Bud's Poem Page

29 June 2006 Daily Comment

This is our last post until July 5, 2006

Thoughts

Today is the day. After today the talking heads and gurus will have to find another topic on which to focus as the Fed will announce its wording going forward.

Overseas Asia was higher and most of Europe is over 1% higher. Gold is up $2 and oil remains above $72.

U.S. futures are also higher while Treasuries are a tad weaker.
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BP is facing legal action in the US over charges that it tried to manipulate propane prices in 2004.

Regulators allege its BP Products North America subsidy artificially forced up prices by buying up huge propane stocks only to withhold them from the market.

BP has denied the civil charges and said it intended to defend itself, and added that staff had been dismissed.

On Wednesday, a former BP trader, Dennis Abbott, pleaded guilty to manipulating the propane market.

The Federal Trade Commission filed a complaint against British Petroleum/Amoco accusing traders for that company of cornering the propane gas market in February 2004 causing a 50% rise in the price of propane gas and illegally increasing the cost of propane for 7 million rural homes. Our home in the land of milk and honey is one of those 7 million.

We have said for years that the ridiculous prices on propane and even gasoline when there are no shortages are the result of market manipulation. This complaint is only the tip of the iceberg.

But the bulk of the iceberg will remain submerged and causing damage because the enforcers are in bed with the miscreants. So it goes in the U.S. in the 21st century.

To read the complaints (you must be a subscriber) go to: http://online.wsj.com/
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Two and one half hours into the day the DJIA is up 90 points and the S&P 500 is at 1260 resistance. Breadth is better than 2/1 positive and volume is summer light.
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At noon oil has a price of $73.30 on it. Traders must be celebrating the FTC complaint against BP for cornering the propane market in 2004.
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Hurricane Katrina created $100 billion of flood related spending since it occurred last summer. Thatís quite a stimulus for the economy that may not be there this year. And if there is another bad hurricane or two can the insurance companies and homeowners weather another hit like they took last year?
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Going into the Fed announcement the DJIA is up 85 points and the Treasury two-year is at 5.25% and the ten-year at 5.22%.

Fed raises to 5.25% and issues the following announcement:

 

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5-1/4 percent.

Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.

Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 6-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Dallas.
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Initially the DJIA is up 100 points more to up 180 points and the S&P 500 is through resistance at 1260 and is trading at 1266.

The two-year is 5.22% and Ten-year at 5.20%.
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The markets and the talking heads have decided that the Fed statement has backed off an automatic hike in August and so the markets are maintaining the rally after the statement. With forty minutes of trading left the DJIA is up 190 points and breadth is 3/1 positive.
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Treasuries are also ending better with the two-year at 5.20% and the ten-year at 5.20%.
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Oil closed up $1.36 at $73.55 and gold was up $7.90 at $596.
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European bourses closed 1% to 2% higher and Mexico and Brazil are both up 3% today.
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On the pop in the major measures we sold our only position in many accounts in the Powershares ETF at $15.90 for a scratch. Some of our larger accounts own PJP at a higher price and we are going to hold in those accounts. We are now cash and carry. We think the rally today is short covering and Quarter end position squaring.
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The DJIA closed up 217 points at 11190. Today was the largest one day point gain since March 2003. The S&P 500 gained 27 points to 1272 and the NAZZ rose 60 points to 2172.

Breadth was 4/1 positive at the bell and up volume exceeded down volume by a 9/1 margin. Overall volume was active.

New lows contracted to fewer than 200 and new highs expanded to over 150.

And there is one more casino fun day left and it is the last day of the month, quarter and marks the half year and the end of the fiscal year for most charitable organizations.

Have a safe and happy Fourth.
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28 June 2006 Daily Comment

Thoughts

Asia was lower overnight and Europe is also lower. This follows on the down day for stocks in the U.S. on Tuesday. Gold is up a couple of dollars to $586 and oil is back above $72.

Investorsí intelligence has 37% bulls up from 35% last week and 36% bears also up from 35%.

J Crew, the catalogue clothing retailer, was priced at $20 on its initial IPO. It is now trading at $25. Mickey Drexler who built The Gap is running the company and Wall Street likes him here when they had soured on him at The Gap. We are interested in the company but will let the hoopla settle down before doing anything.
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Stocks opened higher in the first hour of trading with al the major measures on the plus side. The same trading occurred yesterday and then the bulls ran out of steam. Weíll see.
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Oil inventories dropped by a more than expected 3.5 million barrels. And gasoline also dropped by 1 million barrels. But crude oil inventories remain ample and above the average for this time of year. Oil is remains over $72.

Treasuries are inching higher in yield today with the two-year at 5.26% and the ten-year at 5.22%.
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This is an interesting story: http://www.marketwatch.com
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Gold is trading at $582 near the close and oil was $72.19.
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Treasuries were a bit lower in price with the two-year at 5.25% and the ten-year at 5.22%.
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Europe closed mixed in quiet trading.
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The DJIA closed up 50 points at 10975. The S&P 500 gained 7 points to 1247 and the NAZZ rose 10 points to 2110.

The support levels for the DJIA, the S&P 500 and the NAZZ all held today and the NAZZ reported a record short interest. Those are bullish signs, but they donít move us to try and traded this market.

Breadth was 5/4 positive on the NYSE and flat on the NAZZ and volume was summer light.

New lows expanded to over 360 and new highs contracted to fewer than 60.

And after the Fed speaks tomorrow at 1pm there may be a flurry of activity and then the Holiday weekend will begin for many traders.

The Casino will be open tomorrow, Friday, and Monday but many folks will be absent the last two of those days. We will have a post tomorrow and then our next post will be next Wednesday July 5.
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27 June 2006 Daily Comment

Thoughts

GM announced that about 35,000 folks had taken its buyout offer and will be leaving the company is the next year. 12,000 folks at Delphi did the same. In the 1950s and 1960s the U.S. economy was all about creating jobs. All that began to change in the 1980s. Now share prices rise when companies fire or buyout workers in the U.S. and create jobs overseas at much lower wages. And when they move their holding company headquarters to Bermuda and other offshore havens that allow them to avoid U. S. taxes analysts wax eloquent about how well the companies are run. It is a different world.
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Sprint completed its purchase of Nextel Partners for $6.5 billion and now has 51 million wireless subscribers. We are interested in the stock but S still has to spin off its land lines business and we are watching the stock for now. It is trading at its 52 week low.
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AT&T has rolled out its television service in San Antonio, Texas. Analysts expect the television service over telephone lines to provide competition for cable. Actually out here in the boonies we gave up our satellite service for television and get it over the telephone lines of our socialist local telephone cooperative. The capitalist shareholder owned companies in our area donít offer television service or DSL.
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Overnight Asia was fractionally mixed and European bourses are mostly fractionally lower. In the early going gold is up a couple of dollars at $390 and oil is over $72. Treasuries area bit lower in yield higher in price. U.S. futures are lower.
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Citigroup upped GMís price target from $17 to $20. Given that GM is trading at $28 we wonder why.
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Existing home sales were down 1.2% month over month. Treasuries are better on the news and stocks are lower. 3 hours into the trading day the major stock measures are off about one half per cent.
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Between 1966 and 1983 the DJIA traded in a range of 500 (in late 1974) to 1000 (1966, 1972, and 1983). The DJIA made a high of 1000 in 1966 and didnít get through that level permanently until 1983. Also during that period land prices went up by 400% and more and oil began its inexorable price rise. Timing those markets allowed lucky traders to make a good deal of money but for folks who bought  stocks to hold and/or bonds of 20 years duration or longer that period was a real calamity. The 6% AT&T bonds due in 1998 that were issued in 1969 traded as low as 45 cents on the dollar in the early 1980s when interest rates hit 14% on the thirty-year Treasuries.

