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Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Bud: 312-925-5248       Kathy: 630-323-8422

30 June 2009

Thoughts

Model Portfolio Value As of 30 June 2009

$ 572,465

Today is quarter end for mutual funds and institutions and also fiscal year end for many non profits. Asia was mixed overnight as is Europe at midday. Gold is up a few dollars and Oil has a $71 handle as the trading begins. Yawn.
*****

Todd Harrison at miyanville.com makes the point that Wall Street is going to record its best earnings quarter since the financial crisis began. The banks and brokers will have earned their money by trading each others stocks and bonds and mortgages off depression levels and underwriting each other’s secondary offerings of common stocks and bonds to raise capital because they had lost so much money on their previous investments. And the current secondary offerings were at prices one half and less of what they paid to buy those same shares in prior years and they paid their competitors a fee for handling the sales and their competitors paid them a fee for doing the same...
*****

Biogen is off $4 in the last two days on negative news and we bought shares for a trade in some larger accounts.
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Stocks are heading lower in after opening higher.
*****

European bourses closed lower.
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With markets lower on a disappointing Consumer Confidence number it makes no sense for retailers to be higher except that it’s the last day of the quarter and retail has been strong this quarter and there are some folks who want to have retail in their portfolios at quarter end.

We sold Chico’s for a scratch (40 pennies) profit.
*****

Oil ended down $1.40 at $70.10 and Gold lost $13 to $927.
*****

There was no pop at the end of the day/month/quarter. We sold Walgreen (20 pennies loss), Honeywell (40 pennies loss) and GE (15 pennies loss) for scratch losses since we bought them for a month end gain.
*****

The DJIA lost 80 to 8449. The S&P 500 lost 8 to 919 and the NAZZ was down 9 at 1835.

Breadth was 5/4 negative and volume was summer light and will get lighter in the next two days.

Vacationers won the day.
*****

 

29 June 2009

Thoughts

Model Portfolio Value As of 29 June 2009

$ 574,204

This is a holiday shortened week since the markets are closed on Friday. Trading will be light but may be volatile since Quarter end is tomorrow and Thursday brings the monthly employment report.

Asian markets were mixed and European bourse indexes are higher at noon. Our markets opened mixed but are higher after one hour of trading.
*****

Madoff gets 150 years.
*****

European markets closed up 1% and more.
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Health insurance is a monopoly business:

http://tpmmuckraker.talkingpointsmemo.com/2009/06/healthcare_market_characterized_by_consolidation_n.php?ref=fpblg

The report, released by Health Care for America Now (HCAN), uses data compiled by the American Medical Association to show that 94 percent of the country's insurance markets are defined as "highly concentrated," according to Justice Department guidelines. Predictably, that's led to skyrocketing costs for patients, and monster profits for the big health insurers. Premiums have gone up over the past six years by more than 87 percent, on average, while profits at ten of the largest publicly traded health insurance companies rose 428 percent from 2000 to 2007.... The problem is most acute in small rural states, according to the report. In Senator Shelby's ( an opponent of the public option) own state of Alabama, the biggest insurer, Blue Cross Blue Shield, controls 83 percent of the statewide market. There, and in nine other states -- Hawaii, Rhode Island, Alaska, Vermont, Maine, Montana, Wyoming, Arkansas and Iowa -- the two largest health insurers control at least 80 percent of the market. So much for Shelby's "marketplace for health care."
*****

We took a one day 45 pennies (2.5%) profit selling KBE. As we have commented before, we are trying to make small trading profits because we are not receiving any income from the cash we are holding because the Fed is keeping interest rates artificially low to rescue the banks and brokers from their foolish speculations.
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We traded BankAmerica in our large trading accounts for a 3% gain.
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Oil was up 42.37 at $72.56. Gold closed unchanged at $940.
*****

The DJIA gained 92 to 8530. The S&P 500 was up 8 at 928 and the NAZZ rose 7 to 1845.

Breadth was 3/2 to the good on the NYSE and flat on the NAZZ and volume was light.

The bulls held sway for the day.
*****

 

26 June 2009

Thoughts

Model Portfolio Value As of 26 June 2009

$ 573,590

What is with the front page headlines and dawn to dusk coverage on cable of Michael Jackson’s passing? We guess we live on a different planet.
*****

Asian markets were higher overnight and European bourse indexes are mixed. Stocks are going to open lower in the U.S. Oil has a $71 handle as the trading day begins and Gold is up $6 at $945.
*****

The income of Americans was up 1.4% in May probably with the help of the government's stimulus, leading them to increase spending 0.3% and boost the saving rate to 6.9%, the highest in 15 years. Actually an increase in saving is not the desirable in the turned around economic world in which we live.
*****

We sold our single short S&P 500 ETF (SH) for a plus scratch and bought GE, the Natural Gas ETF (UNG) and the Large Cap Bank ETF (KBE) in many accounts for a trade into month end next Tuesday. Chico’s broke 12% today on news that same store sales for the quarter are negative in the single digits. We added shares to most accounts.
*****

We have to leave early today to drive to Milwaukee. Stock Markets are lower as we leave but a positive close may be in the cards.
*****

 

25 June 2009

Thoughts

Model Portfolio Value As of 25 June 2009

$ 572,998

First time claims for unemployment were 627,000 and final first quarter GDP was a negative 5.5%. Markets went nowhere in the time we were gone and seem to be a doldrums. Asian markets were higher overnight while Europe is lower at midday and U.S. futures suggest a lower opening. Gold is at $929 and Oil has a $68 handle.
*****

European shares gave up some of the previous session's gains to finish lower, with bank shares pacing the declines.
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The S&P 500 is at 920 resistance and we bought small positions the short and double short S&P 500 ETFs (SH & SDS) for our large trading accounts.
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Oil ended at $70.25 up $1.28. Gold reversed to up $5 at $938.
*****

We sold the double short S&P ETF (SDS) for a 55 pennies profit. When we bought it the ETF was down over $2 on the day and the S&P 500 was at 920 resistance and we thought there might be a reversal of the day’s trend in the last hour. That didn’t occur and so we are happy with our profit. Because the leveraged ETFs are rebalanced every night we don’t want to hold it overnight but will keep the single short S&P.
*****

The DJIA gained 175 to close at 8475. The S&P 500 was up 19 at 920 and the NAZZ rose 35 to 1830.

Breadth was 3/1 positive and volume was light.

The day goes to the bulls.
*****

 

24 June 2009

Model Portfolio Update

Model Portfolio Value As of 24 June 2009

$ 572,918

23 June 2009

Model Portfolio Update

Model Portfolio Value As of 23 June 2009

$ 572,918

22 June 2009

Thoughts

Model Portfolio Value As of 22 June 2009

$ 572,918

We are heading out for a few days so the next post will be on Thursday the 25th.
*****

It isn’t Christmas but the folks at Goldman Sachs are singing ‘Joy to the World’ as news reports suggest that Goldman will have record first half earnings which may –if the last two quarters go well- mean large bonuses for all souls who toil there.

Goldman’s good fortune is the direct result of the governments’ intervention and assistance last fall to save the world financial system. The government guaranteed Goldman’s debt and the debt of other folks with whom Goldman trades. Without the government guarantees of Goldman’s trading partners and the assistance the government gave to Goldman’s trading partners, Goldman would not have been able to trade with them and realize the profits they supposedly have realized. This fact is seldom mentioned when the press reports that Goldman repaid the $10 billion TARP money. Moreover, the government guaranteed $30 billion that Goldman borrowed and that borrowing is still outstanding. And the government made sure that Goldman received $10 billion from AIG for counterparty Credit Default Swaps (CDS) when in a normal market Goldman would have received ‘nada’ because AIG was bankrupt. There used to be a responsibility to make sure that the company with whom you traded could honor the contract. In the 1980s plenty of little people were wiped out when Baldwin United failed and their annuities wound up worthless. But that was then and now if there are friends in high places making the rules.....

And in the case of Goldman when the problems were being discussed and the rules were being made Goldman’s Current CEO had a place at the table and a former CEO was in the driver’s seat. And one of the participants was buying Goldman stock hand over fist while supposedly a disinterested observer as ahead of the NY Fed.

Morgan Stanley, Credit Suisse, JP Morgan et al are also reaping the rewards of reduced completion and government aid. That the Bush and Obama folks were not able to better structure the loans and bailouts so that the government would participate in the upside is a travesty.
*****

Asian markets were mostly higher overnight and European bourses are down 1% and more at midday. U.S. futures indicate a 1% lower opening and Gold is off $10 with Oil sporting a $68 handle.
*****

Obama is saying that he will work with AARP to reduce costs. AARP is basically an insurance agent for Untied Health.
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London was down 2.6% with France and Germany both down 3%.
*****

Oil closed down $2.62 at $66.93. Gold dropped $15 to $921.
*****

The DJIA gave up 200 to 8340. The S&P 500 lost 28 to end at 893 and the NAZZ surrendered 60 to 1766.

Breadth was 5/1 negative at the bell and volume was light.

The bears are back.
*****

 

19 June 2009

Thoughts

Model Portfolio Value As of 19 June 2009

$ 572,918

Research in Motion, the Blackberry maker, reported earnings up 33% for the quarter but gave a cautious forecast and the shares are lower in the early going. Asian markets were higher overnight as are European markets at midday. US stocks opened higher on Quadruple Witching Friday. Oil has a $72 handle and Gold is higher.
*****

The S&P 500 is up through 920 as the markets open and so we sold our double negative ETF position for a larger loss than we like. Of course we don’t like losses but the extra ultra moves are disconcerting and so we will use the one time short S&P in the future since we want to participate in the market’s direction without being totally skewed by volatility. Trade and learn. The loss was only in our large trading accounts.

We also sold GE for a scratch 20 pennies profit plus a 10 cents dividend. We also sold Palm for a $1 on day profit. We will be trading them again.

