eyetech used in its studies. Genentech presented impressive data on Lucentis. 95% of patients enrolled in the study showed improved or maintained vision (which means their vision deteriorated by less than three lines on an eye chart). In the control arm of the study, 62% of patients maintained or improved their vision. That top line response rate is better than anything out of the Macugen trials. But using two separate studies to compare two different products is not scientific. Using different groups of patients can lead to false conclusions. For example Eyetech in its conference call suggested that the patients in the Lucentis trial appeared to have less severe AMD. EYET said that the Lucentis trial looked at a different population -- only those with "minimally classic" or "occult" AMD, references to the location and pattern of abnormal vascularization in the eye, while Eyetech’s Macugen has been studied in, and is approved for, all subtypes of wet AMD, including "predominantly classic," the most aggressive form of the disease. In all studies there is a control group and in the Lucentis study 62% of those not treated maintained their vision. Genentech made a big point in its press release that Lucentis improved vision with the unsaid suggestion that Macugen didn’t. That is not true. The real crux of the matter is that the Lucentis trial that was reported and sent EYET stock price into a tailspin was conducted on a patient group with a less severe presentation of AMD. Now, Lucentis may work as well on the more severe presentation of the disease but the data to prove that has not been presented although we read that such a study will be presented during the summer. Genentech still has to complete the trials for Lucentis. If Lucentis is approved, Eyetech is going to have to conduct a head-to-head study. With the financial backing of Pfizer, Eyetech is going to be around for a few years. It has $500 million in cash and is actually getting revenue from Macugen sales. Moreover there are some support and performance payments due from Pfizer over the next year. One other point is that Macugen is much cheaper to produce than Lucentis and if the eventual trials demonstrate that there isn’t much difference between the drugs then Macugen will have the cost advantage. With the above in mind we are going to buy some shares in accounts because we think the risk/reward as a small part of many of our portfolios is interesting. The risk is losing half our investment this year versus at least a quadruple over the next few years if the drug actually works better than Genentech’s drug. Macugen is currently being prescribed for patients. Lucentis has at least another year before it can be marketed. And Pfizer and Eyetech aren’t going to roll over and surrender without testing their drug against Genentech’s. Finally, in relation to the sell off in the
shares of EYET we would expect that it might continue this month of June
through quarter end as a lot of go-go funds own the stock and won’t want to
have it in their portfolios at month end. One of the funds that owned over 2
million of the 37 million share float was Amerindo
Investment. That money management firm has been in the news in the last week because
two of its founders have been accused of taking money from client accounts that
was not authorized. Moreover the performance of the fund which has always been
a high tech chaser has been abysmal this year. EYET represented 14% of the Amerindo
Fund holdings on 8:57am and we sold our Limited for a 25 cents per share loss if the 15 cent dividend we will receive is included. We also finished selling our NCC for a profit plus a dividend for many accounts. We have a large holding in JPM and FITB so we think we have enough bank exposure and with our SCH we have good exposure to the financial area. Stocks have opened a bit higher. Google is the Apple of this month’s market and it is up another $7 today. We tried to trade the stock a few months ago and lost $5 per share. A fellow asked us if we were sorry we lost the money and we said no, we were sorry we traded the stock. That’s because over the years we have learned that we are not constitutionally suited to own and trade the high flyers of the market world. Some folks are and some folks aren’t. Every once and a while we think we can and learn an expensive lesson for our own accounts and a few select clients who probably wish they hadn’t been selected. Moreover we told the fellow if we had held the Google we would have sold with a $5 profit. Actually GOOG is up today because
some firm raised its price target to $350 from $300. That is 1999 type analyst action
and suggests that the mo-mo folks are back. For how long they will be back is
the $1 trillion question.
9:21am and the ten-year is at a 3.91% yield which suggests that
some of the big boys and girls think the Fed is finished tightening. Stocks
have rallied with the DJIA up 85
points and it will be interesting to see whether the markets hold or add to this
gain through the day. The S&P 500 is
through 1200 to 1201.