Our thinking is that stocks may be in a similar period right now. And our guess is that until land prices moderate and begin to move lower the markets canít move significantly higher for any sustained period. We think that investment money is still flowing or is locked up in land and housing and that a drop in real estate prices is needed to free that money up for investment in stocks. It is no coincidence that the stock markets have gone nowhere in the last seven years while real estate prices have sky rocketed.

But initially, as real estate prices moderate and drop, the stock markets will also. That is because of the flight to safety factor. We have made a very good return on investments during the market collapse of the 2000 to 2003 period and we are intent on maintaining our capital in a relatively risk free manner until we are comfortable with stock prices.

As we said last week stocks were cheap in 2002, they are not cheap. now. On a relative basis there are stocks that are fairly priced in relation to other stocks but that doesnít mean they are cheap. And we only want to place the majority of our assets in stocks when they are cheap. Till then we will trade around the edges and at year end and maintain a large cash or short tem Treasury position.
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GM said that overall U.S. sales will probably be below sales of 2005 because of higher interest rates and gasoline prices. They didnít mention that competitors have better cars.  GM is now trading lower by $1.50.
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As we said last week if the stock market doesnít crash before August we think the Fed will go to 5.50% then after 5.25% this week.
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On a year over year basis retail sales were up 4.1% although the headline was that on a month to month basis retail sales were down 0.1%.
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The typical CEO makes 242 times what the typical worker makes. (CNBC)
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The Department of Agriculture has stated that ethanol produces 67% more energy than what is used to create it. This is the other side of the equation: http://www.sciencedaily.com
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Entering the final hour of trading the DJIA is down 107 points and the S&P 500 is off 10 points at 1240. The bulls need a rally in the last hour.
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New York gold was down $3.30 to $584.40. Oil ended at $71.95 up 15 pennies.
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Treasuries were better on the day at the close but below best levels with the two-year at 5.24% which was above the auction yield of 5.23% and the ten-year at 5.21%.
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Most of Europe closed modestly higher.
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There was no last hour rally. The DJIA closed down 117 points at 10928. The S&P 500 closed down 11 points at 1240 and the NAZZ dropped 33 points to 2100.

Breadth was better than 2/1 negative and volume was light.

New lows expanded to over 330 while new highs were less than 100.

The rally days have been more labored than the sell off days in the last month except for the back to back Wednesday/Thursday combo rally of several weeks ago.

And the Casino will be open for three more days this week. The stock markets are open next Monday for those who care. We donít and wonít be open.
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26 June 2006 Daily Comment

Thoughts

Last week Anadarko announced it was buying Kerr McGee and Western GAS Resources for $21 billion.

This morning we learn that Phelps Dodge is buying Inco and Falconbridge for $40 billion plus buying back $5 billion in Phelps Dodge shares. PD was advised by Citigroup and HSBC. Inco was advised by Morgan Stanley, RBC Capital Markets and Goldman Sachs. Falconbridge was advised by CIBC World Markets. And that is the real story. Six years ago these companies could have been purchased for one sixth or less of the cost. Where were the investment banks then?

These types of mega merger deals are contagious so we would expect more to come. And we would guess that a few years from now everyone will be wondering why.
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Stock buybacks instead of special dividends help the owners of options such as company executives. Dividends instead of stock buybacks would help shareholders but not company executives who own only options to buy stock but not the shares themselves. In fact many times the company executives only own stock long enough to sell it.
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In the early going stocks are a bit higher in light trading. Treasuries are a tad weaker and gold and oil are both lower. Asia was mixed overnight and Europe is trading lower in their midday hours.
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New home sales were 1.234 million in May about 90,000 more than expected in the latest reporting period. There isnít much data left for the Fed or traders to look at before the meetings on Wednesday and Thursday.
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One of the regular talking head spokespersons on CNBC just said that consolidations or buyouts of companies usually occur at bottoms. That is a bunch of hooey. In our time which covers 40 years we have seen a lot more buyout crazes at market highs than market lows.
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Oil ended at $71.80 up 93 pennies. Gold was up 30 pennies at $583.
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Europe ended mostly lower and Treasuries were weaker on the long end with the two-year at 5.26% and the ten-year at 5.24%.
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The DJIA closed up 57 points at 11045. The S&P 500 gained 6 points to 1250 and the NAZZ was up 12 points at 2133.

Breadth was 2/1 positive and volume was light.

New lows exceeded 250 and new highs were over 90.

And the Casino will be open for 4 more days this week.
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22 June 2006 Daily Comment

We will be traveling again tomorrow to pick up our biking family after their 6 day ride across the state of Wisconsin from La Crosse to Sheboygan. Next post will be Monday June 23.

Thoughts


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Asia and Europe followed yesterdayís large increase in U.S. stocks. Japan was up 3% and Hong Kong was 1% with the Sensex Index which includes a bunch of Asian countries was up 1.8%. Europe is trading higher as the morning trade in the U.S. begins.

Treasuries are a bit weaker on the longer end while oil is up 70 pennies at $71.03 and gold is up $1.50 at $592.
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Sprint/Nextel was downgraded this morning. We are interested in the shares as one of the big three telecom companies but donít like the split up of the land line and wireless that is in the works so we have been avoiding the stock. There is some point where S would be interesting but that level is the mid teens not $20 where it is currently selling.
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A lot is being written about how cheap the markets are. The same folks who are paying $40 for Aetna down from $55 earlier this year were probably not interested in the shares when they were trading at $7 in 2002. The same goes for any number of companiesí shares back then. GE at $20, HPQ at $10 and Texas Instruments at $13 are only a few examples. Stocks were truly cheap back then and our only regret-since we did well for clients in that time period- is that we were overly influenced by the price action of the stocks and easy profits rather than recognizing their inherent value at those levels. But that is spilled milk.
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Short interest in the NYSE was up 5% month to month as of June 12 at about 9 billion shares.
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After two hours of trading the major measures are lower but above their lows of the day. Treasuries have moved higher in yield with the two-year at 5.22% and the ten-year at 5.19%.
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The last two years at this time of year (June) we and our accounts were down 4% (2004) and 7% (2005) for the year. In 2004 we finished the year up 9% and in 2005 we ended down 3%.

This year we are up 2.7% with the S&P 500 down 1%.
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Oil ended up 70 pennies at $70.95. Gold was down $6 at $585.
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Treasuries gave ground as talk of a 50 basis point raise next week became more widespread. The two-year finished at 5.23% and the ten-year at 5.20%.

