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29 June 2007 Daily Comments

Thoughts

Research in Motion, the folks who make the Blackberry, reported dynamite earnings and sales last night and the share price is up 10% in the early going. That and the over ballyhooed iPhone introduction tonight have added a positive tome to this morning’s market goings on. The S&P 500 has fallen on 10 of 11 of the last trading days of the quarter.

Asian was mixed overnight with Shanghai down over 2% on top of yesterday’s 4% drop and Hong Kong lower while Japan was higher. European bourse indexes are lower at midday. Oil is over $70, Gold is $2 higher and Treasuries have a bid on the back of a lower PCE Price Deflator.

Personal Income was up 0.4% while Personal Spending was up 0.5% and the PCE Price Deflator for May (inflation) was up 0.1%. The price index for personal consumption expenditures rose 0.5% in May compared to the prior month and 2.3% from a year earlier. Excluding food and energy, the "core" index rose 0.1% in May and 1.9% from a year earlier, the first reading below 2% since April, 2004.
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You scratch my back…: private equity company Clayton, Dubilier & Rice has agreed to sell Brakes, a food service group with sales in excess of 1.6 billion pounds ($3.2 billion), to funds affiliated with investment firm Bain Capital. Clayton bought Brakes in 2002 for roughly 430 million pounds. Clayton said in a statement on Friday that Brakes had seen its turnover grow by 14 percent and its operating profit by close to 70 percent over the last five years.
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European bourse indexes closed higher across the continent. Mexico and Brazil were also higher.
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Oil closed at $70.46 up 89 pennies. Gold was unched at $650. Treasuries had a strong bid all day and the two-year ended at 4.88% with the ten-year at 5.04%.
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The Model Portfolio is up 11% since June 30, 2006.
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Stocks almost gave up the ghost in the last hour of the last day of the quarter. At one point in the final hour of trading the DJIA was down 110 points but the big boys and girls had saved enough ammo for the close and the DJIA closed down only 16 points at 13404. The S&P 500 lost 3 points to close at 1503 and the NAZZ dropped 5 points to 2603.

Breadth was flat all day and turned negative in the last hour and volume was moderate.

There were 275 new highs and 135 new lows.

The bears won the day but he bulls won the quarter and the first half of the trading year.
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28 June 2007 Daily Comments

Thoughts

In a reverse of yesterday’s action in Asia, Shanghai was down 4% overnight while most of the rest of the Asian indexes were higher. European bourses are again playing catch up with most higher. Oil has a $69 handle and Gold is up $4. Treasuries are weaker.
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Final GDP for Quarter I was up 0.7%. We aren’t sure whether this is the final final GDP number or whether there is a revised final GDP number down the road. Core PCE Deflator (Core Personal Consumption Deflator is an index of prices for all domestic purchases excluding food and energy which is the Fed’s inflation measure) was revised to 2.4% from 2.2%. The overall PCE Deflator which includes Food and energy rose 4.2%.
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The Fed concludes its two day meeting today with its thoughts issued at 1:15pm. Traders may hold their fire today until that announcement.
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Jobless claims were 313,000 down from 324,000.
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The WSJ and CNBC are reporting that several recently announced Leveraged Buyouts are having trouble raising money through debt offerings of billions of dollars to fund the transactions. The LBOs will go forward since the investment banks have provided bridge loans. And the funding problem is more a question of how much interest the borrowers will have to pay than of available funds. But the higher interest rates mean that the deals may not be quite as profitable as the LBO buyers initially thought.
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Oil is over $70 at 10am and Gold is up $6 in NYC trading.
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GM is up $1.25 at $38.15 on news that it is selling its heavy duty truck Allison Transmissions for $5.6 billion. With the GMAC sale and this sale, GM is doing what the Bear Stearns funds did in that they are selling the good stuff that they can to sustain the less good stuff. The pop in the price today is worth 20 DJIA points and is probably the result of short covering and end of quarter window dressing.
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The Fed does not yet see any sustained moderation in inflation and so they are on hold. On that news we all can go back to sleep.

Treasuries are selling off a bit and stock measures initially moved higher but after 20 minutes are giving ground.
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This is an interesting article on hedge fund performance:

http://www.newyorker.com/reporting/2007/07/02/070702fa_fact_cassidy .
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The 2002 bottom of the tech bear market is almost here and so from now on the 5 year records of mutual funds and others will not reflect the two or three bad years most of them incurred.
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Treasuries closed lower on the day with the two-year at 4.95% and the ten-year at 5.11%. Gold gained $6 to $650 and Oil closed higher but below $70 at $69.57.

European bourse indexes maintained their gains into the close and Mexico and Brazil also closed higher.
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The DJIA lost 6 points to finish at 13420. The S&P 500 was down points at 1505 and the NAZZ was up 3 points at 2609.

Breadth was 2/1 positive on the NYSE and 5/4 on the NAZZ but volume moderated.

There were 260 new highs and 110 new lows as the bulls regained the high ground.

Today was a tie for the bulls and the bears.
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27 June 2007 Daily Comments

Thoughts

Shanghai was up 2.5% overnight while the rest of Asia was lower. European bourses indexes are lower as are Gold and Oil. Treasuries are stronger on a lower than expected Durable Goods Number of -2.8%.
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In opposing the Whole Foods/Wild Oats merger the WSJ reports that the FTC says: Whole Foods and Wild Oats can't combine because they are the two biggest operators of "premium natural and organic supermarkets," offering "a distinct set of products and services to a distinctive group of customers in a distinctive way." That's a new market description, but the natural-foods business until now has been too small to matter. A post merger Whole Foods would "increase prices and reduce quality and services," the FTC says.

Obviously no one at the FTC has ever shopped at a Whole Foods and Wild Oats. A merger would substantially improve the quality of food and offerings at the Wild Oats stores. It would increase the prices at Wild Oats because of the increase in quality and service.
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Crude oil inventories were up in the latest week while gasoline inventories fell more than expected.
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GE is lower and we think it is down because of its finance subsidiary. We are sure GE Finance owns a ton of sub prime loans and we would guess that if the sub prime problems expand that GE Finance will be buying more sub prime debt.

In every financial crisis that we remember over 40 years GE’s share price has reacted negatively to the crisis because of the Finance subsidiary but the Finance subsidiary has always survived and profited from the debacle. That is because GE Finance doesn’t have the SEC or NYSE or FDIC looking at its books and requiring it to mark to the market.

The only folks who look at GE Finance are the auditors and they have always been cooperative and we would assume will continue to be so. And the bargain sales of sub prime debt will offer GE Finance an opportunity for larger profits from buying that debt at fire sale prices.

As we said yesterday this crisis is not a crisis of quality but one of leverage. The foreclosures and forfeitures that are occurring are statistically understandable to purchasers as long as the purchasers and holders of the sub prime debt are not overleveraged.
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The wealth of the world's rich and super rich surged 11.2 percent to $37.2 trillion last year but the elite group gave less than 1 percent of their net worth to charity, a study released on Wednesday said. For the first time, the 11th annual World Wealth Report detailed philanthropic giving, and estimated that high net worth individuals turned over $285 billion to charitable causes in 2006. That's equivalent to someone worth $100,000 giving about $766 to charity, or 0.76 percent of their wealth.
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Oil closed up $1.19 and $68.94 and Gold was unchanged at $644. Treasuries were higher most of the day but gave up their gains to close lower in price when stocks rallied. The two-year ended at 4.90% and the ten-year at 5.09%.

European indexes closed lower but Mexico and Brazil were higher.
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The DJIA gained 90 points to finish at 13430. The S&P 500 closed up 15 points at 1508 and the NAZZ led today up 30 points to 2605.

Breadth was 2/1 positive and volume was summer active.

New lows again outdistance new highs with new lows at 235 and new highs at 150.

With stocks down over 70 points early in the day but up at the close the bulls managed to win the day.
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26 June 2007 Daily Comments

Thoughts

Asian bourse indexes were lower overnight with no large drops. European bourses indexes are playing catch-up with yesterday’s rally failure in the U.S. and are off large fractions at midday. Gold is down $4 and Oil is also off 40 pennies with a $68 handle.

Treasuries are a tick weaker with the ten-year at 5.08%. There is a two-year note auction today which may set the tone for the day.
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The papers and view media are filled with sub prime stories and the S&P 500 is at an inflection point. 1490 is an important level. Stocks opened higher this morning as dip buyers were again at work but an hour into the session the major measures are back to even. The S&P 500 is holding in the 1490s which is where it bounced in March and May and the bulls are hoping it will do so again. The bears obviously are hoping otherwise.
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There is talk that deal money is harder to come by, and Bear Stearns has pulled an IPO of a sub prime hedge fund management company. That is really no great surprise since the fellow running the company in the IPO is the same fellow running the two hedge funds that blew up. In a few years he will be saleable again, but for now….. .
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Discretion being the better part of valor we sold Ford for a profit and Yahoo for a scratch loss this morning in accounts and also lowered positions in NCC at a trading profit and INTC at a $1 loss in our larger accounts. We continue to think that there is at least one more push higher left in the bull run thus our buys last week and holds this week but we have often been incorrect in our short term guesses and we would rather sell when we can.
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The two Bear Stearns hedge funds are in trouble because they borrowed so much money against the assets they held. Leverage -- not credit -- caused the problems. Had they not borrowed any money they wouldn’t have had any margin calls and there would be no crisis. Of course had they not borrowed oodles of money they wouldn’t have been able to demand the high performance and maintenance fees.