Small gains are all we are looking for in this market. The drop in GE yesterday and subsequent recovery today allowed us to rescue that position and given that RIMM (Research in Motion) is lower in an up market on good earnings we are content to take the small profit in a much more speculative PALM and look for a lower re-entry point. The purpose of our short trading is to try and earn a small return on our cash position while limiting risk as much as we can.
*****

Goldman Sachs upped Microsoft to Conviction Buy and the shares are up 3% and with Merck providing the DJIA lift in the first hours of trading.
*****

From http://www.mcclatchydc.com/227/story/70321.html :

Call it son of subprime. Experts warn that a new wave of mortgage foreclosures may be coming soon and could rival the default rates for subprime mortgages and slow efforts to find bottom in a prolonged national housing slump. The mortgages in question are $230 billion of option adjustable-rate mortgages, creative lending products that flourished at the height of the housing boom. In an option ARM, a borrower can opt to pay less than his or her monthly balance due, and the difference is tacked onto the outstanding loan balance. ...

"They're probably going to default at a rate that makes subprime look like a walk in the park," warned Rick Sharga, senior vice president for RealtyTrac, a foreclosure research firm in Irvine, Calif.
*****

And the beat goes on:

From Bloomberg:

Lake Shore Asset Management Ltd., a hedge fund firm run by a former chairman of the Chicago Mercantile Exchange, had its assets frozen by a federal court after regulators said it overstated its holdings. Chicago-based Lake Shore purported to manage $1 billion for investors and traded in U.S. commodities futures contracts, according to the Commodity Futures Trading Commission. A review later showed the fund had about $466 million. Lake Shore barred regulators from inspecting its accounts on June 14, a violation of the Commodity Exchange Act, according to the CFTC's complaint. Laurence Rosenberg is listed as Lake Shore's director, according to records from the National Futures Association, a self-regulating group for the U.S. futures industry. He is a previous chairman of the Chicago Mercantile Exchange, the largest U.S. futures exchange.

Financier R. Allen Stanford was indicted Thursday and charged with orchestrating fraud through his eponymous Caribbean-based financial firm, and hours later surrendered to federal agents in Virginia.
*****

These are the top 99 lobbying spenders in the first quarter of 2009, not the whole year, the first quarter.

From http://www.lavidalocavore.org/diary/1937/why-american-policy-sucks

Out of curiosity I decided to see who was spending the most on lobbying in America. And Oh My Goodness - NO WONDER our policy sucks. No wonder it's nearly impossible to pass health care reform that provides all Americans with affordable care, a global warming bill that doesn't suck, and the Employee Free Choice Act. No wonder we're in these two stupid wars. I know everyone's aware of the problems lobbying poses to our country, but good lord, if people saw the sheer magnitude of it (and the comparatively paltry amounts spent in the people's interest) they would be outraged. So here goes. Here's the list of the top 100 (ranked by amount spent on lobbying in Q109). Enjoy.

 

I pulled up all of the reports for first quarter 2009 but over 20,000 items came up (and the report only shows the first 3000). OK, try again - all reports for over $1 million for first quarter 2009. This time a little over 100 came up (including AIG, who spent $1,250,000 on lobbying during that period).

 

So here's how to read this list: These are the amounts spent by the corporations listed. However, many (if not most) of these corporations ALSO contract out to private lobbying firms, so the amounts you see here MIGHT not be the total amount they spent on lobbying in Q109. For example, Monsanto spent $2,094,000 for its in house lobbying but then contracted out to Arent Fox LLP; Lesher, Russell & Barron, Inc. ($60,000); Ogilvy Government Relations ($60,000); Parven Pomper Strategies ($40,000); Sidley Austin LLP; TCH Group, LLC ($50,000); The Nickles Group, LLC ($63,000); The Washington Tax Group, LLC ($40,000); and Troutman Sanders Public Affairs Group ($30,000) - for a total of $2,437,000 in first quarter 2009.

Health Care, Health Insurance, & Pharma


5. Pharmaceutical Research and Manufacturers of America: $6,910,000


8. Pfizer, Inc: $6,140,000
12. American Medical Association: $4,240,000
18. American Hospital Association: $3,580,000
19. Eli Lilly and Company: $3,440,000
37. America's Health Insurance Plans, Inc: $2,030,000
39. CVS Caremark Inc: $2,005,000
47. Blue Cross and Blue Shield Association: $1,800,000
49. GlaxoSmithKline: $1,780,000
63. Merck & Co: $1,500,000
65. United Health Group, Inc: $1,500,000
69. Sanofi-Aventis U.S. Inc: $1,460,000
76. Novartis: $1,347,134
87. Abbott Laboratories: $1,260,000
89. Astrazeneca Pharmaceuticals, LP: $1,250,000
92. Medtronic, Inc: $1,238,000

 

Oil


2. Exxon Mobil: $9,320,000
4. Chevron U.S.A. Inc: $6,800,000
7. Conoco Phillips: $5,980,935
16. BP America, Inc: $3,610,000
20. Marathon Oil Corporation: $3,380,000
45. American Petroleum Institute: $1,810,000

 

Defense


5. Lockheed Martin Corporation: $6,380,000
11. General Electric Company: $4,540,000
28. Northrop Grumman Corporation: $2,570,000
30. Boeing Company: $2,410,000
51. Honeywell International: $1,760,000
73. Raytheon Company: $1,360,000
 

Telecoms


10. AT&T Services, Inc: $5,134,873
14. Verizon (excluding Verizon Wireless): $3,760,000
21. National Cable and Telecommunications Association: $3,370,000
23. Comcast Corporation: $2,760,000
68. Motorola, Inc: $1,470,000
 

Automotive


22. General Motors: $2,800,000
27. United Services Automobile Association: $2,590,244
52. Ford Motor Company: $1,750,000
84. Toyota Motor North America: $1,290,000
86. Alliance of Automobile Manufacturers: $1,264,400

 

Financial


32. Financial Services Roundtable: $2,260,000
33. Prudential Financial, Inc: $2,180,000
41. American Bankers Association: $1,890,000
61. Visa, Inc: $1,540,000
74. Investment Company Institute: $1,359,917
75. Securities Industry and Financial Markets Association: $1,350,000
82. J.P. Morgan Chase Bank, N.A.: $1,310,000
90. Citigroup Management Corp: $1,250,000
90. Credit Union National Association: $1,250,000

 

Biotech


36. Monsanto: $2,094,000
40. Biotechnology Industry Organization (BIO): $1,920,000
44. Bayer Corporation: $1,843,672

 

Railroads


24. Association of American Railroads: $2,759,545
54. Union Pacific Corporation: $1,717,108
71. BNSF Railway: $1,400,000

 

Life Insurance


42. American Council of Life Insurers: $1,867,075
44. New York Life Insurance Company: $1,840,000
64. State Farm Insurance: $1,500,000
93. The Northwestern Mutual Life Insurance Company: $1,237,000

 

Other


1. Chamber of Commerce of the U.S.A.: $9,996,000
8. National Association of Realtors: $5,727,000
9. U.S. Chamber Institute for Legal Reform: $5,480,000
13. AARP: $4,090,000
15. Southern Company: $3,650,000
17. Altria Client Services Inc: $3,580,000
25. Amgen, Inc: $2,750,000
26. National Association of Broadcasters: $2,600,000
29. Edison Electric Institute: $2,550,000
31. Fedex Corporation: $2,370,000
34. Textron, Inc.: $2,140,000
35. General Dynamics Corp: $2,101,945
38. International Business Machines (IBM): $2,030,000
43. United Technologies Corporation: $1,860,000
46. Recording Industry Association of America: $1,810,000
48. CTIA-The Wireless Association: $1,790,000
50. Time Warner Inc. $1,780,000
53. The Dow Chemical Company: $1,735,000
55. American Electric Power Company: $1,716,913
56. Microsoft Corporation: $1,650,000
57. Qualcomm, Incorporated: $1,620,000
58. Wal-Mart Stores, Inc: $1,600,000
59. L-3 Communications: $1,580,000
60. Exelon Business Services, LLC: $1,540,000
62. Johnson & Johnson Services, Inc: $1,530,000
66. Norfolk Southern Corporation: $1,485,026
67. Koch Companies Public Sector LLC: $1,480,000
70. American Airlines: $1,450,000
72. Oracle Corporation: $1,390,000
77. Air Transport Association of America, Inc.: $1,340,000
78. Disney Worldwide Services, Inc.: $1,330,000
79. Sepracor, Inc: $1,324,157
80. National Association of Home Builders: $1,320,000
81. UPS: $1,316,426
83. Siemens Corporation: $1,300,000
85. Duke Energy Corporation: $1,282,770
94. Distilled Spirits Council of the U.S., Inc: $1,230,000
95. Business Roundtable: $1,220,000
96. Wellpoint, Inc: $1,220,000
97. American Wind Energy Association: $1,212,504
98. F. Hoffmann-La Roche Ltd: $1,206,427
99. National Rural Electric Cooperative Association: $1,200,000
99. CBS Corporation: $1,200,000
*****

Actually the money spent by the entities was a bargain for them considering the billions or rather trillions they have received and will receive in return.
*****

The Congressional Budget Office has estimated the new ‘cost’ of Obama health care with a public option for all as $1.6 trillion over ten years. This has freaked out all the Congress people. That breaks down to $160 billion a year or less than what Congress people allowed to be sent in IRAQ per year for the last six years.

The easiest and cheapest way is to let folks buy into Medicare (with subsidies to 500% of poverty line). The structure exists. But that would be too simple. And have the government provide malpractice insurance to doctors for free (government absorb cost and limit recovery to actual need) in return for the public plan.

Rather a Democratic Senator from North Dakota who represents about the same number of people as the number who live in the First Congressional District in Chicago has determined that a public option isn’t doable.
*****

European shares ended higher for the second straight session, with mineral extractors and banks ranking as some of the strongest performers.
*****

Oil ended down $1.74 at $69.63. Gold was flat at $935.
*****

We castigated Daschle yesterday for giving in a public plan for health care so it is only fair to give his side that was in the Washington Post this morning.