Treasury bond holders have lost a good chunk of principal this year as rates have risen.
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Europe closed higher for the day as their bourses closed before the major stock measures in the U.S. moved substantially below unchanged.
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In the last hour of trading yesterday the DJIA gave up 40 points even though the DJIA closed up 100 points on the day. Traders say the last hour action represents the smart money.

Entering the final hour of trading today the DJIA was down 65 points.
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One of the investor sentiment indicators has the largest number of bearish investors since 2002. That usually is a bullish sign. We shall see if usually works this time. We donít think so.
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Brazil and Mexico were both down less than 1% near the close.
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Five years ago today the DJIA closed at 10604. The S&P 500 ended at 1225 and the NAZZ closed at 2034.
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The DJIA closed down 61 points at 10980. The S&P 500 lost 7 points to finish at support of 1245 and the NAZZ dropped 19 points to 2122.

Breadth was 2/1 negative and volume was light.

New lows were over 280 while new highs were a bit about 75.

And the casino is open for one more day of summer fun before the weekend.
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21 June 2006 Daily Comment

Thoughts

We wish a happy summer and longest daylight of the year to all our readers in the Northern Hemisphere. And for those of you in the Southern Hemisphere hang on daylight starts increasing tomorrow. And for those of you on the Equator itís just the same old same old.

Yesterday was a rest day for the boys and girls who venture daily into the big Casino. The major measures closed below their best levels oaf the day but he DJIA was positive. The S$P 50 closed on support at 1240 for the second day in a row after trying to move higher through 1260 earlier on Monday and Tuesday.

Overnight Asia was higher except for Japan which was basically unchanged. Europe is lower as our trading begins and U.S. futures are also flat.

Treasuries are a bit better with the two-year at 5.19% and the ten-year at 5.14% and gold is off five dollars at $575 with oil down pennies at $69.27.
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Verizon is up 9% from its low last month and we are selling the position at $33.10 for a scratch profit in many accounts and a small loss (compared to the loss we had) in some of our larger accounts. Our mistake was not buying the stock correctly i.e. waiting for the lower price. We are still nervous about the resolution of the Vodaphone holdings in Verizon Wireless and would rather be on the sidelines. Moreover we are more comfortable in cash right now and have been wafting for VZ to recover most of its pullback.

That sale leaves us with our only holding in most accounts being the Powershares Pharmaceutical ETF which we are going to hold for the present.
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Oil inventories were above estimates for the latest week, gasoline inventories were below. We arenít surprised and those oil CEOs are doing their best.
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Two hours into the trading day and the DJIA is up 100 points with the other major averages following suit. We continue to think that a higher stock market means the Fed has the all clear to continue raising rates.
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The U.S. Senate on Wednesday defeated a proposal pushed by Democrats to raise the federal minimum wage in increments from $5.15 to $7.25 an hour by Jan. 1, 2009.

But they are only two votes shy of getting rid of the estate tax and Republicans are adding a tax break from 35% to 15% on timberlands to pick up two Democrat votes to push through a compromise $5 million/ $10 million exemption. That may pass.

Both votes will say a lot about priorities in the land of greed and consumption.
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The S&P 500 is at 1258 up 18 points today as the big boys and girls have some fun. The S&P 500 needs to get through the 1260 level and the then the next level is 1280. We just donít have the conviction to try and participate.
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Entering the final hour of trading the DJIA was up 140 points. weíll see how they close.
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Oil ended at $70.30 up 96 pennies. Gold was up $10.50 at $591.

Treasuries finished slightly higher in yield with the two-year at 5.20% and the ten-year at 5.15%.
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Most European bourses closed fractionally higher. Brazil was up 2.5% and Mexico 2%.
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The DJIA closed up 104 points at 11080. The S&P 500 gained 12 points at 1252 and the NAZZ rose 34 points to 2141.

Breadth was better than 2/1 positive and volume was brisk. New lows contracted to 235 but new highs remained under 100.

And tomorrow is one day closer to winter as the days begin to shorten. The boys and girls will be at the casino for playtime and paytime.
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19 June 2006 Daily Comment

Thoughts

We will be away tomorrow having our car repaired but will be back on Wednesday for the Wheel of Fortune.

Happy 37th birthday to our younger daughter Christine who is riding across the state of Wisconsin with her mother on a six day 300 mile bike ride.

Just so we know, several oil company executives were on NBC yesterday explaining why we need higher oil prices and how they are good for us.

If we didn't have this level of profitability, I don't think we could get the supplies to where they need to get to," said the president of Shell Oil Co., John Hofmeister. He emphasized that the companies are seeking greater access to federal lands and offshore waters for exploration.

O'Reilly said "profits are in the midrange" and not as high as they could be, but that if prices were to decrease, the demand for oil and gas would increase and supplies could become short. (This was all said with a smile.)
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Overnight Japan and Hong Kong were fractionally lower while Europe is higher by 1% or more across the board. Oil is off 70 pennies to $69.18 and Gold is down 11.40 at $570 in the early going. Treasuries are weaker.
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Our guess is that as long as the stock markets are rising or holding their own that the Fed will be comfortable raising the Fed funds rate to do its inflation fighting.
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We are selling our two-year Treasury notes for a 30 penny loss which is offset by the 40 pennies plus profit on the five-year we sold a few weeks ago. In hindsight we should have sold both bonds the day after we purchased them.

With all the Fed speak the trading is suggesting a move to 5.25% is in the cards and there is growing consensus that a move to 5.50% or higher is coming this year. We have dipped our toes a couple of times and pulled back and that has been the right step from a market pricing standpoint and so we are doing so again.

We earned an effective 5% plus return for the time we were invested in the notes when the offsetting gain/loss is included.
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At noon the DJIA is down 70 points with breadth 2/1 negative. This is one tough market.
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And the revolving door revolves. Deputy Secretary of State Robert Zoellick is leaving his government job to become Chairman of Goldman Sachs international advisors business. Thatís nice work if you can get it and he got it.
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Oil ended down 83 pennies at $60.05. Gold ended down $11 at $569.
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Treasuries were a bit higher in yield at the end with the two-year at 5.15% and the ten-year at 5.14%.
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The DJIA closed down 75 points at 10940. The S&P 500 lost 11 points to end at 1240 and the NAZZ dropped 20 points to 2110. Breadth was almost 3/1 negative and volume was summer Monday light.

New lows expanded to over 275 and new highs were about 80.

And the Casino will be open for the rest of the week. The last time we took a day off the markets rallied big time so the bulls can take heart.
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16 June 2006 Daily Comment

Thoughts

We like to think that in our Ďsalad daysí (A time of youthful inexperience, innocence, or indiscretion from Shakespeareís Antony and Cleopatra: "My salad days, / When I was green in judgment, cold in blood.") we would have been able to catch the bottom on Tuesday and enjoyed the ride into Friday.

In reality we would probably have purchased last Friday and sold on Tuesday and be kicking ourselves for the lack of conviction.

With more age and money than we had in our Ďsalad daysĒ we have chosen to sit on our cash and watch from the sidelines, for now at least.
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Asia was on fire overnight with most countries up 2% or more. Europe is currently more subdued with fractional gains and U.S. futures are flat.