11:10am the ISM number this morning was weak but above 50 which
says expansion. Also the prices paid portion of the number indicated more
benevolent inflation. And a Fed Governor Fischer said to Steve Leesman on CNBC
that the Fed may be in the eighth inning of its tightening regimen. Since there
have been eight tightenings so far the suggestion is that the Fed is nearly
finished increasing rates. That was the reason for the rally this morning.
We are leaving early but hopefully the rally will continue through day’s and week’s end. If there is a major occurrence we will interrupt our revelry for a post but if not our next post will be Monday night for the June 6 posting. As we leave the DJIA is up 100 points and the S&P 500 is over 1200. The Treasury ten-year is at 3.92% and crude oil is up $2 at $54. Strange. So let the games continue in our absence.
1 June 2005 Daily Comment The French in their inimical obstinate manner (we are one half French) turned down the new constitution of the European Union of which they are a part. We would guess that if the new Americans in 1789 had been given the opportunity to vote on their new constitution in a plebiscite that it too would have been turned down a few times. Democracy is a messy business. Heck if Americans were given a chance now to vote on the Constitution, passage would probably be a nip and tuck affair. The French rejection has the euro
down with the dollar at 1.23 to 1 euro from a high of 1.34 to 1 euro a few
months ago when the talking was that the euro would never come down. Maybe the
French are long the dollar and short the euro on the other side of the Warren
Buffet, George Soros and every hedge fund in On the euro news Treasuries are higher with the ten-year
at 4.04% and the five-year at 3.78%. Gold is down 44 to $434 and DreamWorks Animation new movie Symantec was upgraded this morning to outperform by Piper Jaffray and if there is a good
pop in the stocks we might sell. Hugely valued tech stocks are uncomfortable
for us for some reason and we would rather be in other areas.
SBC and Verizon lost in
their attempt to buy the Wire Services are again reporting
that Ameritrade and T.D. Waterhouse are in merger talks. We
are agnostic as to the effect on Schwab.
A combination would make a stronger competitor but also might hasten the day
when Charles again decides to sell out to a major bank.
From our tech guru Jeff Cooper at www.realmomey.com our interpretation
of his gobblygook is that technically speaking 1198 on the S&P 500 has
become resistance since it matches the reaction low on March 11. And the NAZZ
weekly composite is either tracing a head and shoulders pattern with the right
shoulder ready to turn down or an inverse head and shoulders pattern with the right
shoulder (looked at upside down) ready to turn up. Cappiche!
Smith Barney upped Intel and
UBS Warburg removed WMT from its Select
20 list. There is a lot of analyst talk on the wires about drug stocks today
and our sense is that much of the talk is cautiously optimistic although Mother Merrill is dumping on Imclone.
AIG has filed its quarterly
report and it is taking a $2 to $3 billion charge to clear up all its past
overstatements and promising to be good in the future. That should clear the way
for the share price to move back toward $60 and help the DJIA in the process.
We aren’t interested.
9:02am and the Chicago
Purchasing Managers Index was 54.1 in May versus 64.5 in April. That
suggests economic expansion but a slowdown. On that news and the lower stocks
Treasuries are up a bit more with the ten-year at a 4.02%. The DJIA is down 40
points and volume is moderate.
9:26am and Arthur Andersen, the accounting firm, was convicted of
destroying documents several years ago. Now the Supreme Court has ruled
unanimously that the conviction should be overturned because the jury
instructions were incorrect. Oops. There is no Arthur Andersen left because the conviction put them out of
business.
10:34am and Consumer
Confidence was 102.2 in May versus 96.1 in April. Lehman reduced DreamWorks
to equal weight from overweight.
Breadth is flat with the major
measures lower and Treasuries moving higher in price and lower in yield. The
ten-year is about to break 4% which is a one half point move in that bond
today. The two-year is down 5 bps in yield to 3.59%.
And tomorrow is today so let he
games begin.
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