And, if the hedge funds don’t leverage their investments there will be less demand for the investments (?) they hold. And if there is less demand the pricing of these instruments will come under pressure. Without the leverage all the CDOs and LBOs and CMOs and other stuff would never have been able to be sold. And so there is a problem unwinding very much of the leverage at anywhere near the prices the products are marked. We imagine the Fed members are talking about this-off the record- at their meeting today.
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Blackstone’s shares fell below the $31 offering price this morning.
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Oil is now down over 41 and Gold is down $4. In the good old days if there was a financial crisis Gold would be higher. But since hedge funds control the day to day activity in the stock and commodity and financial markets a crisis in one usually affects the other markets as the hedge funds close out various hedges to raise cash.
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The WSJ has an article again today on the CDO crisis (?). We especially love this sentence: Many CLO investors are sophisticated money managers. Over the past few years, hedge funds, French insurance giant AXA, the California Public Employees' Retirement System and the General Retirement System of the City of Detroit have all poured millions of dollars into the riskiest CLO tranches.

If the article had been written last month we are sure the fellow at Bear Stearns would have been mentioned as a sophisticated investor.
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Sales of new homes fell 1.6% to an annual pace of 915,000 last month, the Commerce Department said. The decline follows April's unexpected surge of 16%, which was revised lower to 13%, though that remains the largest increase since September 1993. The median price of a new home fell 0.9 percent to $236,100 last month from $238,200 a year earlier. Inventories declined, but the decline was less than sales, pushing the supply of homes at the current sales rate to 7.1 months from 7 months in April.
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Miami-based Lennar reported a second-quarter loss of $244.2 million. Last July the company actually reported a net profit of $324.7 million. LEN reported a 28% drop in home deliveries year-over-year. Revenue fell 37%. New orders in the quarter declined 31%. The average sales price of homes fell more than 7% year over year. The cancellation rate was 29%.
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The character of the market has changed again in the last week. The rallies have been sold much more aggressively then the sell offs have been purchased. With month/quarter end approaching one could expect a rally or at least not a sustained sell off. The next few days should be interesting.
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The Treasury auctioned $18 billion of two-year notes at a 4.90% yield.
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European bourse indexes closed large fractions lower across the continent.

Oil was off $1.26 at $67.93 and gold was down $10 at $645.

Treasuries closed weaker with the two-year at 4.89% and the ten-year at 5.10%.

Mexico and Brazil were both lower.
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The DJIA finished down 15 points at 10335. The S&P 500 lost 4 points to 1493 and the NAZZ was down 3 points to 2575.

Breadth was 3/2 negative and volume was active.

New lows outdistanced new highs at 215 to 140 new highs.

The bears won a squeaker today.
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25 June 2007 Daily Comments

Thoughts

A week ago everything is the markets was rosy. Today we counted five major stories in the WSJ with negative headlines.

Asian market indexes were lower overnight with Shanghai down 3.6%. European bourse indexes are also lower at midday. Treasuries have a bid and Gold is down $3 with Oil down $1.50 in early NYC trading.
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The Fed meets this week.
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Goldman Sachs raised GM to a buy and GM is trading higher by $1.25.
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And the use of borrowed money is on the rise. In May, the sum investors borrowed from brokerage firms to buy stocks hit $317.99 billion, up about 14% from the previous record in March 2000, according to the New York Stock Exchange. Net borrowings by large bond-market dealers stood at about $1.33 trillion this month, up from $730 billion in 2003 and about $300 billion when the stock market peaked in 2000, according to Chicago market-research firm Bianco Research LLC.
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As with the phony electricity crisis in 2001 in which all consumers paid exorbitant prices because Enron and others, including big oil, were manipulating the price of electricity in California; a Senate subcommittee reports, a year too late to help, that Amaranth Hedge Fund, which went bankrupt last year, manipulated the price of natural gas last summer to the detriment of natural gas consumers.

According to the WSJ: the Senate report shows what many traders suspected but couldn't prove: Before Amaranth went under, the investment fund held as much as 40% of all open bets on gas contracts at the New York Mercantile Exchange that is the world's largest energy marketplace. By virtue of its size, Amaranth had the power to influence market dynamics and the closing prices of some contracts, the subcommittee said.

The Senate report contends that gaping holes in the regulatory oversight of energy markets allowed one large hedge fund to game natural-gas futures prices in 2006, increasing risks for other participants and causing utilities to incur unnecessarily high costs last summer.
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The tech guru we follow says the S&P 500 needs to hold 1507 for the bull move to remain intact and move up through 1521 for the rally to spike higher. He sees the end to the rally by mid July even if the spike higher occurs.

From a psychological point of view the rally continuing into July makes sense as the end of June is quarter end and also the financial year end for many non profit entities.
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The annual rate of Existing Home Sales was down but almost unchanged.
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The total amount of unsold homes reached 4.41 million in May, up from 4.220 million in April, 3.806 million in March, and 3.589 million in February. The current level is about a million units above normal. Relative to sales, current inventory levels are at 8.9 months' supply, the most since June 1992 and well above a normal reading of about 5 months' supply. The median price rose 1.8% and the average price increased 1.3%, putting the year-over-year figures at -2.1% and -0.8%, respectively.
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The major stock measures opened higher this morning. Then, after 15 minutes of trading, moved negative before improving at the hour mark. At 10am the DJIA is up 100 points. But breadth is flat and so the surmise would be that programs are moving the measures in the early going.
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According to the Gallup Poll optimism is in a distinct minority in the U.S.

http://www.galluppoll.com/content/default.aspx?ci=1669
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The Apple iPhone is going to have very slow download speeds using a wireless phone connection because it is using technology that is 5 years old. The only way the iPhone is going to work for browsing is if the user has WiFi access.
Tero Kuittinen@realmoney.com writes: The fact is that the Edge technology (which Iphone uses) will deliver literally 10 times slower data access than current top 3G phones; speed may regularly drop to below 100 kbps. The performance gap of this magnitude is headline material for most products. Yet Apple and its courtiers have mostly managed to sidestep the issue entirely. Most consumer backlashes breed in swamp ponds of unrealistic expectations. Blurring the difference between Edge and Wi-Fi access only works if consumers find getting Wi-Fi access easy.
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We bought some Motorola in our larger accounts at $17.87. This is the week the iPhone is being offered and we said we were going to buy Motorola as a contrary buy to the hype. We will buy more around if conditions favor.
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A report by Citigroup that sub prime instruments issued by Goldman Sachs are being downgraded by rating agencies at the fastest rate of any sub prime issuer caused stocks to turn lower with an hour and one half of trading left in the day. The DJIA is in negative territory after being up 110 points in the second hour.

The Goldman Sachs news adds a whispered name to the Bear Stearns mess and GS shares are down $5. GS makes a bunch of money in the sub prime market.

The S&P 500 is finding support at 1497, which it needs to from a technical point of view. Breadth never was better than 5/4 positive this morning. Oil is now flat after being down $1.50 this morning and Treasuries remain higher in price lower in yield on the day.
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Oil ended up 4 pennies at $69.18 and Gold was down $2 at $654. Treasuries finished strong on the GS news with the two-year at 4.87% and the ten-year at 5.09%.
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European bourse indexes were mixed to small fractions lower. The European bourses closed when the DJIA was up 100 points. Mexico and Brazil were lower.
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The DJIA had 500 plus point up/down/up/down/up/down range today.
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The DJIA closed down 5 points at 13355. The S&P 500 lost 5 points to 1498 and the NAZZ dropped 12 points to 2576.

Breadth was 2/1 negative and volume was moderate.

There were 180 new highs and 200 new lows.

The bears won the day by a large margin, especially with the failed rally attempt by the bulls.
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22 June 2007 Daily Comments

Thoughts

Asia was lower overnight with Shanghai down over 3%. On the days Shanghai is lower it goes down more on a percentage basis than it goes up on the days it is higher. This has been the pattern for the last month.

European bourses are lower at midday on poor German economic news and Gold is up $3 while Oil is down 30 pennies with a $68 handle in the early going in NYC. Treasuries remain flat on the short end and a couple of ticks lower as maturities extend.
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Blackstone priced at $31 and opened trading today at $36.45.
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Bear Stearns is going to take on all the loans of its two hedge funds from Merrill and others to prevent the sale of the collateral in the marketplace. Our guess is that this was a Fed workout of the situation

Talking heads are saying that the latest crisis isn’t a question of the underlying quality of the issues used as collateral but one of liquidity and pricing. We agree but then that is the nature of any panic. When GE dropped $30 in trading in one minute during the 1987 Crash there was no thought that GE was going broke. The price drop was a reaction and attempt to re-price GE and many other securities that the markets suddenly decided were over priced. During the great depression very few large companies went broke. But prices dropped as the marketplace decided to move the value of securities lower than they had been valued. That is the nature of corrections and panics.
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At 11:30am the DJIA is down 155 points and trading is active. We are adding some Starbucks and Whole Foods and Timberland to accounts that don’t own them.
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Gold gained $3 to $657 in NYC trading and Oil was up 49 pennies to $69.14 to end the week. Treasuries were higher with the short end rising on a flight to quality and the long end tagging along as traders and common folk don’t know what will occur in the Bears Stearns et al hedge fund soap opera over the week-end. The two-year was 4.92% and the ten-year was 5.13%.

The Fed stepped in in the Long Term Capital situation and that is the road map for this situation. We also bought more National City in our large accounts.

European bourse indexes finished lower on the day as did Brazil and Mexico.
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It’s raining in Chicago and so:
Corn futures at the Chicago Board of Trade fell almost 5 percent on Friday on crop friendly rains in the U.S. Midwest overnight and forecasts for better crop weather to continue, traders said. "It's raining in the dry areas and we'll have to get used to this volatility. What used to be a 5 to 10 cent move is now 15 to 20 cents and it isn't easy," said Dan Cekander, analyst for FIMAT USA.
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The DJIA closed 186 points lower at 13360. The S&P 500 was off 20 points at 1503 and the NAZZ dropped 28 points to 2588.