In early trading Gold is $13 higher and oil is a bit lower. Treasuries are unchanged.
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The COMEX is lowering commodity margins which they raised a few weeks ago. The locals must be long.
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Today is Quadruple witching which means large volume on the opening and large volume on the closing.
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Many brokerages are suggesting bottom fishing Intel now and on any weakness in second quarter earnings. Citigroup is the latest.
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The University of Michigan Consumer Sentiment Indicator Preliminary number for June was 82 versus Mayís 79 and an expected 79.
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European bourses finished the trading day fractionally lower.
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Oil ended at $69.90. Gold finished at $582.50.
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Treasuries closed slightly lower with the two-year at 5.16% and the ten-year at 5.13%.
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The DJIA closed unchanged at 11015. The S&P 500 lost 5 points to 1251 and the NAZZ lost 15 points to 2130.

Seven years ago today the DJIA closed at 10784, the S&P 500 at 1330 and the NAZZ at 2517. So much for buy and hold.

Breadth was 2/1 negative and new lows were over 175 while news highs were about 75.

Volume was active.

The Casino is closed for the week-end but next week the bulls get to build on their rebound rally if they can.
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15 June 2006 Daily Comment

With yesterday's rally and today's action we think it is good to remember McNeel's schema:

PRICES
THEN†††††††††††††††††††† FALL
UP HERE†††††††††††††††††††† A POINT
STOCKS†††† ††††††††††††††††††††††OR TWO
BACK††††††† †††††††††††††††††††††††††††††††††††††††IN A
AND BUYS††††††††††††††††††††††††† ††††††††††††DAY OR
BULLISH††††††††††††††† †††††††††††††††††††††††††TWO AND
TURNS†††††††††††††††††††† ††††††††††††††††††††††††††††††EVERY
TRADER††††††††††††††††† †††††††††††††††††††††††††††††††TRADER
AND EVERY†††††††††††† †††††††††††††††††††††††††††††††††TURNS
OR TWO††††††††††††††† ††††††††††††††††††††††††††††††BEARISH
IN A DAY††††††††††††† ††††††††††††††††††††††††††††††ON THE
OR TWO†††††††††††††††† ††††††††††††††††††††††MARKET
A POINT††††††††††††† †††††††††††††††††††††††††††††AND
THEY RISE††††††††††††††††† ††††††††††††SELLS
THEN†††††††† ††††††††††STOCKS
DOWN HERE

 

-BEATING THE STOCK MARKET, R.W. McNEEL

FIRST PUBLISHED 1921

The above chart is from www.minyanville.com .
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14 June 2006 Daily Comment

We are traveling today and tomorrow but we wanted to comment on the CPI. The core rate was up 0.3% which was greater than expected. But the markets decided to rally on the news and the major measures were higher at midday.

We don't know if this is the beginning of a move higher but we see no reason to get involved at this time.

Our next full post will be on Friday June 16.

The Casino will be open in our absence.
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13 June 2006 Daily Comment

Thoughts

Today should be interesting. Asia was down big time with India off 5%, Japan off 4% and Hong Kong down 2.5%. Europe is following suit and all the bourses are down 2% plus. Russia was down 8% but then it may go up 10% tomorrow. Buying Russia is like paying roulette at the Casino.

Gold is off $19 to $592 and Oil is down 82 pennies to $69.54

Treasuries are better with the two-year at 4.98% and the ten-year at 4.95%.

PPI is announced in a few minutes at 7:30am and it should set the early trading tone. If PPI is benign a rally may be in the cards. Maybe the elves can work their magic.
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Ouch! Prudential lowered its target on Intel to $14 (now at $17) and on AMD to $45 from $65.
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Goldman Sachs beat estimates and is trading $1 higher. Traders were expecting more and GS may trade lower after the official opening. It will be a good tell for the day on how the trader thinking is going.
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May PPI was up 0.2% with 0.4% expected; core was up 0.3% with 0.2% expected. Year over year was up 4.5%.
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Today is going to be important from a trading standpoint. With the NAZZ down 7 days in a row and the rest of the world following the lead of the U.S. markets, a rally is needed. And when a rally has been needed over the last three years it usually has occurred. This is in contrast to 2000 to 2003 when the rallies never came.

Futures are indicating a slightly down opening and Treasuries have backed off a little but still are better on the day. The dollar is showing some strength.
*****

Templeton Russia Fund is down 43% from its high in early May.
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Goldman Sachs is now down $2.50 a share as the major measures are opening mixed. Commodities remain under pressure. There must be hedge fund and hot money liquidation continuing to occur. But the set up for today suggests a rally, especially with many of the talking heads on CNBC sounding of Gloom and Doom.

We think this will be a rally in a downtrend and we donít want to trade it.
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The markets opened mixed and then there was a quick push to the upside which was followed by a reversal. Now at 10am share prices have stabilized a slightly lower level.

GS is now down $5 and breadth is 3/1 negative but the major measures are holding fractionally below positive. The push higher should come today. Friday is a quadruple witching day and with PPI tomorrow we think the big boys and girls may try to get the rally going this afternoon. They donít want to push higher this morning because they may not have the firepower to hold em higher all day. A rally in the last hour would give some heart to the overseas markets which have been tanking.
*****

Three hours into the trading session and gold is down $32 with oil off $1.50. The major measures are back to the plus side but without much conviction.
*****

Europe closed over 2% lower on most bourses. Oil on the NYMEX was off $1.71 to $68.65. Gold lost $44.50 to $566.80. There have to be some sad faces at a few hedge funds right now.
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At 2:20pm a series of buy programs brought the DJIA from down 75 points to plus territory. The programs may have been related to expiration but the time of day of the program buying was the same time as last Thursday. And like last Thursday when the buy programs ended the markets backed off to negative territory again only to be moved higher into the closing bell by more programs.
*****

In three minutes the ticks, (a plus tick is when the last sale is higher than the prior sale, a minus tick is when the last sale is lower than the prior sale), went from plus 1250 to minus 500. Now that is volatility and only comes form program trading.
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Treasuries closed flat with the two-year at 5.01% and the ten-year at 4.97%.
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Programs couldnít save the day and The DJIA closed down 87 points at 10704. The S&P 500 lost 13 points to 1223 and the NAZZ dropped 18 points to 2072.

Breadth was 3/1 negative on the NYSE and better than 2/1 negative on the NAZZ. New lows exceeded 575 and new highs were 60. Volume was very active with almost 3 billion shares on the NYSE just like last Thursday.

The difference this week in the 2:30pm rally that dialed is that breadth and the new lows were much greater and never improved. With CPI tomorrow the Wheel of Fortune at the big Casino is going to be spinning for either the bulls or bears. The bulls made a stand today and weíll see if they can do better than they did last week with a rebound rally albeit from lower levels.
*****

 

12 June 2006 Daily Comment

Thoughts

Traders are awaiting PPI on Tuesday and CPI on Wednesday to see which way Uncle Ben is going to go when he and his band of merry men and women meet at the end of the month to decide on interest rates. Uncle Ben is giving three speeches this week so folks will have a further chance to be confused.

Overnight Asia was mixed to lower with Hong Kong down and Japan up. Europe is mostly fractionally lower and U.S. futures are mixed.