You made headlines the other day for dismissing the need for a public plan. Want to talk a bit more on that?

I don't know where that came from. We've been pushing back on that all day. I didn't say that. I have said emphatically I support a public plan. A Medicare-for-all public plan. Any federal plan. For all the reasons that have been made for years. It's important for cost, for choice, for competition, for popularity. I strongly support it.

What I did say is that I'm willing to compromise on most things to bring the package across the line. The plan we agreed to yesterday was that states could offer public plans with a federal fall back. That's not my first, second, or third choice. But given the concessions my colleagues made on universal coverage and an employer mandate and everything else, that's the essence of compromise.
*****

The Democrats control Congress and the presidency. They should ram though a public plan take the grief if it doesn’t work. Comprising on this is dumb because they will get the blame when it fails. There is not chance in h... that what passes the Congress will change the health care system. The Obama health plan is going to be like the Obama financial reforms, all hat and no cattle (Full of big talk but lacking action, power, or substance; pretentious).
*****

The DJIA was up 1% and down 1% during the day; rallied to plus in the last hour of trading but gave up the ghost in the final 15 minutes and closed lower. At the bell the DJIA was down 17 at 8638. The S&P 500 was up 2 at 921. The NAZZ gained 20 to 1826.

Breadth was 3/2 positive and volume was light.

The bulls won?
*****

 

18 June 2009

Thoughts

Model Portfolio Value As of 18 June 2009

$ 572,341

Yesterday afternoon, after two grudging down days in the markets we decided to buy a few issues for a trade in to month end. Our belief is that institutions that close their books on June 30 will want to see high prices maintained so that they can use the relative strength of the stocks markets in the last quarter to justify marking up their private holdings. We aren’t betting the store and bought the Large Bank ETF (KBE), GE, and Ann Taylor in many accounts and AT&T and Whole Foods in our large trading accounts.
*****

Asian markets were lower overnight and European bourses are mixed at midday. Gold is down and Oil has a $70 handle.
*****

Plus ça change, plus c'est la même chose: (as in all the regulation in the world-which certainly is not being proposed-won’t end the old boys’ network from rewarding failure).

Mark Walsh, the lead executive who loaded Lehman Brothers Holdings Inc. with toxic property investments, is part of a group chosen by Lehman to take over the bankrupt firm's real-estate private-equity arm.

Mr. Walsh and a team of former Lehman colleagues are setting up a new stand-alone business to manage the private-equity portfolio. They stand to profit if the portfolio of distressed assets -- for which they once paid top dollar -- recovers only some of its value.

The arrangement is a remarkable second act for 49-year-old Mr. Walsh, formerly Lehman's global head of real estate. When it filed for bankruptcy protection last September, Lehman directly held roughly $43 billion worth of real-estate loans and assets, exposure that played a key role in its collapse.

Federal prosecutors continue to investigate, among other things, whether Mr. Walsh and his team improperly valued commercial-real-estate holdings to prop up Lehman's balance sheet.
*****

An interesting comparison to 1929:

http://www.ft.com/cms/s/0/b31c06a2-5a7a-11de-8c14-00144feabdc0.html?ftcamp=rss
*****

FedEx reported its fiscal fourth-quarter loss widened to $876 million, or $2.82 a share, from $241 million, or 78 cents a share, a year earlier, reflecting write-downs for its Kinko's business and a 20% drop in revenue.

The shipping giant issued an earnings outlook for the current quarter well below Wall Street expectations, citing in part rising fuel prices, and said the manufacturing slump will make for an "extremely difficult" operating environment through November.
*****

CPI:

Despite rising gasoline prices, overall retail prices in the United States barely budged in May, the government reported on Wednesday, a sign that inflation remained in check as the recession drags on. The Labor Department said its Consumer Price Index rose 0.1 percent last month after being unchanged in April. The index measures how much consumers spend on an array of goods and services, and is considered a gauge of inflation in the economy.
*****

Good article by Joe Nocera in the NYT: http://www.nytimes.com/2009/06/18/business/18nocera.html?_r=1&hp
*****

GE is down today more than the markets and it may be because of this article on the WSJ online:

The Obama administration's proposed regulatory overhaul could force big changes at financial firms. But one large lender, GE Capital, may find them especially painful.

Though General Electric's lending arm has $613 billion in assets, it isn't a bank-holding company like, say, J.P. Morgan Chase. If the administration's changes become law, GE Capital, because of its size and reach, would likely be classified as systemically important. Such firms face a stricter regulatory regime.

For GE Capital, the adjustment could be tricky. Perhaps the biggest potential headache for GE is a demand that regulatory supervision should cover any systemically important firm's parent company and other subsidiaries. Under the proposed rules, these firms also would face restrictions on "nonfinancial activity." Since GE would be unlikely to countenance limits on its industrial businesses, it might become necessary to split off GE Capital.

That would bring challenges. GE would have to ensure GE Capital had sufficient capital and stable funding to satisfy regulators and investors. In a recent presentation, it put its Tier 1 "common" ratio at a respectable 6.9% at the end of 2008. However, since it isn't a bank, GE Capital doesn't provide a standard Tier 1 capital ratio, the main regulatory measure. On this yardstick, it might fall below large banks.

When it comes to funding, the new regulations envision "rigorous liquidity requirements" for systemically important firms. One of GE Capital's weaknesses going into the credit crunch was its reliance on short-term funding, underscored by its continuing use of government guarantees for some debt issues.

Change is coming. Maybe not the type GE bulls can believe in.

Our take is that GE has much too much power in Washington and Wall Street to be disadvantaged by the meal mouthed rules that Obama has proposed.

We are buying more.
*****

Because we added to the GE position we sold KBE for a scratch profit. We sold T for a scratch loss and WFMI flat in our large trading accounts and took an opposite position by buying the double short S&P 500 ETF (SDS) with the funds.
*****

From by Chris in Paris on 6/18/2009 06:20:00 AM http://www.americablog.com/

CNBC: new regulations could hurt bank profits that were actually losses

Some days I can better enjoy CNBC's craziness than others. Today I actually burst out laughing reading this article. It's predictably CNBC with the full throat defense of Wall Street special interests over investors. For networks such as CNBC, investors are worthless piles of cow dung who don't matter. Then again, the same could easily be said about the new Obama regulations which do very little to help actual investors.

The mindset both among the Wall Street cheerleader crowd as well as the White House is that the global recession and the loss of billions from retirement programs was a tough break but not worthy of significant change. Oh sure, there's big talk about reform such as the feeble "say on pay" that amounts to nothing and now there are new proposed reforms that come with splashy announcements but where's the substance? Is change really about asking those who created this recession to write the new reforms? Really? That's change? This is what makes the CNBC groaning even more funny in a not-so-funny way. Big headlines but little substance. There's a lot of that going around in the White House these days and it's getting old. Leadership means making tough decisions, not same old, same old.

With that, onto the CNBC who feels Wall Street's pain.

    US banks could become less competitive—and less profitable—from President Obama's proposed financial overhaul, analysts say.

    As details of the sweeping plan emerged, there was worry among investors that the sector—which has been recovering in recent months from last year's financial crisis—could take another hit.

    Among the biggest concerns: that increased regulation would reduce risk and leverage—which have been the main engines of growth in recent years.

    "These regulations are so sweeping, so comprehensive and so expensive there's no question about the fact that they will lower the profitability of the industry," says Richard Bove, banking analyst with Rochdale Securities. "As part of these regulations there's a demand to increase capital almost consistently, which lowers the leverage of the bank and lowers its potential profitability."

    While Wall Street had been expecting the administration to take a much stronger hand in regulating the financial sector after the subprime meltdown, the Obama plan still came as a surprise.

Worry among investors? Investors? Wait a minute. Is CNBC talking about the investors who were crushed by greedy banks who make horrible decisions and forced their banks to become insolvent, thus making their value worth nothing and required bailouts from governments around the world? Gosh, I don't think I'm following this line here because actual investors would do much better with steady profits - real profits - instead of bogus numbers that led to the failure of the banks. But as always, CNBC isn't really worried about actual investors. They're worried about the Wall Street powers who implemented the failed system.

The "growth" that CNBC refers to fails to clarify that it was not growth at all. It was as fake as Sammy Sosa. It all collapsed and millions of Americans paid the price when they watched their retirement plans get crushed and then started worrying about their jobs. The worst of it is that Obama's plan is much too gentle. When you ask Wall Street types to write new regulations, how tough is it really going to be? Think about how well self-regulation has worked and then take a guess at how tough the new regulations will be for Wall Street. Wall Street wasn't alone in expecting much stronger regulations. Day after day, it becomes clearer that this administration is more about business as usual than any significant change.
*****

Caterpillar Inc said on Thursday that its retail sales of machines had declined at a faster pace in May, sending its shares lower. World sales, including Cat Japan, fell 43 percent in the three months ended in May from a year earlier, compared with a 39 percent decline in the three months ended in April, Caterpillar said in a regulatory filing on Thursday. Three-month retail sales in North America were down 57 percent, compared with declines of 51 percent and 41 percent in April and March, respectively. Retail sales for the rest of the world fell 35 percent over the three-month period, also at a faster pace than in the prior two months. The pace of sales declines also worsened in Latin America, but improved slightly in Caterpillar's Europe, Africa and Middle East region.
*****

From Wonkette.com: WHY IS OBAMA TRYING TO KILL ALL HIS IMPORTANT LADIES? Maybe that Sotomayor “slip” at the airport wasn’t an accident after all. “Secretary of State Hillary Clinton fractured her right elbow Wednesday during a fall, State Department officials said.” Look out, Janet Napolitano!
*****

Initial claims for state unemployment insurance rose 3,000 to a higher-than-expected seasonally adjusted 608,000, the Labor Department said. Analysts polled by Reuters were expecting claims to dip to 600,000 from a previously reported 601,000. However, so-called continued claims tumbled 148,000 to a smaller-than-anticipated 6.69 million in the week ending June 6, the latest week for which data is available. It was the lowest level since May 9, and the largest one-week drop since November 2001.