Breadth was 3/1 negative and volume was active.

There were 198 new highs and 186 new lows.

The bears won the day and with that victory they take the week and are in the lead to take the month with the S&P and DJIA both down about 2% on the month.
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21 June 2007 Daily Comments

Thoughts

Happy summer!
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The sell off yesterday may have been occasioned by the Bear Stearns fund stuff and also the Blackstone offering tonight. Today’s market action should tell. The fact the Gold moved lower yesterday and is down today by $4 suggests some cash raising.

By the by, the NYT has a story on the Bear Stearns fiasco and reiterates the point we made yesterday: (we should have said CDOs and not CMOs in yesterday’s post)

One worry about the possible unwinding of the Bear funds is that it will cascade into larger liquidations by other investors who hold similar securities at far higher prices. Accounting rules require investment banks to mark the value of the investments to the price of similar assets trading in the market. Many mortgage-related securities and C.D.O.’s in particular, do not trade frequently, making them hard to value….Such an approach helps to keep the pricing of the securities under wraps, allowing Wall Street firms to avoid marking down their own stakes. Keeping the sales price quiet also means that the firms may not have to add collateral immediately to shore up their portfolios…….Yet another emerging worry is that the big investment banks that until now have generously lent billions of dollars on good terms to traders and portfolio managers are pulling back or demanding stricter terms.

One industry executive, who asked not to be named because of the delicacy of the subject, said the banks involved in the Bear funds could collectively lose $1 billion on their lendings to the Bear funds. While the amount is not itself significant given the size of these banks, it suggests the potential for bigger losses down the road.

It’s nice to know that a billion dollars is not much these days. Having begun our business life in the 1960s when the total federal Budget was less than $100 billion we have  difficulty comprehending that a billion is not a billion as we used to know it.
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This is a comment from one of our favorite technicians on the hedge fund stuff:

When over leveraged hedge funds are dealing in derivative instruments where there is no tick-by-tick bid and the valuations are marked to a model and not a market, it exposes a psychological Achilles heel. Wednesday that heel was apparent. There is always the potential for a crisis of confidence when you have to invent a price. And it seems to be that trying to invent a price in an over leveraged landscape is like trying to turn a mirage in the desert into an oasis.
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CNBC is saying that the hedge funds carry the CDOs at a value of 100 and that the bids for some of the CDOs are in the 30 to 80 range.

If the CDOs are sold at those levels then other hedge funds and brokers loaning money on the CDOs would have to value the CDOs at the transaction prices. That would set off a wave of margin calls. Thus, there is a need for the Fed and the big NY brokers to find a funding arrangement. They don’t want the house of cards to tumble.
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Asia was higher across the board overnight while European bourse indexes are mostly big fractions lower at midday. Short Treasuries have a flight to safety bid while ten years and out are a bit lower and Oil is up 70 pennies with a $69 handle in the early going.
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Jobless claims for the latest week were up 10,000 to 324,000.
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Starbucks is down $1 today as its CFO said that SBUX would be challenged to hit the high end of its forecast range of earnings of 88 pennies to 93 pennies for September 2007 year end. Those earnings will be up 14% if they hit 89 pennies but it’s that kind of market for this former high flying stock.

We are adding shares equal to what we hold in our larger accounts at $26.18.
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The major measures opened higher but almost immediately were met with selling and were down 90 points at 9am. After an hour of trading the DJIA has recovered and is now down 17 points.

With the Blackstone deal pricing tonight and the rebalancing of the Russell 2000 tomorrow we will be surprised if the major measures don’t close higher today. The Bear Stearns hedge fund brouhaha is a yawn for the bulls. It is an emperor’s clothes scenario and no one is worried because it is still warm and summertime so the emperor won’t catch a cold if everyone ignores the obvious.
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Bloomberg is reporting that GE is no longer looking at DJ. Our guess is that Jack Welch squelched the deal as a favor to his friend Rupert.
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Oil was up $1 in the early going and now at noon it is off 50 pennies. Gold is down $7. We continue to believe that the volatility in gold and oil the past two days is related tot the hedge fund stuff.
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European bourse indexes closed mostly lower with some down over 1%. The close in Europe occurred while the major U.S. measures were lower. Also Europe closed higher yesterday and maybe was playing catch up with the U.S. market sell off of yesterday.

Oil closed down 26 pennies at $68.56. Gold was down $6 at 654.

Both Mexico and Brazil were up on the day.

Treasuries closed flat on the short end and lower on the long end with the two-year at 4.97% and the ten-year at 5.17%.
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Sell programs in the am and buy programs in the pm ruled the trading day.

The DJIA closed up 55 points at 13545. The S&P 500 gained 10 points to 1622 and the NAZZ rose 17 points to 2617.

Breadth was slightly positive and volume was moderate.

New highs just managed to stay ahead of new lows today. There were 200 new highs and 180 new lows.

The bulls -with higher major stock measures- and bears - with punk breadth and the increased new lows - tied for the day.
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20 June 2007 Daily Comments

Thoughts

It looks like it is going to be the longest day of their lives for managers of two Bear Stearns hedge funds. The names of the funds are enough to give one pause before investing in them: High Grade Structured Credit Strategies Enhanced Leverage Fund and High Grade Structured Credit Strategies Fund. (Of course sophisticated investors might like sophisticated names.) The rescue plan that BS was trying to cobble together yesterday failed as Merrill was smart and said we loan money and collect interest. You take the risk, we don’t take risk. And so Mother Merrill said she is going to sell $850 million in collateral to pay of margin loans.

The WSJ has a story on how the funds structure their investment. It is interesting because it shows that BS put in a relatively small amount of money and had investors pony up the rest.

Bear Stearns and some of its executives had invested only $40 million in the two hedge funds, raising more than $500 million of additional investments from outsiders, including wealthy individuals and a breed of money managers known as "funds of funds," which spread their money around a collection of hedge funds. In addition to the cash raised from investors, Bear Stearns's Enhanced Leverage and Credit Strategies funds have invested billions of dollars borrowed from lenders.

As of March 31, the Enhanced Leverage fund had $638 million in investor capital and at least $6 billion in borrowings. It used the money to make $11.5 billion in bullish bets and $4.5 billion in bearish bets, according to documents reviewed by The Wall Street Journal. Its sister fund had $925 million in investor money and made $9.7 billion in bullish bets and $4 billion in bearish bets.

A high level of "leverage," or use of borrowed money, magnifies returns for a fund if everything works as planned. If the security drops in value, that same leverage can amplify losses.

Consider the impact of an investment in a $1,000 security with $100 of a fund's own money and $900 of borrowed money. Annual interest of 6%, or $60, on that security could be amplified to returns of 15% for the fund. However, if the value of the security dropped by just 3%, to $970, the loss would translate into a 30% drop in the fund's own money. That, in turn, could trigger a margin call by the fund's lenders.

The leverage on these investments is 10 to 1, certainly not for the faint hearted. The real problem is that no one really knows what these investments are worth until they go to sell them.

Unlike stocks and Treasury bonds, whose prices are continually quoted and easily obtained, many of these derivative instruments trade infrequently and don't have clear market prices. To come up with market values for these investments -- a process known as "marking" their positions to market -- investment funds often rely on their own valuation models.

They might also ask the dealers who sell them the bonds to update them on changes in the bonds' underlying value. When there are no sales to base prices on, dealers come up with prices based on their own statistical models and an array of assumptions about what's happening in the market or the assets that back the securities.

"There's some real concern about how realistic dealer quotes are," said Andrew Lo, a finance professor at the Massachusetts Institute of Technology who is also a principal in AlphaSimplex Group LLC, an asset-management company that also runs a hedge fund. "You're talking about quotes during normal times that are very different from quotes during stress times."

The old adage is, “sell when you can sell not when you have to sell.”
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One reason why the various brokerages were trying to keep from selling the collateral of the two hedge funds that the brokerages held to guarantee loans is that the sale prices are going to require other hedge funds holding similar or lower quality CMOs to the CMOs being sold to re-price their securities. That in turn may cause the brokerages for these funds to ask for more collateral for the loans they have made.

Treasuries are lower today and it may be hedge funds selling Treasury positions to raise cash to meet collateral calls.
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Asia was higher overnight with the two darlings India and Shanghai leading the way higher with both up over 2%. European bourse indexes are fractionally higher and Oil is down 30 pennies while Gold is flat. Treasuries are a bit weaker.
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Circuit City missed and is trading lower. Darden Restaurants disappointed and Fed Ex also missed and guided lower. Traders are taking these reports as signs of a continued weakening in the U.S. economy.
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Home Depot is selling its home supply business for $10 billion and using the money plus another $10 billion (borrowed?) to buy back $22 billion of its stock. It says something about the economy and HD’s business and stock options for executives that HD can’t figure out a better use for the money.

Three LBO firms are buying the home supply business. And our question is, “who are the smart ones in this transaction?
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Fed Ex is trading higher in the early going so bad is still good in this market.
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Whole Foods CEO John Mackey sent an e-mail to board members saying that the merger with Wild Oats would help prevent a price war in several cities. That is a no no and the FTC is going to use that against the merger. We think the FTC is nuts but Mackey is a dope for saying that in an e-mail. Do these executives follow the news at all?

We’ll say again that if the deal falls through it will hurt Wild Oats. Wild Oats may be acquired by someone else but no one knows how to do it like WFMI.
*****

Madison Dearborn Partners is going to by Nuveen the bond house of over $5 billion (25X earnings that are growing at 10% per year). Again the question we ask is “who are the smart ones in this transaction?”