Crude oil is up 15 pennies to $71.70 and gold is down $2 at $610. Treasuries are a bit weaker.
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Our favorite guru sees a rally in the cards with the June Solstice on the 21st as the key pivot point for a rally into August.
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Symantec announced a $2 billion offering of convertible debt along with a $1.5 billion buyback of stock to mitigate the downward pressure on share prices that the convertible debt will exert. Borrowing $2 billion to buy back stock may be smart or not. We would rather see performance move the share price higher.
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We are going to let the SYMC go at $15.65. That price involves a 35 penny loss for larger accounts and a scratch for smaller accounts, but is also 60 pennies better than where it was trading last week. We just donít like borrowing money to buy stock.
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We are gong to place the proceeds in the Powershares Pharmaceutical ETF at $15.83. We have wanted to repurchase PJP for those accounts where we sold it and the SYMC sale allows us to do so without spending new cash. We traded at a higher level a few weeks ago but we plan on holding this position and adding to it in any sell off.
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The above chart is from www.minyanville.com .
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The United Auto Workers Union had 1.5 million members in 1979. The UAW now has 547,000 members with more to leave with the Delphi and GM buyouts ahead.
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An hour and one half into the trading day the major measures are slightly lower with breadth 2/1 negative. The DJIA was been moving plus and minus all morning and currently is down about 10 points. The S&P 500 is at 1250 and may test the 1245 level again today.
*****

Europe closed lower with many bourses off over 1%. Mexico was down 4.2% and Brazil 3.8%
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Oil closed down $1.27 at $70.36 as the first storm of the season avoided the rigs area of the Gulf of Mexico.

Gold lost $1.50 to $611.30 and Treasuries were soft with the two-year to 5.01% and the ten-year at 4.99%.
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The DJIA closed down 100 points at 10791. The S&P 500 lost 16 points to close at 1236 and the NAZZ dropped 44 points to 2091 to close lower for the 7th day in a row.

Breadth was 2.5/1 negative. Down volume exceeded up volume by a 10/1 margin. New lows expanded to over 300 and new highs were 75.

Volume was decent for a summer Monday.

And tomorrow the economic data for the week begins to flow and affect trading as PPI is announced. The Wheel of Fortune will be spinning for some.
*****

 

9 June 2006 Daily Comment

Thoughts

Markets around the world rallied overnight to the tune of up 1% and more. The U.S. markets are also going to open higher this morning. Gold and oil are higher and Treasuries are also better in the long maturities.
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We were whipsawed yesterday in our trades and upon reflection overnight we realize that we donít think the markets have corrected enough to even give us confidence to hold trading positions. Yesterday, it was obvious that if the markets were going to stop going down they had hold the levels to which they had dropped.

We were trying to trade what looked to be an interim bottom and we discovered that psychologically we were not ready for the risk that it wasnít a bottom. Of course this insight came to us after we had initiated the trades.

Our in and out in the XLK and PFE involved only scratch losses except in our very large accounts where the trade loss in XLK bought the day before wiped out most of our gain in the five-year Treasury that we pocketed last week. Bear markets have a way of doing that.

And so after yesterdayís vapid venture we are long Symantec and Verizon in accounts and 90% cash or Treasuries with a yield of 4.05% & 5%. That is the difference between the last few years and this year. The yields on cash are nearer to historical levels and that makes us less inclined to assume much risk until we believe a true bottom is in place.
*****

There is going to be a rally this morning and we have no idea how strong it will be. As always time will tell.
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Last night Texas Instruments said it will report better than expected earnings and revenues for the second quarter and the shares are up $1 in the early going. If we read the release correctly most of the gain in earnings that will allow TXN to report better than comes from a tax settlement but the street is in a all news is positive- at least for this morning. Or maybe the shorts are so shaken from yesterdayís late rally that they are covering on even a hint of positive news.
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The Trade Deficit for May was $63.5 billion. Import prices were up 1.6% which was higher than expected.
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From: http://www.comstockfunds.com

Greenspan said this at Jackson Hole last August: ďThus this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk.  Such an increase in market value is too often viewed by market participants as structural and permanentÖBut what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of debt that supported higher asset prices.  THIS IS THE REASON THAT HISTORY HAS NOT DEALT KINDLY WITH THE AFTERMATH OF PROTRACTED PERIODS OF LOW RISK PREMIUMS.Ē (Bold and Caps are ours).
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Floyd Norrisí Column in the NYT Published: June 9, 2006

In part had this to say today:

AMONG some Americans, it is almost an article of faith that the Consumer Price Index understates inflation ó there are conspiracy theories about why that happens. After all, holding down the C.P.I. saves the government money in a variety of ways and hurts those with pension or Social Security benefits linked to the index.

But you don't have to be a conspiracy theorist to conclude that in the last decade, an important part of the index has been understated. That is the housing component.

Since 1983, the government has measured the price of homes not by looking at house prices but by computing what it calls "owner's imputed rent." That is the rental value of the house you own. It accounts for nearly a quarter of the entire Consumer Price Index.

When the change was made, the government provided statistics indicating that previous inflation rates would not have been very different under the new method, and that remained true until 1996.

Since then the home price index maintained by the Office of Federal Housing Enterprise Oversight has doubled, while the imputed rent figure has risen by less than a third.

Had the government computed the Consumer Price Index using actual home prices since 1996, I estimate that it would have risen by an average of 4.1 percent a year, as opposed to the 2.5 percent reported. The core rate ó inflation excluding food and energy costs ó would be 4.2 percent, not 2.2 percent.

Perhaps the Federal Reserve was too hesitant to raise rates, and thus allowed speculative bubbles to form, because it was seeing inflation through rose-tinted glasses.

But now the problem could be the opposite. If the housing boom is ending, rental costs may start to catch up with house prices. The reported inflation rate would be higher than the real rate, at least to people who say the best way to measure home prices is by measuring home prices. (Our italics and bold)

To be sure, some economists like the rental gauge, saying it measures consumption spending. Others think that the best measure is mortgage payments. When interest rates were declining, those rose slower than home prices but faster than imputed rents...
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Heís been reading our stuff as you read it here first in The Lemley Letter. Weíve been writing on this subject for years and below is the latest example:

From the 5 June 2006 Daily Comment

... and it reiterates that the housing component of the CPI has been understating housing costs because it uses rental costs. And it is why we presume the leaders of the numbers crunchers will soon decide that housing costs are a better measure than apartment rental costs. When one realizes that Social Security and myriad other labor contracts depend on the CPI for wage adjustments it is obvious that keeping that CPI increase low (whether they are real or not) has significant ramification for the economy and employers profits.
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An hour and one half into the trading day the major measures are higher with breadth 2/1 positive. Traders arenít breaking down the doors to buy stocks today. Todayís action may imply that yesterdayís rally may have been short covering more than new buying.
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The two-year Treasury is at 5.01%, ten-year at 4.98% and the thirty-year at 5.03%. Those yields suggest recession or aggressive traders/short covering on the long end.
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Texas Instruments is now trading lower on the day.
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Entering the last two hours of trading for the week the major measures are now lower and breadth which was 2/1 positive has turned negative.
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Crude oil ended up $1.25 at $71.60. Gold finished at $608.80 down $4.