Our guess is that the drop on the continuing claims is related to expiring benefits rather than jobs created.
*****

From  http://www.dailyhowler.com/index.shtml

Here are the per capita spending totals presented by the Kaiser Foundation. According to Chait, all these countries, except the US, have universal coverage. To be clear: This chart records US spending per person—not per person with health insurance. For obvious reasons, we’ll put the US at the top of the list. Does the term “American exceptionalism” pop into anyone’s mind?

Total health expenditures per capita, 2003
United States$5711
Australia $2886
Austria $2958
Belgium $3044
Canada $2998
Denmark $2743
Finland $2104
France $3048
Germany $2983
Iceland $3159
Ireland $2466
Italy $2314
Japan $2249
Luxembourg $4611
Netherlands $2909
Norway $3769
Sweden $2745
Switzerland $3847
United Kingdom $2317

Assuming those figures are basically accurate, something is rotten in the state of Luxembourg. But even the little grand duchy falls well behind the United States when it comes to per capita spending. France, Germany, Italy, Britain? They’re shown spending roughly half as much as the US—and they already have the full health coverage the US currently seeks.
*****

Money talking: the old boys are in the mood to pay back all their corporate donors and sponsors.

The man once slated to head Barack Obama's health care system overhaul is now coming out against one of the chief components of that effort.

Former Senate Majority Leader Tom Daschle said on Wednesday that the Obama White House would likely have to scrap a public option for health insurance coverage if it wanted to get the votes needed to pass systematic change.

"We've come too far and gained too much momentum for our efforts to fail over disagreement on one single issue," the Senator and one-time HHS Secretary Nominee said, according to ABC News.

The remarks came after Daschle, along with former Senate Majority Leaders Bob Dole and Howard Baker introduced his own proposal for health care reform that. That plan actually included a pseudo-version of a government-run option. The Daschle proposal calls for (among other things) public insurance pools to be administered by state government, not the feds.

In coming out against a public plan, Daschle adds kindling to an already roaring debate on health care reform. On Thursday morning, former Vermont Governor Howard Dean repeated the mantra that you cannot have effective legislation if it does not include a public option. At the White House on Wednesday, several state legislators who had met with current HHS Secretary Kathleen Sebelius argued the same point.

Certainly, the public seems to be weighed in Dean's favor. An NBC/Wall Street Journal poll conducted on Wednesday night showed that 76 percent of respondents wanted a choice between a public option for insurance coverage and private providers.
*****

From: http://www.theleftcoaster.com/

But as Soto said last night, it should also not surprise you at all that Obama could throw the public option overboard as well, to get a deal. He’ll do this, even though large majorities favor a public option, because he’ll be convinced by the Daschles and the Emanuels around him that a “bipartisan” deal with less than a full loaf of reform is better than 51% support in Congress for real reform. This is part of a kabuki dance where the White House is either being played or part of the walk-back:

  1. Give some good speeches early about health care, tying it to costs;
  2. Let progressives feel emboldened enough to step out first;
  3. Float the trial balloon about a public option, knowing that
  4. The usual suspects will push back and question whether anything will get done; and
  5. Then snatch defeat from the jaws of victory by settling for half a loaf and then taking credit for doing something, even if it is lacking.
  6. And it's all playing out according to script right before our eyes.
*****

Financial stocks fuelled a broad advance in Europe after data revived optimism on the economy and Dutch financial conglomerate ING scored a broker upgrade.
*****

Gold closed down $3 at $933 and Oil was up 20 pennies to $71.25.
*****

We closed out half of our S&P ETF (SDS) for a 70 pennies loss. We will close the other half if the S&P 500 moves above 920 which was support but is now resistance.
*****

The Palm Pre has received excellent reviews and is selling well. We think the shares are now worth a speculation and so we sold ANN to place the money in PALM. The shares traded down to nothing at year end and then popped when insiders bought 12 million shares at $6 in March and popped again to $14 on the reception for the new phone. Even at the present $13 per share the company is valued at only $1.4 billion. PALM needs more money but there are several wireless phone companies like Nokia and Motorola that need a smart phone plus other likes of DELL and MSFT that might be interested. We think acquirers were waiting to see of the Pre would sell.
*****

The DJIA closed up 60 at 8560. The S&P 500 was up 8 at 918 and the NAZZ lost 1 to 1808.

Breadth was 5/4 positive and volume was slight.

The bulls managed to stem the bleeding for today at least.
*****

 

17 June 2009

Thoughts

Model Portfolio Value As of 17 June 2009

$ 571,684

We had a business meeting today and so will not post.
*****

 

16 June 2009

Thoughts

Model Portfolio Value As of 16 June 2009

$ 572,304

Best Buy was one of the few remaining earnings announcements and it reported this morning lower but better than numbers. Asian markets were lower overnight catching up to the down markets in the U.S. yesterday and European bourse indexes are mixed at midday after be higher at their opening. Gold has rebounded to $935 and Oil has a $72 handle in the early going.
*****

The Producer Price Index was down 5% on a year over year basis which is the largest year over year drop since 1949 according to the talking heads. Of course the way PPI was figured then is different than now so the comparison is flawed.  Housing starts for May were up 17% which reversed the down 12% figure for April.
*****

British Airways has asked its 40,000 staff to work without pay for up to a month as the ailing airline seeks to cut costs. The group, which made a record £401 million loss in 2008 amid surging fuel prices and a collapse in premium-fare passengers, is seeking to reduce costs dramatically and has already offered staff unpaid leave or a reduction in hours. Willie Walsh, BA’s chief executive, has now gone a step further by asking staff to volunteer for between one and four weeks of unpaid work in what he says is a “fight for survival.” Mr. Walsh, who said last week that he would work for free in July, has set a deadline of June 24 for employees to volunteer for unpaid work. He said that the salary deductions would be spread over three to six months wherever possible.
*****

CEO Walsh is going to forgo his monthly salary of 61,000 pounds. That means he will still earn over 650,000 pounds (multiply by $1.64 for dollar equivalent). The average yearly salary for a British Airways worker is 30,000 pounds.
*****

Best Buy is off 5% since the better than numbers were not as good as traders were hoping.
*****

European markets ended mixed, as weakness in bank shares offset gains in the telecommunications sector.
*****

Gold closed up $15 at $932. Oil gave back its gains to end unchanged at $70.55. The euro was $1.38.
*****

The S&P 500 broke 920 support which now becomes resistance.

We have to leave a little early but at 2:30pm the DJIA was down 80 at 8532 and the S&P 500 was down 10 at 912. The NAZZ is off 15 at 1802.

Breadth is 2/1 negative and volume is summer light.

The bears won.
*****

 

15 June 2009

Thoughts

Model Portfolio Value As of 15 June 2009

$ 572,304

This Friday post on realmoney.com by Howard Simons suggests corrections can last a long time:

Nikkei Odometer

I see the Nikkei went back over 10,000 last night. I don't know whether they passed out "Nikkei 10K" hats back on January 9, 1984 when the index first crossed that mark, but they should have. A child born on that day would be 25 today.

I bring this up out of a nervous glance at our markets and out of a lingering cringe about the bad taste-fest we had when the Dow Industrials first crossed 10,000 on March 16, 1999 and first closed over 10,000 on March 29, 1999. Perhaps there is a ten year-old in your neighborhood born on those days.

Would anyone in 1984 have bet the Nikkei would be crossing 10K from below in June 2009 or would anyone have bet the Dow Industrials would be below 8,800 today after putting in the sharpest three-month rally since the 1930s?

I wrote a magazine article back in 1998 on gold noting its long bear market. I got an e-mail from a retail commodity broker who wanted to know whether I thought gold would ever cross $500 again. My response was, "'ever' is a long time. If you asked me in 1981 whether I thought long bond yields would 'ever' be below 6% again, I would have said yes, but I wouldn't have believed it."

Will the Nikkei take out its 38,957 high made in 1989, 20 years ago again? Will the NASDAQ 'ever' cross 5,000 again in my lifetime? "Ever" is a long time, but I don't really believe it.
*****

Asian markets were lower by 2% and more overnight and European bourse indexes are also lower. U.S. futes suggest a lower opening. Thursday and Friday this week are Quadruple/Quintuple Witching days and Quarter end for institutions occurs at month end. This will be the first quarter since last year at this time when many institutions will show positive performance and so they would like to see prices up until then. On the other hand ninety days have now passed since the March lows and so mutual funds can take short term profits without adverse tax consequences and there will be some pressure on those funds to lock in gains ahead of any summer doldrums.
*****

Krugman is a good read today:

http://www.nytimes.com/2009/06/15/opinion/15krugman.html?_r=1
*****

Furloughs are one way companies and institutions are dealing with the recession. It’s a good and fair way for folks to share the pain and good workers are retained. The furlough hours are not counted in the Employment report. We wonder how many hours of lost work those furlough days comprise on a yearly basis.
*****

Here is an interesting article on Bloomberg about the Boeing Dreamliner. Get ready to fly in plastic planes.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayC0EIF_gqCw
*****

By the by, seven of the banks that proudly announced they are repaying TARP and thus are free from government pay controls are not repaying the $100 billion they borrowed with a FDIC guarantee. The guarantee allowed them to borrow money at a cheaper rate. In fact it allowed them to borrow money at a time when without the guarantee they wouldn’t have been able to borrow. But according to them and their friend Timmy Geithner those borrowings don’t count as government aid. Nice work if you can get it. The banks and their (FDOC guaranteed borrowings) are JP Morgan ($40 billion), Morgan Stanley ($23 billion), Goldman Sachs ($21 billion), American Express ($6 billion), State Street ($4 billion), US Bank ($3 billion), and Bank of NY Mellon ($600 million ).