It is a fact that all these buyouts are being completed at twice or more of the price they would have fetched 5 years ago.
*****

As we said above it is not in any broker or hedge funds’ interest or even the Fed’s interest for the assets of the two hedge funds to be auctioned because then that would set prices that all other hedge funds would have to consider when pricing securities

JP Morgan has canceled its auction of assets from two troubled Bear Stearns hedge funds, a source familiar with the matter said on Wednesday. Bear Stearns is currently negotiating with JP Morgan, Merrill, Citigroup, and other creditors in an attempt to restructure the hedge funds, which have suffered significant losses. Merrill, JP Morgan, and others had put some of the Bear Stearns assets up for sale, but JP Morgan has canceled its auction and is negotiating instead, the source said.

This is the same thing that happened when the Fed had the big Wall Street Brokers rescue Long Term Capital hedge fund’s assets in the autumn of 1998 to prevent a market collapse. It shows how sophisticated the game- and we mean game- has become. It is not the last mistakes that will cause the market drop. It is the next mistakes that no one knows how to deal with.
*****

Oil ended down 91 pennies at $68.19 and Gold was down $5 at $660. Treasuries gave  some gains with the two-year at 4.97% and the ten-year at 5.13%.

European bourse indexes closed mostly small fractions higher. Mexico and Brazil were lower.
*****

The Senate Finance Committee is trying to decide whether it is fair to tax the incentive fee income of LBO fund partnerships that are going public at a corporate tax rate rather than at the capital gains rate at which the incentive fee income of private LBO partnerships is taxed. This is a no brainer. Heck the private LBO funds should have their fees taxed at the regular corporate income (or the personal income tax) rate too.

The management partnerships take 20% or more of the gains on client investments as a fee for their expertise. That is taxed at a capital gains rate and not at the regular income rate.

The capital gains tax rate exists to compensate investors for the risk of losing money on an investment.

The incentive fees that the management partnerships earn, which is usually 20% or more of the gain, are currently taxed at the capital gains rate. But the management partnership takes no risk. If there is a loss the management company does not take 20% or whatever of the loss. And that is why the management partnership should not receive the favorable capital gains rate.

We know we are whistling in the wind on this but….
*****

The DJIA closed 150 points lower on the day at 13485. The S&P 500 lost 21 points to 1514 and the NAZZ dropped 25 points to 2600. Breadth was 2/1 negative at the close and volume was moderate.

There were 375 new highs and 110 new lows.
*****

 

19 June 2007 Daily Comments

Happy 38th birthday to our younger daughter Christine Kelle

Thoughts

Housing Starts for May were down 2% and Building Permits were up 3%. April Housing Starts were revised downward to up 1% from up 2.5%. Treasuries are lower in yield and higher in price on that news as the trading day begins.

Asia was mostly higher overnight with Hong Kong up another 2% and India up over 1%. Shanghai was fractionally higher. European bourse indexes are mixed to lower. Gold and Oil are unchanged in NYC morning trade.
*****

Terry Semel is out as CEO at Yahoo and CNBC has been blabbering all morning about the change with founder Jerry Yang taking over as CEO. Yahoo has a yen for Yang and hopes the ying/yang of Yang yields yahoo results for Yahoo. And no Brobdinagian yahoos need apply.

Shed no tears for Semel. He earned $71 million last year and $450 million since he became CEO in 2001. Yahoo’s total net income in 2002 was $200 million; in 2006 it was $750 million. So Semel earned half the net income of Yahoo for those two years combined. And now he is out because he did a lousy job.
*****

Net foreign purchases of U.S. stocks in April were $27.4 billion. That is up from $9 billion in March and the largest amount of stock purchased by foreigners in one month since February 2000. You remember what occurred the month after February 2000 don’t you?
*****

Best Buy missed its earnings number and guided lower going forward. The share price is trading down $2 in the early going. BBY is loved on the street. BBY’s same store sales were up 3% for the quarter versus up 4% last year.
*****

We are going to hop on the rally train again today. As with the correction in March it looks as if the bulls have weathered the recent correction and will now have their fun for the summer. We are not going whole hog but we are repurchasing five stocks we have been trading over the past few years. We are buying two higher than the price at which we sold and three lower than the price at which we last sold them. All have been profitable trades for us this year.

Intel broke out with big volume on Friday from a 16 month trading range and though we are paying up for the shares at $24.37 we think the technical chart warrants the risk involved. Moreover this is a momentum market and Intel has momentum now. It is a DJIA that has lagged for the past few years. We are repurchasing in accounts that owned and traded it profitably this year. We said yesterday we were too old to play this game but this morning we decided that we weren’t.

The same can be said for GE which broke out to a new high today. We are repurchasing at $38.95 for accounts that have owned and traded it profitably this year. This too is a momentum purchase.

We are buying Yahoo at $27.74 in accounts where we sold it at $33.15 in May. We think the action today of firing Semel may act as a catalyst to keep the talking head tongues wagging for a few days which may create investor interest. This price level has been a good buy point for the past 6 months.

We are also repurchasing National City Bank in accounts in which we are buying GE. We have been trading this stock for several years. In 2005 we did well with our trades in this stock and we have scratched with our trades over the past two years. We last sold the shares at $36.10. The dividend yield of over 4% mitigates the risk of owning it. It goes x dividend in the beginning of July.

We have scratched trading Pfizer this year but with the yield of over 4% and the fact that all the other dog pharma stocks have moved in the past three months we are guessing that traders will find PFE. We are buying at $26.21 which is a scratch lower than the price at which we sold last month.
*****

We also are looking at repurchasing Motorola but we are awaiting the iPhone release which we think will mark a temporary low on MOT as Apple steals the limelight and all the talking heads suggest that every person in the world is going to trade in their old phones for an iPhone.
*****

AT&T Inc. on Tuesday launched what it said is the first service letting callers share live video between cell phones. The new AT&T Video Share service won't apply to the iPhone, which uses an older network. AT&T has an exclusive deal to offer service for much-anticipated Apple Inc. device. But the launch of the video service adds to the company's momentum as it gears up for the June 29 introduction of the iPhone, which it called a "game-changer" for the telecommunications industry.

The iPhone is supposed to be the top of the line new idea phone? What’s up with it having older network?
*****

Blackstone, the LBO folks who take companies private and then sell them back to the public a few years later, is going to be priced on Thursday and begin trading on Friday rather than at the end of next week.
*****

Nice. Bear Stearns asset mangers set up a fund; lose at least 20% of the customers’ money; and then Bear Stearns offers to rescue the fund by buying in after the losses:

Bear Stearns, the biggest broker for U.S. hedge funds, offered to provide $1.5 billion in loans to help rescue a money-losing fund run by its asset- management unit, a person familiar with the situation said.

The plan calls for New York-based Bear Stearns to provide the money only if some of the hedge fund's creditors, which include Merrill Lynch & Co. and JPMorgan Chase & Co., inject $500 million of cash into the fund, said the person, who declined to be named because the negotiations aren't public.

Bear Stearns, seeking to stave off liquidation of the fund, made the commitment yesterday in a meeting with creditors after losses forced the sale of $4 billion of mortgage bonds last week. Merrill Lynch and JPMorgan had planned to sell another $800 million of bonds of so-called collateralized debt obligations owned by the fund this week, the person said.
*****

Gold finished up $5 at $665 and Oil was unched at $69.09 in NYC trading. Treasuries gained with the two-year at 4.94% and the ten-year at 5.08%.

European bourse indexes closed mixed to lower and Mexico and Brazil were lower.
*****

The DJIA gained 23 points to 13636. The S&P 500 was up 4 points to 1534 and the NAZZ was unched at 2626.

Breadth was 5/4 positive and volume was moderate.

There were 345 new highs and 100 new lows.
*****

 

18 June 2007 Daily Comments

Thoughts

Please note that the Treasuries we purchased on June 13th had almost 6 months of accrued interest. Thus accounts were debited for interest that will be paid on June 30th. This caused the value as shown on Mesirow’s website to drop by about $2500 per $100,000 principal amount purchased.
*****

While we were away the stocks markets returned to their highs made at the beginning of June. It was a quick correction.

The proximate cause of the rally on Friday was given as the tame inflation numbers relating to Core Inflation.

CPI was up 0.7% for the month of May but the Core CPI was up only up 0.1%. And so the markets took the news as good and powered higher. That it was a Quadruple Witching Day also helped.

Asia was mostly higher overnight with Shanghai and Hong Kong both up over 2%. European bourses are mixed at midday and Gold is up $2 to $661 while Oil is down 20 pennies at $67.80.
*****

The DJ story teaser on the CPI said:

June 15, 2007

U.S. consumer prices rose 0.7% in May, accelerating at their fastest pace in almost two years on sharply higher energy prices. The core consumer price index, which excludes food and energy prices, advanced just 0.1%, down from April's 0.2% increase. The data suggest that higher energy, wholesale and import prices haven't seeped into broader consumer inflation, which should keep Fed officials on hold as underlying inflation remains on the moderating trajectory they have long forecast.

Annualizing the ordinary CPI figure gives an inflation rate of 8.4%. But in the Goldilocks stock market traders chose to ignore the CPI figure and concentrate on the core. Maybe traders don’t eat or drive cars.

Coupled with the higher food and energy prices is the fact that rents (which are 14% of CPI) are being held down by falling real estate prices. Stable rents are the result of punk real estate prices which means that folks are seeing the equity in their homes disappear as house prices ebb lower. Most folks who bought houses in the last two years have seen a drop in their home equity. And those who purchased earlier are not looking at prices.

But the markets have chosen to ignore the negative and stress the positive and that is the way it is- for now.