Treasuries closed the day with the two-year at 5%, the ten-year at 4.98% and the thirty Ėyear at 5.03%.
*****

The DJIA closed down 46 points at 10891. The S&P 500 lost 5 points to end at 1252 and the NAZZ dropped 10 points to 2135.

Breadth was positive on the NYSE and negative on the NAZZ.

There were 125 new lows and 95 new highs. Volume was brisk.

And the Casino is shuttered for the week-end to sweep up losing tickets from the carnage of the week. But PPI and CPI arrive next week along with quadruple witching so it should be a fun time as traders spin their Wheels of Fortune.
*****

 

8 June 2006 Daily Comment

Thoughts

Happy 39th birthday to our daughter Lisa.
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Al Zarqawi is dead. Some Iraqi made a lot of money. We wonder if heíll get to spend it.

We donít know what effect the death will have on the markets, but we will know soon enough. So far the futures are following the rest of the world and that is down big time, which is where the markets were before the announcement and the drops were related to the raising of Central Bank rates in Europe and South Korea and probably some emerging market hedge fund selling.

Asia was down 2% to 4% across the board and Europe is down about 2% with Russia down 5%. Oil is off $1 to $69.84, gold is down $9 to $624 and Treasuries are better on the flight to quality trade.

With the action of the markets and the better Treasuries we would guess that there is some thought in tradersí minds of terrorist retribution for the killing.
*****

The European Central Bank raised interest rates by 25 basis points to 2.75% on Thursday. The action was expected. The Bank of England did not raise and held at 4.50%.
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Jobless claims were 302,000 which is a larger drop in claims than expected.
*****

The dollar is doing better today.
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Minyanville had this on their site as a warning not to celebrate a trade until the money is in your pocket. Watch the video of the fellow jumping the car.

http://www.vidilife.com
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Citigroup cut its earnings estimates on Intel and AMD for the 2006 and 2007. It maintains a hold on AMD and a buy on Intel.
*****

An hour into the trading session the S&P 500 is at its two hundred day moving average, breadth is 3/1 negative and the Treasury ten-year is under 5% while the two-year is at 5%. We are buying a bit more XLK for additional accounts at 19.95 and we are adding Pfizer to our larger accounts. The S&P 500 is at support and we are making a few trading buys in relatively conservative issues.

The XLK is a means of participating in the big cap tech stocks that are taking gas right now without having to pick just one or two. Pfizer is in the process of selling the over the counter drug business and we think it may get a pop on the news. It yields 4%.
*****

Two hours into the trading day and the selling is intensifying wit the DJIA down 175 points and the S&P 500 at 1241 which is below the 1245 number that we thought might hold since it was support. Breadth is a dismal at 4/1 negative. And down volume exceeds up volume by a 10/1 margin. If the bulls are going to make a stand they had better do it now. We havenít seen a day like this for a while. And if the markets donít rally today tomorrow and Monday could be very interesting. We are pulling back into our shell.
*****

The sell off in stocks has created a strong rally in the treasury market with the two-year down t 4.97% and the ten-year at 4.95%.
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Oil ended down 52 pennies at $70.30. Gold was down $19 at $614.
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Treasuries rallied on the long end and the two-year closed at 5.01% and the ten-year at 4.99%.
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We sold our trades in PFE and XLK in the final hour when the markets rallied to the plus side about 2:15pm and then faded. We didnít like the action and discretion suggested we head to the sidelines. When the rally ran out of steam up 15 points we sold.

After we sold the major measures staged a last thirty minutes rally which may carry over into tomorrow morning but we were already on the sidelines. Our timidity suggests we arenít ready to commit to any more than a trade.

On the trades today it was a scratch loss involving commission costs but on the XLK we bought yesterday in our large/aggressive accounts the loss was 50 cents a share. No one ever said this would be easy. We would rather go home with the cash in accounts than those two trade items and the discipline is to keep a trade as a trade. We still own SYMC and VZ to own, not to trade.
*****

In case you were wondering: Top White House economist Edward Lazear on Thursday played down concerns about recent declines in U.S. stock prices and weakness in the U.S. dollar. "Volatility is not unusual in the stock market," Lazear told a conference call to discuss the release of new White House forecasts on the U.S. economy. "We don't think of this as being particularly alarming."
*****

The DJIA closed up 12 points at 10942. The S&P 500 gained 2 points to end at 1258 and the NAZZ dropped 5 points to 2147.

Breadth was 2/1 negative and Volume was big time exceeding 3 billion shares on the NYSE.

New lows expanded to 400 while new highs were about 80.

The rally from down 200 points ran out of steam but was still impressive. Tomorrow is Friday and it will be interesting to see whether traders want to go home long or flat over the week-end. We made our decision today to beat the rush.

Join us tomorrow for the last day of spinning the Wheel of Fortune for the week.
*****

 

7 June 2006 Daily Comment

Thoughts

The rally that began I the final half hour Tuesday is going to carry over into this mornings opening. After that it is anybodyís guess.

Japan and Hong Kong and most of Asia were down 1% to 2% overnight. The Shanghai stock market was shanghaied overnight and dropped over 5% in value. The Nikkei hit its lowest level since last November as it dropped 1.8%.

Au Contraire, Europe is up fractionally across the board.

Investors Intelligence numbers for the week show 40% bulls and 31% bears. These are sentiment levels from which rallies have occurred over the past few months. Since the talking heads and other gurus are looking for and excuse for rallying the new sentiment numbers may be a starting point.

The U.S. has made a more conciliatory offer to Iran to get them to the negotiating table and there is hope that Iran will choose to talk. That would be a positive for the markets since the last spike up in oil over $70 was occasioned by the Iran/ U.S. imbroglio over nuclear materials.

A drop in the price of oil should be a positive although in the last few weeks as oil moved higher the bulls were saying that the Fed would view the high price of oil as an additional governor on the economy and thus be able to pause at 55. Now that oil is going back down under $70 we presume that story will change to the drop in the price of oil reduces inflationary pressures. Of course oil itself is excluded form the core CPI number. If it werenít the Fed would be raising rates 50 basis points at a time rather the measured 25 they have been.

In early trading oil is down 56 pennies to $71.54 and Gold is down anther $12 to $622. Treasuries are a bit weaker.
*****

Symantec announced an agreement with IBM that provides for the delivery of Symantec high availability, storage management, and backup products for the Linux on POWER(TM) platform by the end of 2006.†† These solutions will help clients consolidate Linux applications on the IBM System p(TM) platform, leveraging the benefits of IBM's leading System p hardware platform and Symantec's leading data center infrastructure software.
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Potential market moving economic numbers are next Tuesday when the Producer Price Index (PPI) and Retail sales are announced followed by the Consumer Price Index (CPI) on Wednesday.