And yes Morgan Stanley and Goldman Sachs are banks. the Fed and Treasury allowed them to convert so that the Fed and Treasury could lend them money in the very critical October period when no financial institution was able to borrow. But that of course was not help and now MS and GS have no intention of giving up their bank status. But they both want to be able to pay bonuses without government interference.
*****

After two hours of trading breadth is 10 to 1 negative.
*****

And now the leveraged buyouts of the last few years follow Chrysler- which was leveraged buyout- into bankruptcy.

Extended Stay Hotels, saddled with a huge debt burden from its $8 billion top-of-the-market buyout, filed for Chapter 11 protection Monday, in one of the largest bankruptcy filings by a commercial real-estate company.

The filing, made in U.S. Bankruptcy Court for the Southern District of New York in Manhattan, came as a legal battle accelerated among the creditors who hold debt from the buyout by Lightstone Group LLC.  Those lenders include Bank of America and its Merrill Lynch unit and Wells Fargo & Co.'s Wachovia. Since late last year, creditors have been negotiating with Lightstone over a possible restructuring of the debt.

BankAmerica and Well Fargo are always in there pitching.

Six Flags Amusement Parks, one of the world's largest amusement-park chains, will be mostly owned by its lenders if a bankruptcy judge approves a deal negotiated between the company and its debt holders.

The theme-park company filed for Chapter 11 bankruptcy protection early Saturday amid a mountain of debt topping $2 billion and a looming $300 million payment due to preferred stockholders in August. Six Flags, which attracts 25 million visitors a year to its 120 roller coasters and other attractions, failed to persuade enough lenders to swap debt for equity over the past two months, forcing it into bankruptcy court.

Amusement parks seem to file bankruptcy in every economic downturn.
*****

Obama’s sartorial influence is evident as many TV commentators are now using the ‘four in hand’ tie knot that Obama favors versus the ‘full Windsor’ tie knot that Reagan/Bush/Republicans used/use. John Kennedy used the four in hand knot. It seems that no detail is too small to consider.
*****

European markets staged a broad retreat, after top finance ministers said they would look to cut back on fiscal stimulus. London was down 2.6% and both France and Germany were down over 3%.
*****

Cramer writes today on the bailout of Lincoln National and Hartford:

Why are Lincoln National and Hartford allowed to get federal money when they screwed up so badly? This morning Lincoln announced it is going to raise $2.05 billion, of which a whopping $950 million is preferred stock to the government. That's on top of Hartford accepting $3.4 billion in U.S. bailout funds as well as selling $750 million in shares.

My question is why? Why weren't these firms forced to merge? Why weren't they punished for taking on the amazing amount of risk they both did? How can they be bailed out while other insurers didn't need to be?

It's pretty obvious that the banking system was decimated by mortgage holding, as almost all of them gambled on endless house price appreciation. But Lincoln and Hartford gambled on the stock market! They took peoples' money in annuities and offered them policies they couldn't make good on if the stock market went bad. They also invested poorly in their portfolios.

And for this, they get bailed out.

What should have happened? I think they should have been made to run off their portfolios. If they had saleable assets, as Hartford did with its property and casualty division, the government should have made them sell it off so it could back the annuities itself with the cash received.

Lincoln was privately telling everybody who would listen when the stock was in the $40s that there were no problems here. Obviously the problems are huge. The company has reported two consecutive losses.

I have been a believer in TARP for those banks that otherwise would be insolvent, or dragged down to nothing as Wachovia and Washington Mutual were. We had a ton of systemic risk with the banks, and they all could have failed if we didn't help out. All of them. Just think back to the bad old days, and you would know that.

But the insurers? I have a tough time thinking that two should be bailed out and the rest have to suffer against players that took huge risks and got away with it.

This is just plain wrong.

Oddly, because of this bailout, you get to buy in on what could be a good Lincoln deal simply because the company's been virtually assured it will make it.

But the fairness here?

Just ridiculous, frankly, ridiculous.

Our take is that these two insurance goof-offs are being bailed out because if they were not bailed out they would default on thousands of annuity contracts. And those defaults would affect ordinary folks and the politicians in the Obama fortress know that it would look pretty bad to have bailed out AIG to save Goldman Sachs and JPO Morgan et al while not bailing out Hartford and Lincoln to save thousands of ordinary folks.
*****

Oil closed at $70.53 down $1.51. Gold lost $15 to $925. The dollar continued its rally closing at $1.37 to the euro.
*****

The DJAI lost 185 to finish at 8613. The S&P 500 closed on support at 923 down 23 points and the NAZZ lost 43 to 1815.

Breadth was 7/1 negative and volume was light.

The bulls failed to rally so the day goes to the bears.
*****

 

12 June 2009

Thoughts

Model Portfolio Value As of 12 June 2009

$ 572,304

Asian markets were up overnight with Japan up over 1% and with the Nikkei moving over 10000 for the first time in seven months. To place those actions in perspective remember that the Nikkei traded over 40000 in 1989.

European bourse indexes are lower at midday and Oil is down $1.50 with Gold off $15 in the early going. U.S. futures suggest a slightly lower opening. Since it is a summer Friday trading will be light but could be volatile.
*****

We sold the Ultra Financial for a scratch loss. We are all cash.
*****

Trading is slower than molasses in January and we are heading out for the weekend, not to the Hamptons but to our fields of waving green. Stocks are lower as we leave.
*****

 

11 June 2009

Thoughts

Model Portfolio Value As of 11 June 2009

$ 572,234

Asia was lower overnight while Europe is 1% higher at midday. Oil has a $71 handle and Gold is at $954 as the trading day begins. U.S. stock futures are flat. U.S. retail sales rose during May, posting the third increase in five months, but much of the gain was due to gasoline station receipts given a boost by higher prices. Jobless claims for the week were 601,000.
*****

The mysterious buyers who saved the markets on Monday from a 1% loss worked their wondrous magic again in the final hour of trading Wednesday. Aren’t hedge funds great?

The ten year auction on Wednesday was a bust and the yield on the ten year hit 4%. The five-year Treasury traded at 3%. Those yield s affect mortgages which affect home purchases which affect the rosy scenario.

On Wednesday were purchased the Natural Gas ETF for a trade and purchased the Triple Short Russell 1000 ETF in more accounts and also purchased a chunk of Xcel Energy, the utility that serves the area in which we live. The shares yield 5.85 and are within 10% of their low. The shares go dividend on June 23 and so we are buying for a trade ahead of the dividend.
*****

While we were away Goldman Sachs announced plans to pay back the $10 billion in TARP money saying it never did need it. of course Goldman also received $10 billion from the Government in settlement of Credit Default Swaps that were insured by AIG that had to be paid by the Treasury since AIG didn’t have the money. As we often say Goldman never loses and in effect received a net gift of $10 billion from the government.
*****

Some investors with Madoff are suing to have the SIPC pay them $500,000 that Madoff never earned for them but which he showed as earned on their statements. Free lunches all around are now the name of the game. We sympathize with the investors but the pain fact is that there was no there there.
*****

We sold the Xcel and Natural Gas ETF for one day 4% and 5% profits respectively.
*****

European stocks closed higher and Oil ended at $72.71 while Gold was $959.
*****

We have been day trading the SDS and SKF in a few larger trading accounts. Because of the nature of these ETFs they are meant for day trading and not as longer term trading opportunities. They carry a lot of bang for the buck and are quite volatile and that is why we are trading in small amounts in very large accounts. We traded today and lost scratch pennies on the trades.
*****

The thirty –year Treasury auction was successful and Treasuries closed higher on the day, lower in yield. The ten-year now yields 3.85% down from 4% yesterday afternoon.

The DJIA gained 31 to closes at 8770. The S&P 500 closed up 5 at 944 and the NAZZ gained 8 to 1860.

Breadth was more than 2/1 to the good and volume was light.

The bulls held the day but.... the S&P 500 couldn’t close above 950 resistance even though it traded above that level most of the day.
*****

Sometimes change is not change:

The Obama administration is appointing a salary czar according to news reports and at the same time the WSJ is reporting that the Obamaites are dropping plans to cap salaries at firms receiving government bailout money, leaving them subject to congressionally imposed limits on bonuses, according to people familiar with the matter. The push to revamp compensation practices at all financial firms suggests the administration hasn't dropped its goal of making far-reaching changes to how banks pay employees. But this element of the plan will likely come in the form of recommendations.

There were also recommendations that banks not take excessive risks. That worked well.
*****

The island nation of Palau agreed to accept 17 Chinese Muslims who have languished in legal limbo at Guantanamo Bay, indicating a resolution to one of the major obstacles to closing the U.S. prison camp. It seems that the Palauns aren’t worried that terrorists will destroy their country. Of course Global Warming will probably submerge it.
*****

From the WSJ:

Because most mortgage-loan sales are private, statistics are difficult to come by. Prices currently vary from 20 cents per dollar of unpaid principal for some of the riskiest subprime mortgages to nearly 90 cents on the dollar for current loans to borrowers in strong housing markets, says Kingsley Greenland, chief executive of DebtX, an online marketplace for loans.

Those types of prices would produce losses far greater than most have reserved for, says Keefe, Bruyette & Woods analyst Frederick Cannon. "Banks are essentially holding loans in the system at a value of 97.5 cents on the dollar," he says.

We thought banks had marked the mortgages down to the 60-70 cents on the dollar range.
*****

This story from the Los Angeles Times:

In parts of Southern California, the housing crash has upended a basic tenet of the American dream: that home values always increase over the long term.

Properties in several areas are selling for less than they did 20 years ago, and that's not even counting the effects of inflation.

The reversal is a bonanza for some first-time buyers. They're nabbing houses for less than what their parents paid in the late 1980s, jumping into a real estate market that has become a kind of economic time machine.