By the way the NYT reports that:

After taking inflation into account, the average weekly earnings for workers in nonmanagement jobs — some 80 percent of the work force — fell for the second consecutive month in May.

But since the 0.7% or 8.4% annualized inflation figure doesn’t matter to the Fed or to traders maybe it doesn’t’ matter to wage earners either. It’s all in the numbers, isn’t it?
*****

Some folks have taken to calling this time the Second Gilded Age. The Gilded Age refers to the period of the 1880s in the U.S. The growth of industry and a wave of immigrants marked this period in American history. The production of iron and steel rose dramatically and western resources like lumber, gold, and silver increased the demand for improved transportation. Railroad development boomed as trains moved goods from the resource-rich West to the East. Steel and oil were in great demand. All this industry produced a lot of wealth for a number of businessmen like John D. Rockefeller (in oil) and Andrew Carnegie (in steel), known as robber barons (people who got rich through ruthless business deals). The Gilded Age gets its name from the many great fortunes created during this period and the way of life this wealth supported. Mark Twin wrote a book titled The Gilded Age in which he ridiculed the figures in Washington and business.

The difference between the first Gilded Age and the present one is that in the first jobs were being created and wages were rising. Certainly the income disparities were huge and the jobs were menial and difficult and dangerous but jobs were being created and eventually wages did rise. This second Gilded Age is the opposite. Wages are falling and jobs are being eliminated while the LBO folks take companies private, pay themselves large dividends, saddle the companies with debt to pay the dividends and huge salaries to management and hope to re-sell to the public in a few years. And in this second Gilded Age non profit institutions and universities are happily along for the ride not questioning the tactics as long as the profits are there.
*****

There is news that GE and Pearson are considering a bid for Dow Jones. Our take has been that GE is nuts if they don’t buy it.
*****

Wendy’s announced slower earnings and by the way they may sell themselves. That is the new mantra for preventing a share price slide when earnings disappoint. Unfortunately it hasn’t helped as the share price is off $1.50.
*****

Last week the S&P 500 was up three days in row without ever trading in negative territory. That is the first time that has occurred in six years.
*****

The WSJ is reporting that Ford is going to take its time selling Jaguar and Land Rover. Also the numbers mentioned are about $2 not the $8 billion we read and reported last week. The $2 billion figure seems more realistic.
*****

Weak housing is now a plus for the economy because it is putting the brakes on the inflation at which the Fed looks. That is the new thinking. $70 oil is good because it slows the economy without the Fed having to do it. That is the new thinking. The lower dollar is good because that brings foreign money to the U.S. to buy companies. That is the new thinking. Actually in this market all news is good news.
*****

Intel announced it was lowering prices and on Friday Goldman Sachs raised its rating to buy and the stock jumped in price. INTC is now through the $23.25 gap/resistance area and we may miss the ride higher. We don’t want to buy it up here although we would if we were younger since it broke though resistance that had held four times over the last 16 months.
*****

We own Treasuries not as a play on lower inflation but as a play on Treasuries as a flight to safety parking place in reaction to a substantial move lower in the markets caused by an untoward political event or rally exhaustion.
*****

Oil closed up $1.03 at $69.03 and gold was up $1 at $660 in late NYC trading. Treasuries were a tick or three higher on the day with the two-year at 5.01% and the ten-year at 5.15%.

European bourses closed mostly lower while Mexico and Brazil were fractionally higher.
*****

The DJIA moved lower in the last hour to close 25 points lower on the day at 13615. The S&P 500 was down 2 points at 1531 and the NAZZ was unchanged at 2627.

Breadth was flat and volume was active.

There were 420 new highs and 95 new lows.
*****

 

14 June 2007 Daily Comments

We will be traveling tomorrow and so the next post will be Monday June 18.

Thoughts

Happy Flag Day.
*****

The Securities and Exchange Commission voted yesterday to lift price restrictions on short selling. From now selling a stock short on down ticks will be allowed. The commission’s 5-0 vote ended a rule that had been in effect since 1938, which placed rules on when investors could sell a security short. This adds a new unknown to the next market downturn.
*****

Asian indexes were higher overnight except Shanghai which was down 1.5%. European bourse indexes are strong at midday and Oil is touching $67. Gold is flat as are Treasuries.
*****

Core PPI was up 0.2% and Jobless Claims were 311,000. Both were in line. PPI was up 0.9% but it doesn’t matter because it only represents the real figure for cost increases in the month.The price of gasoline was up 10% but that doesn’t matter because so few folks use it.
*****

Other Peoples Money as in we get the fees they take the risk from the WSJ:

The Bear Stearns fund, which was down 23% in value in the year through April, has more than $6 billion in assets. Bear's own exposure to it is limited. The firm and some of its executives have invested just $40 million in the fund, meaning Bear isn't likely to be hit deeply by losses if the fund's problems mount.

Other investors include wealthy individuals and other hedge funds. It is run by Ralph Cioffi, a Bear mortgage-bond veteran.
*****

And this commentary by Jim Cramer is why the current market scares us. it is an example of buy the stock not because it has value but because another company has problems and so in order to mask the problems they are going to go out and spend $70 billion on a do nothing company:

Sanofi-Aventis has to buy Bristol-Myers to make the numbers. Isn't that why people are cottoning up to BMY despite the company's lack of anything really compelling.  It's worth thinking about. The Sanofi disaster over the fat pill's potential to cause suicides -- something that we know the FDA is totally sensitive to, or I should say everyone but Sanofi knew -- has forced Sanofi to buy another company because that seems to be the only way to make numbers.

For the life of me I thought that the upgrade by Citigroup of BMY yesterday on the thought that Plavix, the controversial drug that went off patent and drove BMY to $21 as almost every analyst panicked, and then drove the stock back up, when it went back on patent, would be safe seemed so disingenuous. That's not a reason to buy.

I am now thinking it was a brilliant upgrade because Sanofi must do what it did when it bought Aventis: get numbers.

I haven't liked BMY for some time but I am a big believer that if there is a bid here it won't go for $33 as people are talking about; it will be more like $38 to $40.

Which means that you get paid to wait and could have lightning strike? I like many other stocks better, but this one just got much better than it was two days ago thanks to the FDA's biggest concern of late: suicide

By the way, Cramer didn’t like BMY at $22 but he thinks it is a trade at $30. Given today’s market environment that makes sense. He didn’t like the fundamentals at $26 and he doesn’t like them a $30. But he thinks there is a greater fool our there with $70 billion to spend.
*****

And on the lighter side:

"In my generation, we were asked by the Smith vocational office how many words we could type a minute, a question that was never asked of then all-male students at Harvard or Princeton. Female-only typing was rationalized by supposedly greater female verbal skills, attention to detail, smaller fingers, goodness knows what, but the public imagination just didn’t include male typists, certainly not Ivy League-educated ones.
Now computers have come along, and "typing" is "keyboarding." Suddenly, voila! --- men can type! Gives you faith in men’s ability to change, doesn’t it?"

---Gloria Steinem at Smith College

"You’ve been told during your high school years and your college years that you are now about to enter the real world, and you’ve been wondering what it’s like. Let me tell you that the real world is not college. The real world is not high school. The real world, it turns out, is much more like junior high. You are going to encounter, for the rest of your life, the same petty jealousies, the same irrational juvenile behavior, the same uncertainty that you encountered during your adolescent years. That is your burden. We all share it with you. We wish you well."

---Tom Brokaw at Skidmore College


*****

European bourse indexes ended over 1% higher across the continent. Oil gained $1.39 to $67.65 and Gold was up $3 to $655 in NYC trading.

Treasuries were a tad a weaker on the day with the two-year at 5.09% and the ten-year at 5.22%. Although it doesn’t make sense to us, if bonds weaken again tomorrow on a strong CPI number then stocks will probably weaken also. And it is an expiration day so the day’s action is at best a guess.

Mexico and Brazil were also higher.
*****

The DJIA gained 73 points to 13555. The S&P 500 rose 7 points to 1523 and the NAZZ jumped 18 points to 2600.

Breadth was 2/1 positive and volume was active.

There were 345 new highs and 110 new lows.

The bulls won the day for two in a row after their shutout on Tuesday. Enjoy the ride tomorrow without us and we’ll be back on Monday.
*****

 

13 June 2007 Daily Comments

Thoughts

Shanghai was up over 2% overnight but the rest of Asia was lower. European bourse indexes are mixed at midday and U.S. futures indicate a higher opening... gold is flat and oil is lower as the trading day begins in NYC.

Retail Sales were up 1.4% and ex autos they were up 1.3%. Ex autos and gas sales were up 2.3%.That was higher than expected and the news jolted Treasuries higher in yield and lower in price for a few minutes. The ten-year touched 5.32%. Treasuries then rallied and are a bit better on the day after yesterday’s slaughter. We would guess that Treasuries aren’t going much higher in yield until the dealers who bought a big chunk of the auction yesterday are able to unload their inventory.
*****

Stocks have gapped higher on the openings but will probably retest yesterday’s lousy action later this morning. We said that last week and were wrong when the markets opened higher on Friday after the downer on Thursday and just kept moving higher.
*****

We purchased U.S. Treasury 5.125% due June 2011 in most of our larger accounts. We bought them at par. The blowout down in Treasuries overnight and their recovery to yesterday’s closing lows has probably put in at least a temporary bottom in Treasuries. Treasuries moved to these levels last year at this same time and then rallied to 4.5% by the autumn.

Given our negative outlook for stocks in the late summer we think there is a trading opportunity in the four-year maturity without exposing ourselves to too much risk. If they would rally to 4.5% we would pick up 2% in principal.