Today oil inventories are announced and tomorrow there are weekly jobless claims.
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The WSJ reports today that Standard & Poorís says it may downgrade the debt of the United States in 2012 and then further in 2025 if the conditions that currently exist donít improve. www.minyanville.com makes the point that if S&P sees conditions that require a downgrade they should do so now as a warning and then if those conditions donít occur they can upgrade. After all, ratings services are warning agencies and acting after the fact offers no added value. But S&P doesnít want to absorb the political heat that would come from a current downgrade.
*****

Oil and gasoline inventories came in higher than expected. Crude oil is down $1.30 to $71.20 on the news.
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A couple of hours into the trading day and the major measures remain higher will steady sustained buying moving stocks slowly higher. Breadth is improving and is now 2/1 positive.

We bought XLK the Technology ETF in our very large accounts for a trade off 1255 S&P 500 support, we hope. To remind all the XLK the top ten holdings are 12% MSFT, 7% INTC, 6% IBM, 5% CSCO, 5% T, 4% VZ, 4% HPQ, 4% QCOM, 3% DELL and 3% S.

We also added shares of SYMC to smaller accounts that didnít own any.
*****

Consumer Credit rose $10 billion in April when a rise of $500 million was expected.
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With an hour and one half to go the major measures are now mixed in desultory trading. Breadth is almost flat. Oil is lower and Treasuries are also.
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Oil ended at $70.62 down $1.68 and gold closed at $634.

Treasuries flattened with the two-year at 5.01% and the ten-year at 5.02%.
*****

At the bell the DJIA was down 68 points at 10935. The S&P 500 lost 8 points to 1255 and the NAZZ was off 11 points at 1251.

Breadth was flat on the day and volume was moderate.

There were 175 new lows and 100 new highs.

And there are two more days to spin the Wheel of Fortune this week.
*****

 

6 June 2006 Daily Comment

Thoughts

U.S. futures are higher this morning after yesterdayís shellacking. As part of the process, down early would be better than up early but the markets are what the markets are.

Overseas was down with Japan closing off 1.8% and Europe down over 1% across the board. And Oil is off a few m pennies with gold down almost $10 at $639.

IBM is going to invest $6 billion in India. Last week GM announced it would invest $3 billion in Russia. And the American economy thanks both companies for their concern. But that is capitalism and money goes where it is treated well and where the greatest profit potential lies.

Treasuries are backing up again this morning with the two-year at 5% and the five-year at 4.97%. It should be an interesting month in the Treasury trading market. The St. Louis Fedís William Poole says that inflation expectations trump all. He makes a good twin to Moscowís aggressive stance on inflation.
*****

Stocks opened higher but less than one half hour into todayís spin of the Wheel of Fortune the major measures have turned lower. Breadth is also negative and new lows are outpacing new highs.
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Brazil and Mexico were down over 3% yesterday and are off 1% this morning. As the U.S. markets move lower Europe is extending its losses with most bourses down over 1.5%
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The two-year Treasury and the ten-year Treasury are both at 5% and yields are lower in between.
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At 1pm the DJIA is down 91 points and the bulls are going to have to get the rally going soon or time will run out today.
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Gold fell $14 to finish at $634.70 in New York on Tuesday. Oil also ended ten pennies lower at $72.50.
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Treasuries were mixed with the short end higher in yield and the long end lower in yield. In effect the curve is flat with the two-year at 4.98% and the ten-year at 5%.
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Late in the day Fed Governor Hoenig said that inflation is near the top of the range bout still in the comfort zone. We are glad to know that. Do you think these folks Blackberry each other with their comments before they make them?
*****

The bulls managed a late rally to cut the losses for the day in half. The DJIA closed down 50 spins at 11000. The S&P 500 ended down 2 at 1263. The NAZZ lost another 7 points to end at 2163.

Volume was brisk and new lows expanded to over 250 while new highs contracted to 80. Breadth was better today but still 2/1 negative.

And there are three more days left in the trading week and two more Fed governors left to speak this week on inflation. The bulls need help but when all looks bleak it is good to remember it can get even bleaker.
*****

 

5 June 2006 Daily Comment

Thoughts

Oil is over $73 this morning as Iran has threatened to cut off its oil supplies if the Western Allies mess with its nuclear ambitions. The posturing on both sides reminds of high school prom king/queen contests. This whole Iran imbroglio is like living in an old movie.
*****

We finally planted our garden over the week-end.
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Hong Kong was up fractionally and Japan was off fractionally overnight with the rest of Asia mixed. Europe is also mixed this morning and Treasuries are flat with gold up $9 to $550.
*****

We read the item immediately below on www.rrealmoney.com and it reiterates that the housing component of the CPI has been understating housing costs because it uses rental costs. And it is why we presume the leaders of the numbers crunchers will soon decide that housing costs are a better measure than apartment rental costs. When one realizes that Social Security and myriad other labor contracts depend on the CPI for wage adjustments it is obvious that keeping that CPI increase low (whether they are real or not) has significant ramification for the economy and employers profits.

The inflation doves have all kinds of reasons why an acceleration of inflation shouldn't matter to the economy, to the market or to the Fed (not that you can ever really separate the three in the intermediate-term anyway). They'll tell us that the only reason the inflation gauges are showing acceleration is because the housing market's cooled and that is pushing up demand for rents, and rents are an over weighted input in the CPI.

Aside from how that logic basically admits that the CPI's been understating inflation during the extended housing boom, I fail to see why I'm supposed to feel better when the rent component of CPI is showing accelerating inflation. It's not like inflation is sum zero.
*****

Over the week-end we were thinking about the employment statistics released on Friday. There are about 300 million residents in the United States. According to the statistics released there are 228 million potential workers. 155 million are actively seeking jobs. Of those, 144 million or less than half of the population is employed and 7 million are unemployed. 78 million up from 77 million last month are not looking for jobs.

The average hourly wage is $16.44 which works out to about $28,000 on the 33 hour work week which is the norm. That means that the average worker in the country makes less than $30,000 a year for a full weekís work. That is not encouraging, to say the least. We couldnít find the median number for hourly wages but we would bet it is lower than the$16.44 of the average wage. We did find older data from http://watchingthewatchers.org/story/2006/5/21/18335/9821 that says that Census Bureau data show median family income -- half of families have income greater than the median, half have less -- fell 3.6% from 2000 through 2004. Incomes for the poorest families fell even further. The only group to gain was the family at the 95th percentile -- that is, richer than 95% of all families. Data for 2005 are unavailable.
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Saudi Arabiaís oil output has declined in recent months. The Saudi oil minister attributes that occurrence to a drop in demand and not to any effort to cut production by the Saudis.
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We sold the five-year Treasuries we purchased on Thursday for a 48 pennies gain. That profit represents a bit more than five months interest versus what we can earn on cash and be in the same position. Bernanke talks this afternoon and we would rather lock in a trading profit on the longer bonds and hold the two-year notes we bought at the same time. We think there is up and down action to come in the weeks running up to the late June 27/28 Fed meeting and even afterwards. Thatís because it is by no means certain that the Fed will stop at 5%. Our guess is that they are going to 5.25%.
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ISM Services Index was 60.1 in May versus 63 in April.
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More facts about the misinformation of the Consumer Price Index (CPI) were suggested by an article on www.minyanville.com. The Consumer Price Index doesnít take into account the rising co-payments and increased deductibles when computing the Medical cost aspect of CPI. Housing costs use equivalent rents which we mentioned above but deducts from that value higher heating costs so that higher energy prices actually causes the housing component to drop and thus lowers core CPI. Say what?
*****