To return to the past, take a stroll down Mulberry Avenue in Lancaster. John A. Beatrice, 55, bought his spacious two-story Spanish-style house there brand-new for $120,000 in 1989. It was a price he could comfortably afford, and he planned on staying through retirement, so he wasn't worried about price swings.

"I always knew real estate goes like this," said the aerospace engineer, moving his hand in an undulating motion like bell curves on a graph.

But he never imagined his neighborhood would drop off the charts. In April, a slightly larger home two doors away sold for $66,500. That's just over half the $130,000 it went for new in 1992. In 2005, that house sold for $330,000.

Beatrice's 29-year-old daughter is now shopping for Lancaster houses priced lower than when she was a kid.

Home prices across most of Southern California have not fallen nearly as far. The median price in the six-county area was $247,000 in April, about what it was in 2002.

But in 14 Southland ZIP Codes, mainly desert communities in the Antelope Valley and Inland Empire, median prices have fallen below levels recorded in April 1989, according to MDA DataQuick, a San Diego real estate information service.

That means thousands of homes in those neighborhoods -- even houses barely 20 years old and in decent shape -- have lost every dime of their appreciation, giving back not just the gains of the recent bubble but steady increases logged over a generation.

The April median price in Beatrice's Lancaster ZIP Code of 93535, for example, was $87,000. That's down 74% from a $334,500 peak price in 2007. Even worse was the 92410 ZIP Code in the city of San Bernardino, which covers several older neighborhoods. Its $61,000 April median represents an 84% drop from the peak of $370,000 in 2007.

Prices also tumbled below 1989 levels in neighborhoods in Palmdale, Hemet, Barstow, Desert Hot Springs, Victorville, Highland, Santa Ana and Oxnard, according to DataQuick. Several other inland communities, including parts of Moreno Valley, Banning and Rialto, had median prices that were only slightly above 1989 levels and below the April 1990 median.

The median price is the point at which half the homes sell for more and half for less.
*****

A U.S. Federal Reserve survey released Wednesday shows that economic conditions remained weak and even deteriorated in many regions of the country as recently as last month, with commercial real estate and labor markets continuing to face challenges.

The report covers the period from mid-April through May and shows the economy is still frail. Despite costly federal efforts to restart credit markets, it is still very difficult for consumers to obtain loans, the report shows.

Some of the 12 Fed districts see the recession easing a bit, but they are still not expecting a significant boost in economic activity in 2009.
*****

 

 

 

Oldies but Goodies are back http://www.huffingtonpost.com/

 

From http://www.huffingtonpost.com/2009/06/11

 

On Wednesday night, the New York Times reported that AMA was "letting Congress know" that it would resist a public plan for health insurance coverage.

Politically, the revelation could be a potentially significant blow to progressive health care reform advocates, who contend that a public option is the best way to reduce costs and increase insurance coverage. AMA has the institutional resources and the prestige to impact debates in the halls of Congress.

Historically and philosophically, however, AMA's opposition is hardly newsworthy. Despite a lofty reputation and purported commitment to universal coverage, AMA has fought almost every major effort at health care reform of the past 70 years. The group's reputation on this matter is so notorious that historians pinpoint it with creating the ominous sounding phrase "socialized medicine" in the early decades of the 1900s.

"The AMA used it to mean any kind of proposal that involved an increased role for the government in the health care system," Jonathan Oberlander, a professor of health policy at the University of North Carolina, told NPR in a 2007 interview. "They also used it to mean things in the private system that they didn't like. So, at one point, HMOs were a form of socialized medicine."

Indeed, the role played by AMA throughout health care reform battles past has often been primarily as the defender of the status quo. In 1935, fears of an AMA backlash helped persuade Franklin Roosevelt's advisers to drop a health care article from the Social Security package -- fearful that the opposition would sink the legislation altogether.

Concerned about government restriction on and oversight over surgical activities -- not to mention the loss of physician income -- the group deployed the "socialized medicine" argument to undermine Harry Truman's effort at a national health care system years later.

In 1961, AMA organized a campaign to block Medicare. Titled "Operation Coffeecup," the effort insisted that the government-sponsored system would lead to a varying form of totalitarianism. For a spokesman, the group turned to Ronald Reagan, who lent his famous actor's voice to a 10-minute plus recording. "One of the traditional methods of imposing state-ism or socialism on a people has been by way of medicine," said the then-future president. "It is very easy to disguise a medical program as a humanitarian project. Most people are a little reluctant to oppose anything that suggests medical care for people who possibly can't afford it." During the most recent effort at reform -- the Clinton administration's go at it in the early '90s -- AMA found itself, once again, the spoiler. The group, worried about cost-control measures, poured $3 million into defeating Hillary Clinton's proposal. Perhaps as significantly, it lent its name (and the prestige of its members) to the political opposition. In 1995, AMA endorsed then-House Speaker Newt Gingrich's Medicare Preservation Act. It was interpreted, at the time, as a patently political ploy - an effort to align with the party that held the keys to legislative power.

The same cannot be said of the American Medical Association's decision to oppose a public plan in the current health care reform quarrel, in which the Obama White House holds the vast majority of political power. Indeed, up until Wednesday, AMA, like most other private players, had kept its powder dry.

So why speak up now? The group cited impossible-to-avoid policy disagreements.

"The A.M.A. does not believe that creating a public health insurance option for non-disabled individuals under age 65 is the best way to expand health insurance coverage and lower costs," read an organizational statement to the Senate Finance Committee. "The introduction of a new public plan threatens to restrict patient choice by driving out private insurers, which currently provide coverage for nearly 70 percent of Americans."

Without private insurers in the market, the statement added, "the corresponding surge in public plan participation would likely lead to an explosion of costs that would need to be absorbed by taxpayers."

On this front as well, AMA's critics have room to scoff. Indeed, in mid-February, the Commonwealth Fund put out a report on the most cost-effective ways to revamp the health care industry. The public plan, it concluded, "plays a central role in harnessing markets for positive change" by lowering premiums for many Americans by, potentially, $1,000 a year. In addition, the Commonwealth Fund added, a public plan would help decrease the number of uninsured in the country from "an estimated 48 million in 2009 (16 percent of the U.S. population) to 4 million by 2012."
*****

 

10 June 2009

Model Portfolio Update

Model Portfolio Value As of 10 June 2009

$ 571,522

9 June 2009

Model Portfolio Update

Model Portfolio Value As of 9 June 2009

$ 571,237

8 June 2009

Thoughts

Model Portfolio Value As of 8 June 2009

$ 571,297

We will be traveling Tuesday and Wednesday and so our next post will be Thursday June 11.
*****

Asian markets except Japan were lower overnight and European bourses and U.S. futures are also lower as the trading day begins. Gold is down $14 and oil is down $1 with a $67 handle.
*****

The Serbian Central Bank cut the two week repo rate to 13%.
*****

We took our loss on Williams Sonoma when it popped on the opening.

And we also sold Huntington Bank. Over the week end we decided it was a dumb hedge trade.
*****

The charlatans on Wall Street have not yet been punished and probably won’t be. It has always been so.

From 6/8 Chicago Sun Times:

The Reusche family of Elburn invested in the most conservative option within the Illinois Bright Start college savings plan for their four children.

They were shocked to see a 38 percent loss of value at the end of 2008 since this government securities fund should not have been affected by the stock market decline.

After waiting months for an explanation from state officials, last week the family filed the first arbitration involving the Illinois plan.

Well-known consumer advocate and plaintiff's attorney Andrew Stoltman filed the claim on behalf of Tom and Leigh Ann Reusche, whose 19-year-old daughter, Nadya, will be a sophomore this fall at DePauw University in Indiana.

The Reusches had started early to save for college for their four children, explaining, "We were always savers because we valued and wanted a college education for our children, as our parents had done for us."

TheReusches were very risk-averse and chose the "Core Plus" bond fund for their initial investment of $50,000 for each child. By January 2008, they had accumulated a total of $515,000 for their four children.

In September 2008, they made their first withdrawal of $32,832 to pay for Nadya's first year of school.

But when they received their year-end statement for December 2008, they were shocked to find a balance of only $303,000 in their account. It wasn't the fault of the market because this was the safe, government securities fund that should have held its value and even gained as interest was added.

After reading our column in January and doing her own research, Leigh Ann Reusche contacted Bright Start in early February, demanding information. She says she received only a form letter.

At the same time, Stoltman was also investigating the situation. He realized the only legal process available to Bright Start investors was binding arbitration, not a lawsuit.

Stoltman created a Web site, recover529losses.com, to reach investors. He says the Reusche filing was the first of more than a dozen he has lined up, in an attempt to get investors' money back, plus damages and legal fees.

"I think this is extraordinarily egregious conduct, and I think the arbitrators will not look favorably on Oppenheimer. They created a derivatives-laced hedge-fund type of investment that was portrayed to the public as a conservative bond fund," he explained.

Told of the pending settlement over the weekend, Stoltman replied, "Let's see the final result. Nine out of 10 times, the ultimate recoveries by a state are much smaller than what I can settle for with my individual clients. ... If the state recovers all the money, I'd recommend she take the settlement. But if they can't get back all the money that was lost, then I'm going after them."

A risk to clients is that they receive only the amount of their losses from an arbitration proceeding and must pay their attorney one third of the recovery.

Another risk is that even in winning, the process could take time. The Web site for the Financial Industry Regulatory Authority (finra.org) shows that, through April, there have been 2,403 new arbitration cases filed, up 81 percent from a year ago. In 2008, the average "turn-around" from filing to resolution was 13.5 months.
*****

Why UBS is still in business in the U.S. is a mystery to us.

http://www.bloomberg.com
*****

We have to leave at 2pm and as we do the major measures are lower but above their lows for the day.
*****

 

5 June 2009

Thoughts

Model Portfolio Value As of 5 June 2009

$ 571,299

The Employment Report came in at 345,000 jobs lost which was bad but well below estimates of 500,000 jobs lost. The unemployment rate jumped to 9.4% but traders are focusing on the jobs lost number and the DJAI and S&P 500 are higher by 1% on the news.