Contrarily, if Treasuries move higher in yield, the markets are going to be affected in a negative way and any sudden drop in stocks will lead to at least a temporary rally in bonds.

If rates go nowhere we will pick up 0.75% in yield over what our cash reserves are yielding with the bond portion of the portfolios.
*****

Imagine the ‘no fly’ lists in China:

With more than a billion people now sharing just 100 surnames, Chinese authorities are considering a landmark move to try to end the confusion, state media reported Tuesday. Current Chinese law states that children are only allowed take the surname from either their mother or father, but the lack of variety means there are now 93 million people in China with the family name Wang. In a country of around 1.3 billion people, about 85 percent share only 100 surnames, according to a nationwide survey conducted by the Ministry of Public Security in April and published in the China Daily newspaper on Tuesday. The survey found 92 million people shared the surname Li, while 88 million were called Zhang. A further seven surnames -- including Chen, Zhou and Lin -- are held by at least 20 million Chinese Another report by the Chinese Academy of Sciences found at least 100,000 people share China's most popular name, Wang Tao.
*****

Investors’ Intelligence has Bulls at 57%, up from 52% and Bears at 21% down from 22% for the latest period.
*****

European bourse indexes closed higher helped by the rally in the U.S.
*****

Earlier this year, UBS announced it was closing a large fund after it swallowed a $123 million loss due to sub-prime exposure.

Bear Stearns recently informed those invested in one of their leveraged credit funds that, despite a 23% loss as of April 30th, they were suspending redemptions.

Goldman Sachs Global Alpha fund, its largest internal hedge fund, was down 3.4% through the first four months of the year due to bad bets on bonds and currencies.
*****

The Fed Beige Book was just released with the following observations: job market picks up, no increase in wages, some materials prices up , luxury items selling better than low priced goods, auto sales steady, service industry healthy, manufacturing up in majority of districts, strength in machinery and equipment manufacturers, reports of some CAP-Expenditure growth, residential real estate weak, commercial real estate on the upswing, good growth with little inflation and economic activity continues to expand with no increase in overall pricing pressure.
*****

Both stocks and bonds liked the Beige Book report. Goldilocks is alive and well and currently living on Wall Street.
*****

Oil ended at $66.26 in NYC. Gold was unched at $653. Treasuries closed on their high prices for the day with the two-year at 5.08% and the ten-year at 5.20%. The dealers who bought yesterday’s auction are back in the green again.
*****

Mexico and Brazil (+2%) closed higher on the day.
*****

Today stocks gapped higher and, after one slight pullback, never looked around as they closed up as big time as they closed punk yesterday. Today’s market action was a reprise of last Friday’s market action (after Thursday’s large drop).

The DJIA gained 190 points to finish at 13488. The S&P 500 rose 22 points to 1515 and the NAZZ was up 32 points to 2582.

Breadth was 4/1 positive on the NYSE which is the reverse of yesterday’s breadth and volume was active.

There were 200 new highs and 170 new lows.

The bulls ruled the day. PPI is announced tomorrow with CPI on Friday as well as Quadruple Witching.
*****

 

12 June 2007 Daily Comments

Thoughts

Asian indexes were mixed overnight and Europe is lower at midday. Treasuries are weaker and that seems to be affecting stock futures as the trading day begins. The ten-year is at a 5.2% yield.

Yesterday’s last hour fade in the major measures has placed a damper on the good feeling the bulls had after Friday’s rebound. The S&P 500 rallied to its 20 day moving average of 1516 and failed. It needs to get above that level for the bulls to be comfortable again.

This is an options expiration week and so anything can occur. Gold has given back the $5 it gained yesterday and oil is weaker in the early going in NYC.
*****

The Treasury yield curve is positively sloped for the first time in a long while. That means that yields are lower on the short end than the long end.
*****

If deal making begins to slow or a few of the supposed deals don’t occur it could affect the markets. There are quite a few stocks that are higher on deal speculation and any wrench in that deal scenario would cause many of those issues to head south. Big bets have been placed. Also hedge funds are taking outsized positions in companies and then asking management to do something to increase shareholder value which means make the price of the stock rise so the funds can reap quick profits. As soon as a few managements refuse to play the game that too could affect the overall markets.
*****

China’s CPI grew at a 3.5% rate last month. Most of the increase is ascribed to the rise in food prices. Overall inflation in China is supposedly running at 1% ex food. That is in an economy growing at 10% a year. We would guess that Chinese authorities have taken a lesson from U.S. authorities on how to figure and report tame inflation numbers. In the U.S. that is done to keep down the rise in entitlements that is tied to inflation such as Social Security.
*****

The ten-year Treasury is now down over 4% from its price of a month ago. The Treasury is selling $8 billion in ten-year notes today. n May 2007 the Treasury sold $13 billion of ten-year notes at a 4.625% yield. Those notes are now under water by as much as the full year coupon they carry. The ten-year is currently trading at a 5.2% yield. We would guess that the ten-year will rally on the sale today as dealers will want to place the notes they buy and the weakness this morning may be related to the sale today.
*****

Breadth is running 5/1 negative on the NYSE after three hours of trading and new lows are exceeding new highs for the first time since March. The Treasury auction today with the results announced at 12 pm may set the tone for the close.
*****

The WSJ said that Ford confirmed it is trying to sell Jaguar and Land Rover. Citigroup say the sale could fetch up to $8 billion.
*****

Goldman Sachs removed Starbucks from its conviction list and added McDonald’s. McDonald’s is up 80% in price in the last year and Starbucks is down 30%. Buy high sell low?
*****

The ten-year Treasury auction fetched a bid-to-cover ratio of 2.55, which was below recent averages. The yield of 5.223% was the highest yield since November 2000 on the ten-year at auction.
*****

With two hours of trading remaining the major market measures have moved to the upside. But the move higher came after markets in Europe ahs closed and the major European bourse indexes all closed lower on the day.
*****

The Producer Price Index (PPI) comes Thursday and the Consumer Price Index (CPI) for May is Friday.
*****

Gold closed down $7 at $652 in NYC trading. Oil lost 65 pennies to $65.30 and Treasuries closed on their lows for the day with the two-year at 5.06% and the ten-year at 5.26%.

Mexico and Brazil also finished lower.
*****

The DJIA lost 130 points to 13295. The S&P 500 closed below the 1500 support level at 1493 down 16 points. the NAZZ dropped 22 points to 2550.

Breadth was almost 5/1 negative on the NYSE and 3/1 negative on the NAZZ and volume was active.

New lows at 235 exceeded new highs at 145.
*****

This surmise on  the last episode of The Sopranos is interesting. It is from: http://digbysblog.blogspot.com/

OK, I hate to disagree with Heather Havrilesky on anything, because I consider her a minor goddess, but I think the twenty seconds of black screen did signify Tony getting clipped. And what other "loose ends" did people want to see tied up? We know how AJ and Meadow are going to wind up, and Tony has made the rounds of his surviving family and associates (Uncle Jun the last among them, reminding us of what we come to in the end), and the NY-NJ war leaves two families decapitated. As for Havrilesky's objection -- "That's probably wishful thinking, like hoping that there really is a Santa Claus simply because it would make the holidays much more interesting. We've never seen things from Tony's perspective, so why would we start now? And wouldn't we at least know who killed him?" -- well, I think of the moment in Casino when Joe Pesci's character gets killed while doing the voiceover so that the voiceover itself gets cut off. You don't come across that narrative device every day, now, do you. It's an abrupt and jarring focalization (to use one of those barbaric terms from narratology), and it suddenly puts us right in Tony's place. But look at what happens as a result: we don't have to see the "reaction" shots from his family or from the rest of the patrons as all hell breaks loose. His life just ends. There's no catharsis for us at all, and that's part of what people seem to be angry at -- at least the ones who are complaining on the Sopranos message board that this ending ruins the entire series.

Now, the fact that Chase didn't even give us a gunshot to go on, no clue that Tony really dies -- well, so what? Are there really ghosts in The Turn of the Screw, or is the governess mad? (That debate has been going on for more than a century now.) We're left to wonder whether we've been duped into thinking that Tony dies because all the staging in that final scene -- the brief shots of each of the restaurant patrons, the focus on the guy going to the men's room, the closeups of Meadow having trouble parking the car -- feels like the generic suspense-creatin' mechanisms that precede a catastrophe. We stop and ask ourselves how much of our reaction depends on those narrative mechanisms. And so the ending becomes, in a meta- way, not Chase's "final fuck you" to the viewers (as so many pissed-off viewers have said) but, rather, a form of what did you expect? -- except that it's a real question, not a rhetorical one.

It might not be utterly brilliant or anything, but it works for me. . . .



*****

 

11 June 2007 Daily Comments

Thoughts

At least GE is taking our freely offered advice although the company needs to remember who it is. The WSJ reports that General Electric . and Microsoft were in discussions in recent weeks to combine Dow Jones with some portions of GE's NBC Universal, parrying a bid by News Corp but the two sides couldn't reach an agreement, according to people briefed on the discussions.