In early afternoon at 1pm it seems the big boys and girls are taking the day off as the major measures have been sliding lower all day in moderate trading. Uncle Ben has not yet spoken. The DJIA is down 113 points and breadth is 2/1 negative.
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Uncle Ben says the Fed has to remain vigilant. His arguments today really suggest a stagflation scenario although we are sure he doesnít mean to imply that outcome. We are happy to have sold the five-year although the short end is surrendering more yields ground with the two-year at 4.95% up from 4.91% on Friday.
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Europe closed lower.
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The major measures are still going down more easily than they rise.
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Gold closed at $648 and Oil at $72.75.
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Treasuries gave ground with the two-year at 4.97%, the five-year at 4.94% and the ten-year at 5.02%. Inversion and flattening are occurring at the same time. That kind of action means that traders are expecting inflation and slowdown.
*****

The DJIA closed down 195 points at 11052. The S&P 500 lost 23 points to end at 1265 and the NAZZ dropped 50 points to 2170. Breadth was 3.5/1 negative and new highs and new lows were about equal .Volume was summer Monday light.

And there are four more days of trading left at the Casino for the week. Weíll be here.
*****

 

2 June 2006 Daily Comment

Thoughts

As we begin the last trading day of the week traders are awaiting the May Employment Report due out in an hour at 7:30am. An increase of 140,000 or less will be bullish for bonds and stocks since traders will take those lower numbers as a hope for a Fed pause. Now it really doesnít make sense that stocks should rally on low job creation since it would indicate a slowing of the economy. And if the Fed is going to pause and/or begin lowering rates that also should be a negative for stocks. But since the markets are only looking about one week ahead instead of the usual six months any pause may be a short term positive for stocks.

The shortness of the forward look is a symptom of the domination of current markets by hedge funds and other casino types. It has been that way since 1997 and will remain so for the foreseeable future until a great washout-- which may never come. The natures of the markets have changed. Thatís a fact, jack.

Our guruís scenario for the summer is akin to our scenario in that he expects a top in the next week or so and then a pullback to mid June with a good trading rally from the third week in June, along with a potential, more important top than the May top, and then a decline from the end of August to an October low.

That forecast is not unique in that we are of the same opinion and the occurrence of the described price action has happened more often than not over the yeas in the May to October period.
*****

With our just purchased Treasury position in accounts at a 5% yield we are content to watch from the sidelines with a little trading to keep the juices flowing and interest peeked but we will not be making any major moves until the September/October period, if at all.
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Overnight Japan and Hong Kong were both up over 1.5% ending their trading weeks on a strong note and Europe is following suit. Treasuries are flat ahead of the Employment Report and Gold is up 42.50 to $636 and Oil is up 75 pennies at $71.09.
*****

75,000 jobs were created in May, the lowest since last October and March and April job creation were also revised lower. On that news Treasuries rallied and stocks gave some ground. And so initially both areas of the markets reacted as they should have from an historical perspective. Moreover the shortfall in job creation was much greater than all but the gloomiest thought. Maybe the hedgies and big boys and girls are on a long week-end.
*****

The Russian Ruble has risen to a six year high against the dollar. The ruble is up 7% this year. What has the world come to when speculators would want to own rubles instead of dollars? Supposed the ruble is to be allowed to flat freely on July 1.
*****

An hour into the trading day the major measures are mixed with the DJIA down (IBM is down $1.50) and the S&P 500 and NAZZ higher. Breadth is 2/1 positive on the NYSE and flat on the NAZZ.
*****

Four more top executives of the Las Vegas Sands, which owns the Venetian Resort Hotel and Casino, received more than they should have. The total in excess bonus payments for the five men was $2.8 million.

The compensation committee of the board conceded that it had made an error. But it said that "the outstanding performance of the company in 2005" justified the extra money, and it allowed the executives to keep it.

Shareholders of Las Vegas Sands did not fare as well. The value of their holdings fell 18 percent last year.
*****

Approaching the noon hour the major market measures are mixed and breadth has turned negative while Treasuries continue to rally.
*****

Oil closed up $1.99 at $72.33. Gold was up $7.50 at $641.

Treasuries rallied all day and finished on their highs with the ten-year at 5% and the two-year at 4.91%. The five-year ended at 4.90%. What a difference a day makes.
*****

The online ad market is going to generate $29 billion in revenue this year. What a waste.
*****

At the bell the DJIA was down 15 points to 11245. The S&P 500 gained 2 points to 1288 and the NAZZ lost 1 point to end at 2218.

Breadth was 2/1 positive on the NYSE and flat on the NAZZ. There were 200 new highs and 95 new lows. Volume was active.

And the casino is closed for the week-end but there will be a full week of fun next week.
*****

 

1 June 2006 Daily Comment

Thoughts

Japan was up fractionally overnight while Hong Kong was down 1.3%. European bourses are large fractions lower in the early going and U.S. futures are mixed.

Treasuries are weaker again by a few ticks and gold is down $13.50 at $535 and oil is down 51 pennies at $70.78.
*****

There will not be strikes at Delta or Alcoa as agreements with the pilots and steelworkers respectively have been reached.
*****

First Quarter Non farm productivity was 3.7% versus 3.9%. Unit labor costs 1.6% versus 1.8%. Initial jobless claims were 336,000.
*****

Institute of Supply Management May Manufacturing Index besides being alliterative was 54 versus an expected 55. The Prices Paid Index was 77 versus and expected 74.

Pending Home Sales for April were down 3.7%.
*****

Treasuries popped over 5% yesterday on the release of the May Fed minutes.

We have had 5% in our minds for a while and so we once again have purchased the two year but we also purchased a five year with a 5% coupon. We bought bonds for all we bought before and placed one half in the two-year maturity and one half the money in the five-year. Since the five year is a Feb/Aug payer there will be a good chunk of accrued interest on the purchase which we will receive back in August.

Our thoughts remain that the economy is slowing and the markets will eventually roll over. There will be some sort of panic situation this fall at which time theTreasuries will rally and stocks will drop and we will have the opportunity to switch if we so choose.

If we are wrong and the Fed does keep raising rates to 6% we will then switch the two year position to four or five years for lesser dollar price so that we will pick up the 6% yield by extending the maturity. We really donít think the Fed is going past 5.25% for a while and are betting that they will stop at 5% on Fed funds till after the election.

In the meantime we will be receiving a decent return for ourselves and clients.
*****

General Motors overall sales were down 15% when down 10% were expected. Ford sales were down 6% which was better than expected. Toyota overall sales were up 12%.
*****

Near the close Oil was down 95 pennies at $70.34. Gold was down $625. Treasuries were unchanged.
*****

The DJIA closed up 90 points at 11260. The S&P 500 was up 15 points at 1285 and the NAZZ gained 38 points to 2215. Volume was active.

Breadth was 2/1 positive and new highs bested new lows 160 to 130.

And there is one more day to spin the Wheel of Fortune this week.
*****

 

 

 

 

 

 

 

 

 

 

 

 



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