Asian and European markets were higher overnight. Oil traded over $70 overnight and Gold is off $10 in the early going.
*****

In this morning's labor report the Bureau of Labor Statistics created 220,000 Net Birth/Death jobs, which is an increase of over 45,000 from a year ago. The U6 statistic, which measures part-time workers that want full-time jobs and discouraged workers that have stopped looking but will take a job if offered, rose to 16.4%.
*****

Stocks opened higher but the major measures never traded as high as the pre-opening futures trade suggested they would. After 45 minutes stocks are now lower. Today is a key day for the bulls and bears since the opening surge took the S&P 500 well above the 950 level which is breakout/high side resistance level.
*****

Diane Swonk of Mesirow Financial writes:

Friday, June 5, 2009 - 7:55 a.m.

Employment Losses Abate, But Unemployment Surges

Payroll employment dropped by another 345,000 in the month of May, while the unemployment rate surged to 9.4% - its highest rate since 1983. That marks a sharp slowdown in the pace of job loss over the last six months, but is still a far cry from good. Indeed, at least part of the increase in the unemployment rate in May can be attributed to newly minted college grads who are unable to find work.

Only two sectors continued to skirt pain - health care and education. Anecdotal reports, however, suggest that layoffs in those two sectors are on the rise. Hospitals, in particular, are beginning to cut administrative staff as costs and the ranks of uninsured are rising, while local governments have begun to "pink slip" teachers in the face of massive funding shortfalls.

The pace of job loss is expected to continue to abate over the summer and into the fall. Employment is actually expected to turn around and post a gain by year-end, as many firms panicked and have now cut too much. Any positives that we are able to eventually eke out, however, will not be enough to stem the rise in unemployment to 10% in 2010. Indeed, what little growth we do see in the second half of 2009 is expected to be driven more by productivity gains - those of us who are left picking up the slack of those who are now gone - than any major increase in employment.

Moreover, a high level of uncertainty about the timing and magnitude of the upcoming recovery suggests that firms are going to remain flexible. They are likely to rely more on temporary agencies and consultants than permanent hires, at least initially.

The Bottom Line: Cost-cutting, driven both by a cut in workers and in wages, has been substantial over the last nine months. The results will soon show up as an increase in profits, which is good news for Wall Street. It will still be some time, however, before an improvement in profits translates into more jobs and a reduction in unemployment. This will keep Main Street on edge and could very well intensify the political move toward more populist policies in 2010. Health care reform is next on the docket. Let's hope that calmer heads prevail, and the increased efficiencies being pushed by Peter Orszag, the Obama administration's budget director, usurp some of the more left-wing solutions being proposed by the Democrats in Congress.
*****

This story from today’s WSJ is bizarre in that the GM is using taxpayer money to loan money to another company:

Flush with $30 billion in new capital from the U.S. government, General Motors has agreed to finance a private-equity firm's buyout of bankrupt auto-parts company Delphi Corp.

GM will provide more than $2.5 billion of the $3.6 billion necessary for Beverly Hills-based buyout firm Platinum Equity to gain control of Delphi, according to a person familiar with the matter.

Since Monday, GM and the government have been mum about who would provide the money to help Delphi emerge from bankruptcy. A GM spokeswoman wouldn't comment on specific figures but noted in a statement that funding for the Delphi buyout was "incorporated into GM's revised viability plan."

GM's involvement represents new ground in its use of government support. The Obama administration has begun to use private-equity firms to take over failed banks but has yet to use them in the auto industry.

Such transactions can prove hugely profitable for a buyer, depending largely on financing costs and the buyer's ability to turn around the business.

Under the terms of the transaction, Platinum is expected to invest no more than $750 million, according to the person familiar with the deal. GM would provide the balance in financing.

Those financing commitments may or may not be drawn upon in the future, depending on how Delphi performs. The terms of the GM loans couldn't be learned.
*****

We traded (bought and sold) very small lots in the Double Short S&P 500 (SDS) in the pop then drop in the first hour of trading for a $1.25 per share profit in our trading accounts.
*****

Goldman Sachs raised its forecast for the oil price in 2009 and 2010 on Friday, saying it continues to gain confidence that the trough in the oil cycle has passed and a new upturn is underway. It added it believes the oil supply remains challenged and that demand rationing prices will return in the years ahead. As a result, the broker lifted its forecast for 2009 to $59 a barrel from $50 a barrel and for 2010 to $80 a barrel from $70 a barrel.

Since oil is trading at $68 down from the overnight $70 we don’t see the raise in price targets as a game changer.
*****

We purchased Huntington Bank as a hedge on our triple short financial position. If the big boys and girls begin reaching for bank performance our guess is that the second tier garbage banks like HBAN will get a pop. And HBAN is low enough in price that if the financials begin to tank we won’t lose as much on HBAN as we will make on FAZ. Or so our thinking goes and, as always, our thinking is subject to change in an instant.
*****

From today’s NYT

Facing pressure from federal regulators to improve its risk oversight, Bank of America forced out its chief risk officer on Thursday and continued a shake-up of its board. The officer the bank replaced, Amy Woods Brinkley, 53, was one of the highest ranking women on Wall Street. ......Greg Curl, the bank’s internal deal maker who oversaw the purchases of Merrill Lynch and Countrywide Financial, will succeed Ms. Brinkley, the bank said.

And so BAC installs as chief risk coordinator the fellow who bought Mother Merrill and Countrywide Financial at ridiculously high prices. The old boys club is alive and well. Plus ca change, plus c’est la meme chose.
*****

Gold ended down $20 at $960 and Oil closed at $68.85 which was flat on the day. European bourse indexes gained.
*****

From realmoney.com: An interesting note given that the 10-year Treasury has moved down (up in yield) so dramatically in the last 3 weeks. The Street is extremely short the 10-year. Not in terms of prop traders per se but in terms of delivering to regular Joe customer. It suggests that investors are long more 10's than are actually out there and at some point, the Street is going to be squeezed to deliver to those customers.

Don't know what to make of it exactly. I thought these kinds of games were supposed to end when they starting imposing penalties for failure to deliver. Guess not.
*****

Treasuries five years and longer in maturity dropped over 1% in value today as traders guess that an improving economy means higher bond yields.
*****

The DJIA gained 20 to 8770. The S&P 500 was down 2 to 940 and the NAZZ lost 1 to 1850.

Breadth was slightly negative and volume was summer light.

The bulls won by not losing.
*****

 

4 June 2009

Thoughts

Model Portfolio Value As of 4 June 2009

$ 570,876

Asian markets were lower overnight and European bourses are mixed at midday. U.S. stocks are opening a bit higher as first time Jobless claims for the latest week were in line at a still too high 621,000. Oil is back up $2 to $68 and Gold is up $10 at $975 as the trading day begins.
*****

We repurchased the Natural Gas ETF (UNG) at $13.75 in more than a few accounts for a trade.
*****

Same store sales at retailers were mostly negative and don’t justify the prices at which most of them currently sell.
*****

We repurchased the Triple Short Financial ETF (FAZ) in our few trading accounts.
*****

Medical bills are involved in more than 60 percent of U.S. personal bankruptcies, an increase of 50 percent in just six years, U.S. researchers reported Thursday. More than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts, the team at Harvard Law School, Harvard Medical School and Ohio University reported in the American Journal of Medicine.

"Using a conservative definition, 62.1 percent of all bankruptcies in 2007 were medical; 92 percent of these medical debtors had medical debts over $5,000, or 10 percent of pretax family income," the researchers wrote. "Most medical debtors were well-educated, owned homes and had middle-class occupations." The researchers, whose work was paid for by the Robert Wood Johnson Foundation, said the share of bankruptcies that could be blamed on medical problems rose by 50 percent from 2001 to 2007.
*****

Oil gained $2.56 to $68.68. Gold closed up $14 at $980. Europe closed slightly higher on the day.
*****

From: http://www.taylormarsh.com/

Today on “Morning Joe”, the MSNBC morning show Joe Scarborough and guests Andrew Ross Sorkin and Jim Cramer proclaimed that unions cause companies to fail.

Never mind what they offer middle class families.

“Name a successful unionized company. Think. You’re going to go to break before you come up with one. And that’s the problem.” Andrew Ross Sorkin

Mind you, this ignorant pronouncement was said in a room full of union NBC employees, as Brian Beutler also noted.

They even impact people who are not union.

Take my husband. He’s a blue collar genius who can fix and build anything. Mark has always proclaimed loudly that without the unions trying to push where he worked for 25 years, his wages wouldn’t have been competitive with what they offer, including benefits and pension. I cannot count how many times Mark has hailed the unions in being responsible for keeping the company he worked for honest. Now that we’ve moved to D.C., Mark has looked for work across the region; with some companies telling him joining a union would be mandatory at some point. He just smiles and says, gladly. He’s working non-union again, having no trouble getting job offers, proving once again that a little college is terrific, but having a trade and being creative in a bad economy is even better.

Brian Beutler nailed them with this quote.

“Off the top of my head I can give you several Teamster-represented companies who continue to thrive, despite the economic downturn, but there are thousands more: UPS, Eight O’Clock Coffee, Coca-Cola Enterprises, PepsiCo, Anheuser-Busch and MillerCoors. The Morning Joe team really should be embarrassed for showing their lack of knowledge on the subject.” - James Hoffa, General President of the International Brotherhood of Teamsters, in a statement to TPMDC.
*****

The DJIA regained what it lost yesterday closing up 75 at 8750. The S&P 500 rose 10 to 942 and the NAZZ jumped 22 to 1848.

Breadth was 2/1 to the good and volume was light.

The bulls held the day. Tomorrow brings the monthly Employment Report.
*****

 

3 June 2009

Thoughts

Model Portfolio Value As of 3 June 2009

$ 570,437

And the game goes on or as the saying says there is no honor among thieves. We read the following and chuckled:

BOSTON — A pair of unrelated Boston-based hedge funds managing a total of more than $1.3 billion separately told investors Tuesday they're shutting down and returning investor cash because of recent disappointing performance.