Our take on Immelt is correct. He is a pansy. GE should buy DJ outright. A bold bid of $62 would be met with glee by the Bancrofts and succeed. But it seems that Immelt can’t do anything without Welch’s OK and so he is tiptoeing around trying to make a deal with others to help GE with the bid. GE is a monster company that can do this deal on its own.
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Asian markets were higher overnight with Shanghai up over 2%. European bourse indexes are also higher and Oil is up trading over $65 with Gold up $5 in early NYC trading. Treasuries are weaker with the whole complex over 5%.
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Some tech gurus are saying that 90% down days like the markets saw on Thursday mark, at the least, a short term bottom. In bear markets the climax marks a selling climax but even at the top of markets such as now a 90% down day usually marks the end of a minor correction. We don’t disagree since our thoughts have been that the end of this rally would arrive later in the year; but if the major measures don’t resume the rally after the selling climax that will be a significant departure from the last two times the 90% down occurred in June 2006 and March 2007.
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James De Porre on realmoney.com wrote the following this morning. His sentiments mirror our approach to the market:

It has always been my belief that the No. 1 goal of individual investors should be preservation of capital. It is far better for most folks to err on the side of caution than optimism because if you are zealous about keeping your gains, you almost always come out ahead over time. Your capital is your most precious commodity and if you guard it, you can always find more opportunities. Riding every trend to the bitter end is great for fund managers, but individual investors should become increasingly cautious the more extended the market becomes.
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The NYT reports that Blackstone Group’s founders will take in $2.3 billion in bonuses when the firm goes public in a month. It is nice that China will invest $3 billion in the Group just before it goes public. That money will help pay the bonuses.
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Congressional Research Service reports that CEOs make, on average, 179 times as much as rank and file workers, double the 90-to-1 ratio in 1994.
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Thursday and Friday are Quadruple Witching and so there may be up/don movements related to that event this week and next Monday.
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European bourse indexes closed large fractions to over 1% higher on the day across the continent.
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There are news reports that Ford has hired investment banks to help it explore options including a sale of its Jaguar and Land Rover European luxury brands, sources familiar with the matter said, as several companies ruled themselves out from bidding.
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Oil ended up $1.21 at $65.97. Gold gained $9 to $659 in NYC trading and Treasuries closed lower in price with the two-year at 5% and the ten-year at 5.14%.
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The DJIA gained 1 point to close at 13425.  The S&P 500 was up 1 point at 1509 and the NAZZ lost 2 points to 2572.

Breadth was flat and volume was summer Monday light.

There were 165 new highs and 125 new lows.
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8 June 2007 Daily Comments

Happy Fortieth birthday to our daughter Lisa. We remember when.

Thoughts

The Treasury ten-year traded at a 5.25% yield overnight and is trading at a 5.14% yield this morning as the trading day begins in NYC. Yesterday Bill Gross, who is big stuff in bonds and manages half a trillion dollars worth of bonds, turned bearish on bonds for the first time in his twenty years of managing money. Of course bonds have been in a 22 year bull market so Gross has never really seen a long term bear market in bonds.

Traders who do well in a certain type of market often don’t in a market that has different characteristics. And so we will have to see how Gross does. But for the moment his call yesterday afternoon coupled with Goldman Sachs’ call earlier in the week that there would be no interest rate cuts this year has placed a negative aura on Treasuries.

Treasuries have rallied a bit this morning on the short end and the long end has pared overnight losses.
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Stocks are opening higher which is not something the bulls want to see. Bulls would rather see a big kibosh to the downside this morning to wash out all the novice traders but it looks like that isn’t going to happen. And we don’t think the bulls will complain much if the market close substantially high today. What the bulls don’t want is a failed rally attempt.
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Yesterday was a 90% down day on volume and breadth o the NYSE. That same event occurred at the end of the mid correction last March and also at the real bottom in March 2003. Technicians would expect at least a bounce if not the end of the corrective phase on that kind of action.
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Asian markets were lower overnight except Shanghai which was up 0.5%. European bourse indexes are also lower and Gold is down $6 and Oil is off $1 at the $65 level.
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Qualcomm was found to have violated a Broadcom patent on new 3G phones when the U.S. International Trade Commission ruled that QCOM can’t import those phones into the U.S. QCOM vows to appeal to the White House to overturn the prohibition in the interest of the national economy which QCOM says will be ruined if those phones can’t be imported. Broadcom is saying just pay to play. Somehow not having a bunch more cell phones in the U.S. seems to be the least of this country’s problems.

By the by, QCOM is trading higher on the news which shows that speculation certainly isn’t dead.
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The Bush administration on Friday suspended some of its new, post-Sept. 11 requirements for flying abroad, hoping to placate Congress and irate summer travelers whose vacations have been thwarted by delays in processing their passports.

We hope Al Qeda doesn’t know about this.
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Morgan Stanley upped its estimate of 2nd Quarter GDP growth to 4.2% from 3.6%. That should be good for stocks but bad for bands. And if it is bad for bonds it is bad for stocks.

It should be good for stocks because higher growth means bigger profits. But higher growth means the Fed worrying about inflation. And if the Fed is worried about inflation then they won’t cut and may raise interest rates. And if the Fed raise interest rates the stock markets wont’ like that.
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The S&P 500 made a closing all time high on Monday of this week. Time is money.
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From May31 Comments: Thoughts

Sell in May and go away. It looks like we are the only folks with that aphorism in mind this year.
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We remain of the opinion that this sell off in early June is not the downturn. We would expect the selling to run its course in the next week without more than a 5% down and then resume an uptrend into August. Since the stocks we normally buy are out of favor we aren’t going to try and trade the move if it does occur since our kind of stocks will probably not participate. We will buy individual companies that reach our downside price objectives.
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Slate.com has a good article on the idiocy of the FTC opposing the Whole Foods/Wild Oats merger.
http://www.slate.com
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We noticed that Gold is down $15 today after being off $10 yesterday. Our guess is that some hedge funds were the wrong way on Gold/bonds/stocks and are trying to perfect their hedges today.
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From March 2006 to March 2007 Exxon bought back $31 billion in shares, Microsoft $24 billion, Time Warner $11 billion, and Proctor & Gamble $10 billion. That is a lot of buying for even these stocks and we wonder what would have occurred to their share prices if the artificial support hadn’t been there.
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At 1pm the DJIA is up over 100 points and breadth is decidedly positive for the first time today.
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Gold ended the trading day in NYC down $12 at $653. Oil lost $2.26 to $64.67. Treasuries bounced slightly with the two-year at 5.00% and the ten-year at 5.11%.
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European bourse indexes closed lower for the fifth day in a row as their trading closed before the major measures in the U.S. pushed higher.
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We missed trading U.S. Steel when it dropped to the teens four years ago. But we also missed losing money on it as it moved from $25 to $215 during that drop. We mention that to show we are not expert traders of this stock. But the following news item caught our eye:

Shares of United States Steel surged 8 percent to $120 per share on Friday after Russian news agency Interfax reported that German steelmaker ThyssenKrupp was interested in buying the company.

No one wanted the stock at $15. Now at $120……?
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In case you were wondering:

"Using the 30-year yield in our earnings yield gap model, the equity market no longer looks appealing at 0.41 standard deviations above the mean," says Tobias Levkovich, Citigroup chief U.S. equity strategist. "Our model using Baa yields instead of the 10-year Treasury shows the market as modestly appealing at 0.48 standard deviations beneath the mean," he said in a research note.
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Entering the final hour of trading for the week the DJAI is at its high for the day up 106 points and breadth is good.
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The DJIA gained 155 points to close at 13425. The S&P 500 was up 17 points to 1508 and the NAZZ jumped 32 points at 2575. Mexico and Brazil market indexes were also fractionally higher.

Breadth was 2/1 positive and volume was good.

There were 100 new highs and 155 new lows.

Please have a pleasant weekend.
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7 June 2007 Daily Comments

Thoughts

Treasuries are over 5% this morning and that has placed a damper on a dip buying rebound. But our guess is that the dip buyers will wade in before the day is over.

Asian market indexes were mixed overnight with Shanghai popping 3% higher. European bourse indexes are also mixed. Oil is over $66 and Gold is flat.
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We get mail:

6/6/07 Bud today you said: "Treasuries are a bit better but still flirting with 5% on the short end.” Please explain.

Also, why no comments on todays sell off? 

E

We respond:

The translation is: “Treasuries were up and down all day but managed to close a few ticks higher”.

To the second question the answer is: “We presume folks knew a sell off was coming because we went to cash last week”.

B
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There are news reports that a senior member of Israeli Prime Minister Ehud Olmert's government suggested Wednesday that his country is running out of patience with a U.S. backed diplomatic overture to head off Iran's nuclear ambitions. That is as in bombing the facilities as Israel did in Iraq.

Olmert is in political trouble over the botched military excursions into Lebanon and so some kind of Iran initiative would meet the politician’s solution of military action to rally support and overcome negative public opinion.
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Jobless claims were 309,000.
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In early trading Treasuries tried to rally and then broke and the ten-year is 10 bps higher than last night at 5.09%. The break in bonds has affected stocks to the downside.

Oil is over $67 at 9:30am and that isn’t helping stocks.

Actually the steepening positive sloping yield curve should be a plus for stocks since it suggests that the economy is in good shape. But traders have become so accustomed to the Fed lowering rates to help stocks that when rates rise their Pavlovian response is to sell.

We don’t think the Fed will consider lowering rates unless the major stocks measures tank 20% or more and stay down.
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Noonish time the S&P 500 is down 21 points at 1496 which is through the 1500 support level. Next support level is 1460. The DJIA is down 175 points. The gurus are welcoming the sell off as needed and a buying opportunity.

We are not buying the buying opportunity.
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European bourse indexes closed big fractions to over 1% lower across the board.
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Entering the last hour of trading the DJIA is now down only 105 points. The dip buyers have waded in to try and rally stocks through the final hour.
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Treasuries closed lower in price with the two-year at 5.02% and the ten-year at 5.12%. Those yield increases represent big time losses for bond holders on the order of over $10 per bond (three months interest) for the ten-year and $20 for the thirty-year (6 months interest) just today.
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Oil gained $0.93 to $66.93. Gold was off $10 to $665. Brazil and Mexico were both down 2%.
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We would guess that mistaken hedge fund strategies might create some forced selling this afternoon and tomorrow for those who were hedged the wrong way on the bonds and stocks. The drop in gold of $10 is a sign of that selling. Those problems will have to be resolved before any rally. That resolution might occur tomorrow morning.
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The DJIA wasn’t able to hold the dip rally into the 2pm hour and at the close the major measures returned to make new lows on the day at the close.