Letters from Raptor Capital Management and Noble Partners LP that were obtained by The Associated Press say both firms plan to revamp their investment strategies and eventually offer new funds.

The reason they are closing down is not because they are ashamed of their performance although that is their stated reason. The fact is that hedge funds have to earn back the money they have lost before they can continue to collect 20% or more of the profits they make on a yearly basis. It is much easier to close a fund down and then begin a new fund and find institutional investors like police pension funds to invest in the new fund. The potential investors are wined and dined and golfed and skied into acquiescence. It is remarkable how easy it is to get money from yokels.
*****

Asian markets moved higher and European markets were lower at midday. U.S. futures indicate a mildly lower opening.
*****

Investors’ Intelligence had 42% bulls and 25% bears in its latest week.
*****

DeVry Inc the education for profit enterprise will replace GM in the S&P 500. Someone at S&P must have a wry sense of humor. We write that because one company dependent on Government loans will be replaced by a company dependent on Government student loans.
*****

Oil inventories were up 2 million barrels while a drop of 1 million barrels was expected.
*****

Paris and London were both down 2% while Germany closed off 1.7% and the rest of Europe closed lower.
*****

Nothing like being ahead of the curve:

From The Business Insider, June 3, 2009:

Jim Rogers is always good for a nice headline. In an interview with the Economic Times of India, the famously dramatic and bearish investor, hits on all his favorite themes, like the collapse of the West, the appeal of commodities and farmland, and of course inflation and the collapse of the dollar.....

And here's his advice to would-be money managers:

Become a farmer. The world has tens of thousands of hotshot fund managers right now. If I am correct, the financial community is not going to be a great place to be in for the next 30 years. We have many periods in history when financial people were in charge; we had many periods when people who produced real goods were in charge- miners, farmers, etc.”
*****

Yesterday when we were considering whether to trade Williams Sonoma ahead of earnings this morning we considered trading restaurateur Bob Evans which also reported this morning. We decided on WSM. Well, traders liked BOBE and popped the shares 10% and disliked WSM and dropped the shares 10%. We managed to sell some WSM shares in the premarket for a scratch gain and then repurchased those shares $1 lower after the opening. By trading around we reduced our cost price but still have a loss early this afternoon. We don’t’ mind holding WSM for a while and so we were going to maintain our trading position for now.

We sold our FAZ holdings for a scratch profit.
*****

Oil lost $2.63 plus to $65.92 on the bearish oil inventory report and Gold dropped $17 to $960.
*****

From realmoney.com

It is interesting to note that today is a Bradley turn date. That is the primary indicator used by those who take an astrological approach to the market. It is based on planetary alignment of some sort that makes no sense to me but it is interesting to note that the two prior Bradley turn dates this year were January 20-21 and February 8-9. They turned out to be pretty accurate --especially the February date. The next turn date is June 26.
*****

The DJIA lost 65 to end at 8675. The S&P 500 dropped 12 to 933 and the NAZZ surrendered 10 to 1825.

Breadth was 3/1 negative and volume was light.

The bears are trying but we give the day to the bulls for cutting the losses in half in the last half hour of trading.
*****

 

2 June 2009

Thoughts

Model Portfolio Value As of 2 June 2009

$ 570,734

World markets were and are mixed as the trading day begins in the U.S. and after the strong markets of Friday and yesterday a rest would seem to make sense. But the bulls are in the driver’s seat and those who missed the move and are paid to manage money for folks are having their resolve and convictions tested buy the unrelenting up move of the  past few months.

Oil and Gold are a bit lower and Treasuries are weak.
*****

This is an interesting commentary on the potential Health Care Proposals and results in Congress: from http://tpmdc.talkingpointsmemo.com

.... President Obama met with Democrats from the Finance Committee and Health, Education, Labor, and Pensions (HELP) Committee because they disagree about the direction health reform should take. Unsurprisingly, all signs indicate that the more liberal HELP Committee--chaired by Sen. Ted Kennedy (D-MA) will soon introduce a fairly dramatic reform proposal, with a truly robust public insurance option. Soon thereafter, though, the Finance Committee will unveil a rather less progressive proposal of its own with the issue of the public option (how robust it will be, or whether it will be included at all) still unsettled.

Grassley's spinning this as a rift between partisans and centrists within the Democratic party, and in a way that rift really exists. But the political play here is somewhat more complicated.

Keep in mind that Democrats have an ace up their sleeve in form of the reconciliation process. Nobody expects the Senate to sign on for a HELP-style bill, but if Republicans don't get on board with something (like, say, the Finance bill) the Democrats can pass the HELP legislation via the budget process.

Meanwhile, if Republicans in the Senate do play along, the bills can be merged into a final piece of legislation, that looks, for the most part like the Finance Committee's proposal. Then the House (where Henry Waxman's Energy and Commerce Committee takes the lead) can pass something along the lines of the Kennedy bill, and the final reform legislation will be negotiated in conference committee.

That syncs with the political direction Democratic party leaders have been signaling the reform process will take for some time. There's virtual unanimity among Democratic leaders on the Hill that the reconciliation process should be both a bargaining chip, and a tool of last resort, but that ideally a bill will pass through regular order. That's why it makes sense for the Senate to advance two very different bills.
*****

The fox are guarding the hen house:

From http://www.huffingtonpost.com

The hiring of private firms to provide "independent" advice to both the Treasury Department and the Federal Reserve raises concerns about potential conflicts of interest, according to a letter written by the Project on Governmental Oversight (POGO) and delivered to key members of Congress.

It seems that some of those firms will be highly familiar with the assets in question.

According to POGO's letter, the Federal Reserve Board has contracted with four firms to manage its $1.25 trillion program that purchases mortgage-backed securities. One of those firms also works with the New York Fed to manage three companies it set up to absorb toxic assets, known as Maiden Lane, Maiden Lane II and Maiden Lane III.

The four firms are Pacific Investment Management Co. (PIMCO), BlackRock, Inc., Goldman Sachs Asset Management, and Wellington Management Company, LLP.

In addition, the Treasury Department is expected to approve five private firms to manage what it is calling its "Legacy Securities Program." PIMCO and BlackRock are also on that list.

Legacy appears to be the new term for "toxic."

"It's perfectly understandable that the government is relying on the expertise of these private fund managers to assist with the complex tasks of asset management and valuation," wrote Danielle Brian, director of the independent nonprofit, which investigates government misconduct. "POGO is concerned, however, about the conflicts of interest that could arise if these fund managers are also investing in the same types of assets for their private clients."

A spokeswoman for the Treasury Department declined to comment.

POGO's letter cited a Bloomberg story from early March that highlighted potential conflicts of interest that could arise with this sort of arrangement.

"Citing two people with knowledge of the arrangement, Bloomberg News recently reported that PIMCO had been advising the federal government on the value of $118 billion in assets --including securities backed by residential and commercial loans -- that were guaranteed in the bailout of Bank of America Corp. But PIMCO had also been investing in these same types of mortgage-backed securities for a wide range of private clients," the letter notes.

As of March 31, according to PIMCO's own disclosures, it was holding nearly a billion dollars in its mortgage-backed securities fund.
*****

May car sales for the Doomed Two and Ford were down about 25% each from last year but those figures are better than expected and so Ford is higher on the day. Toyota’s sales were down 41%.
*****

In those few larger accounts in which we are doing small size trading we bought Williams Sonoma ahead of tomorrow’s earnings. The last few weeks retailers have been popping on earnings no matter whether better or worse than.
*****

Jeff Macke at miyanville.com points out that Microsoft, Intel and AT&T are down 50% in price since they were added to the DJIA in 1999 and BankAmerica which was added to the DJIA in 1998 is down 65%. He suggests that maybe Cisco and Travelers might want to rethink their addition to the average on June 8.
*****

Oil ended at $68.10 up 12 pennies. Gold was up $2 at $9823. European bourse indexes closed mixed.
*****

The DJIA was up 20 at 8740. The S&P 500 gained 2 to 944 and the NAZZ gained 8 to 1835.

Breadth was 5/4 positive but volume was light. New lows continue to exceed new highs on the NYSE.

The bulls remain in control.
*****

 

1 June 2009

Thoughts

Model Portfolio Value As of 1 June 2009

$ 570,438

World markets are higher with U.S. stocks set to open plus 1% as GM files bankruptcy and traders celebrate. Go figure. Oil is up 50% off its lows of a few months ago and Gold is also approaching the $1000 level. Banks are fighting more regulation of derivatives, those wonderful instruments that caused them to lose trillions of dollars. And we would guess that congress will cave for a few $5000 PAC contributions to the right folks. Tell us it ain’t so Joe.
*****

We are cash and cash we shall remain for the foreseeable future. Treasuries remain too expensive and risky on the downside to consider because if the economy is recovering-which we don’t see yet- then the Fed will have to go back to its old job of preventing inflation by raising interest rates. And rising interest rates mean falling bond prices. Of course all that is in the future. For today the bulls are celebrating the failure of GM. And down is the new up.
*****

Effective June 8, Cisco and Travelers will become new members of the DJIA replacing GM and Citi.
*****

With the S&P 500 up 2% we sold the natural gas ETF (UNG) for a scratch profit and placed the funds in the triple short financial ETF (FAZ). This is purely a speculation in a few large aggressive accounts. The S&P 500 has moved above support resistance at 940 this morn and since it is the first of the month we think the move is suspect and the resistance will hold. The purchase involves a very small amount of money  in a few large accounts.
*****

The DJIA was up 221 to 8721. The S&P 500 gained 24 to 942 and the NAZZ jumped 55 to 1828.

Breadth was 4/1 positive and volume was brisk.

The bulls remain in control and have the bears whimpering. Today’s close was the highest since January 8 and it was all downhill after that day.
*****

 

 

 



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