The DJIA ended down 205 points at 13260. The S&P 500 lost 27 points to close at 1490 support and the NAZZ dropped 45 points to 2540.

Breadth was over 10/1 negative on the NYSE and down volume was 10 times up volume. Breadth was 3/1 negative on the NAZZ and total volume was active.

New highs contracted to 125 and new lows expanded to 190.

Please have a good night.
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6 June 2007 Daily Comments

Thoughts

Stocks in the U.S. look to open lower this morning. The European Central Bank raised their key interest rate 25 bps. Asia was lower overnight except the Shanghai index which was a small fraction higher. European bourse indexes are lower at midday and Gold is down $2 and oil is unchanged. Treasuries are a bit better but still flirting with 5% on the short end.
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Investors Intelligence is at 52% (53% last week) bulls, 22% (21% ditto) bears.
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At noon the DJIA is down 151 points with breadth at over 3/1 negative.
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The S&P 500 is down through 1527 support/now resistance and is trading at 1515. The next support level is 1500 and after that 1460.
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European bourse indexes closed lower as did Mexico and Brazil. Gold was unchanged at $675 and Oil was up 37 pennies at $65.95. Treasuries firmed as stocks weakened with the two-year at 4.95% and the ten-year at 4.97%.
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The DJIA closed down 130 points at 13465. The S&P 500 lost 14 points to 1517 and the NAZZ dropped 24 points to 2587.

Breadth was over 3/1 negative all day and volume was moderate.

There were 155 new highs and 120 new lows.

Please have a good night.
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5 June 2007 Daily Comments

Thoughts

Shanghai dropped 7% in early trading last night but then recovered to close over 2% higher. At its lowest last night The Shanghai Index was down a total of 20% from the high it reached last Monday.

Markets never crash off the top. The 1987 Crash came after a 20% drop over a period of two weeks. And so the bounce last night was significant and the Shanghai market should rebound as dip buyers enter.

The Chinese Government also announced the formation of four $1.2 billion funds to invest in the Shanghai market so that Chinese investors can use them rather than buying individual stocks. That is known as government support.
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The rest of Asian markets were also higher overnight but European markets are lower at midday. Gold and Oil are off a bit and Treasuries are flat.
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Fed Chairman Uncle Ben spoke in South Africa and warned that the housing markets in the U.S. remain weak and that inflation remains a concern. Why he was telling the South Africans that is a mystery but the U.S. markets are lower in the early going as a result of his comments.
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The ISM Non Manufacturing Index was 59 in May versus 56 in April.
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Amazon is back at 70 times earnings and is up 3% today as the DJIA is down 125 points. AMZN is higher on the news that it is going to try and expand operations in China. That action is just like the good old days of the late 1990s when any announcement was worth a few points.
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The stock markets opened lower, attempted to bounce, and then sold off again. The buy the dip folks are having a bit of trouble today but four hours of trading remain.
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The Treasury two-year is trading at 5% at noon.
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The FTC is opposing the Wild Oats/ Whole Foods merger. That opposition reminds of back in the 1980s when the FTC opposed the buyout of Schlitz by Heileman as being anti competitive. At the time Budweiser had 50% of the beer market and the combination of Heileman and Schlitz would have amounted to less than 10%. Of course Schlitz and Heileman no longer exist.

The failure of the WFMI/OATS merger will lead to Wild Oats demise since they never have been able to get their act together. While we thought the deal would be good for Whole Foods giving it stores at a cheap price, WFMI will be able to continue expanding and growing at a more measured pace.
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1527 was resistance on the S&P 500 for the last month and now it is support. Today the S&P 500 is down 12 points and trading right at the 1527 level.
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Goldman Sachs has changed its prediction that the Fed would cut 75 bps this year. It now says the Fed will do nothing.
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We sold Talbot’s for a scratch to a $1 loss in our larger accounts. We like the stock but it is a thin trader and we are guessing we will have a chance to repurchase at a lower price later this year.
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Oil ended down 61 pennies at 465.60. Gold was off $1 at $675. Treasuries were weaker at 5 % on the two-year and 4.98% on the ten-year.
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European bourses closed when the DJIA was down 125 points and the European Indexes closed down large fractions across the board. Mexico was up and Brazil also finished lower.
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The DJIA lost 80 points to close at 13595. The S&P 500 closed down 8 points at 1532 and the NAZZ dropped 8 points to 2615.

Breadth was 3/1 negative on the NYSE and 2/1 negative on the NAZZ and volume was active.

There were 310 new highs and 95 new lows.

Please have a good night.
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4 June 2007 Daily Comments

Thoughts

Shanghai was down 8% overnight and U.S. shares opened lower but the dip buyers are back and the major measures are attempting to move the plus side after an hour of trading. The drop in Shanghai was not matched in the rest of Asia as Hong Kong and Japan indexes managed to close small fractions higher.

European stocks are lower at midday and Gold and Oil are small changed. Treasuries have a bid.
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The Shanghai market is down a quick 15% in the last week and the U.S. markets have yawned. The drop in February, which occasioned the quick 5% correction the DJIA, was a down 8% day.
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We have been in and out of Intel for the past year. We are selling today for a scratch profit. INTC hasn’t been able to get through the $23.25 level and in any market correction is has a $4 downside risk.
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CNBC had a contest that just ended that allowed folks to trade an imaginary $1 million portfolio. The prize was to be a $1 million annuity. CNBC can’t declare a winner because there are allegations that some folks figured out how to game the computers monitoring the trading. And so the contest was a mirror of the present takeover market where stocks run up ahead of announcements. The wild days are here again.
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Gold ended unchanged at $676 and Oil was up $1.13 at $66.26 in NYC trading. Treasuries were slightly better with the two-year at 4.97% and the ten-year at 4.93%.

European indexes finished on the downside as did Mexico and Brazil.
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The DJIA gained 10 points to 13675. The S&P 500 was up 3 points at 1539 and the NAZZ rose 4 points to 2618.

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

There were 505 new highs and 65 new lows.
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Please have a good night.
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1 June 2007 Daily Comments

Thoughts

Nonfarm payrolls added 157,000; forecasts had called for 135,000 new jobs. All the adds were in the service sector as in low paying jobs. The unemployment rate held steady at 4.5%. Hourly earnings rose 0.3%, in line with forecasts. Personal income fell 0.1%; forecasts had expected a 0.3% increase. Personal spending rose 0.5%; a 0.4% increase was expected. Month over month Core PCE (inflation) was up 0.1%. The year over year Core PCE was 2% which is where the Fed wants it.
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Shanghai was down 2.6% overnight and the rest of Asia was mixed. European bourse index are fractionally higher and Treasuries are flat with Gold up $4 and Oil down 10 pennies going into today’s trading session.

U.S. stocks liked the Employment report and with the Dow Jones folks willing to talk with Murdoch and Dell beating estimates stock futures are suggesting a rock and roll opening. We guess China only matters when it matters. Oh, Dell is going to fire 9,000 folks.
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Matrix Advisors raise Whole Foods from strong sell to sell and the shares are higher. Say what?
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University of Michigan May Consumer Sentiment Index was 88 versus 87 in April. We think that ws the final, final reading for May. Pending home sales were down 3.2% in April.
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The uptrend line in the Shanghai market index is at 3650. It closed last night at 4000 down 7% in the last week and basically unchanged in the last month. The number 4 is an unlucky number in China.
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Treasury Bill rates are at 4.75% with the two-year approaching a 5% yield. The last time the two-year was at 5% Treasury Bills were yielding over 5%. The yield curve is turning positive and the fact that the Bill rate is at 4.75%, which is 50 bps below the Fed Funds rate, might suggest that a large amount of money doesn’t want any risk.
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We think the Bancrofts, who control DJ, are talking to Murdoch to attract another bid. And we think GE should make it. The fit of DJ with CNBC is perfect. We don’t think GE CEO Immelt has the imagination to do it though since his mentor Jack Welch is still around. Welch picked Immelt so he, Welch, wouldn’t be overshadowed.
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The father in law of TB man works in the TB department of the CDC. http://www.suntimes.com/
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According to The Financial Times, hedge funds are attacking bank decisions that help delinquent US mortgage borrowers remain in their homes in a move that pits some of the country’s richest people against its least well-off. See story here: http://www.ft.com/
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CNBC is showing news spot with the title “Jobs in the Sweet Spot” in reference to today’s employment news. The video portion of the spot show manufacturing workers in the auto industry and a tool and die shop. Unfortunately the jobs being created are fast food and hospital aid jobs that pay less than $12 an hour while the jobs being lost are the manufacturing jobs with livable wages. Over 150,000 manufacturing jobs have disappeared in the last year.
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In keeping with the above theme the WSJ has an article today about the new rich needing butlers and the job opportunities in that field.
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Gold ended up 410 at $677. Oil was up $1.05 at $65.04. And Treasuries closed the week on their lows with the two-year at 4.97% and the ten-year at 4.95%.

Most European bourses were over 1% higher as were Mexico and Brazil.
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The DJIA ended up 40 points at 13667. The S&P 500 gained 6 points to 1536 and the NAZZ jumped 10 points to 2615.

Breadth was about 2/1 positive all day and volume was summer moderate.

There were 635 new highs and 75 new lows.

The bulls win the week and the moth of May and the year up till now.

Have a restful weekend; the casino opens early Monday morning.
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