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

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

31 March 2004 - Daily Comment

7:11am and Europe is mixed while Japan and Hong Kong were mildly higher. There is some speculative fervor in some Google type stocks as folks await the public offering of that company sometime in the next month or so. But most stocks are doodling along with no direction.

With today being the last day of the month and Quarter we may see a push higher to get the major measures into positive territory. The light volume has been a problem in helping to discern any direction for the markets. Even the big up days recently were not accompanied by a major increase in volume and that is a negative. Or maybe folks have to lower their sights on what constitutes big volume.

Best Buy announced bang up results for the quarter.

U.S. futures are slightly higher indicating a tame opening.

8:58am and after opening a bit higher, stocks are trading slightly lower. Breadth is mixed and there is no trend. Q Logic, a storage memory company is the big loser of the day on announcement of less than expected revenues and earnings. What is strange is that Merrill had added the stocks to its focus list on March 5 even though the CFO resigned in February. We never like it when CFOs retire before earnings

9:02pm and the Chicago Purchasing Managers Index was 57.6 versus and expected 60 and factory orders slipped to 0.3% from and expected 1.3%. Stocks have turned lower on the news.

www.minyanville.com reports that Japan has purchased $350 billion of Treasuries over the past 12 months and lost a net of at least $25 billion in an effort to buy dollars to keep the dollar stronger against the yen. That hasn’t worked and now Bear Stearns is predicting that the yen will go to 95 yen to the dollar from the present 105 yen to the dollar. Such yen strength and dollar weakness isn’t good for the nascent Japanese economic recovery and there is a question of how long the Japanese will continue to support the Treasury deficit financing by buying Treasuries with dollars purchased by selling yen.

9:49am and it is interesting that the Attorney General of Massachusetts is going to use a law enacted in 1913 to prevent marriage between people of different races to deny marriage to gay couples. And even sadder, he doesn’t see the irony in the application of that racist law.

11:20am and spot oil is down now after being higher earlier this morning. Oil spiked higher on news that OPEC was going to cut production and now has moved lower on news that oil inventories are 8 million barrels higher than forecast. A glut of oil was the reason that OPEC gave for cutting production. Funny how today’ number supports their case.

And will Friday’s employment report come in higher than expected? We are betting yes.

Stocks remain slightly lower with negative breadth. The action today so far is similar to yesterday.

12:13pm and in our very aggressive trading accounts we are buying Union Pacific and Cabot Micro for trades. UNP is off on a NYT story on freight congestion and CCMP is near the lower end of its weekly trading range. We owned CCMP in more accounts several weeks ago and took a loss selling it but today we are only trading this stock in our larger accounts. We should not have bought the stock around because of its volatility.

12:31pm and Reuters is reporting that Dan River Mills is filing bankruptcy. Among other textile makers that are going through bankruptcy this year Reuters names the following: Cone Mills Corp., Burlington Industries Inc., Malden Mills Industries Inc., WestPoint Stevens Inc. and Pillowtex Corp.

The White House reports that President Bush is “disappointed” by OPEC’s decision to cut production. But all his Texas oilmen contributors are thrilled. By the by, Poppy Bush (41) was speaking to a group of oilmen when he shed tears over the nasty things folks are saying about his son.

1:49pm and entering the final hour the bulls are trying to stage a rally. All the major measures are higher after being down most of the day. The bulls may have begun the mark-up time too early to succeed

3:02pm and the bulls ran out of steam and the major measures closed lower on the day. At the bell the DJIA was down 25 points at 10357. The S&P 500 lost 1 point to end at 1126 and the NAZZ dropped 6 points to close at 1994.

And tomorrow is April Fools Day.

30 March 2004 - Daily Comment

7:57am and we learn that the 72,000 striking grocery workers in California went back to work in time to be counted in this Friday’s payroll figures. We are happy those folks are back at work although they gave up a lot of future benefits that we as taxpayers will indirectly assume. But those numbers may help to create a good headline number.

GM and Ford are suggesting a good March selling period. U.S. futures are lower on profit taking from yesterday’s pop. Asia was mixed with Hong Kong up over 1.5% and Japan down a bit. Europe is also lower.

Tomorrow is the last day of the quarter and so the mark up movement may begin today.

9:01am and The Conference Board’s Consumer Confidence was announced at 88.6 versus the 86 expected. The markets have opened lower but there isn’t much conviction in the selling. The better number may push stocks to the plus side.

10:50am and nothing is occurring in the markets. Fed Governor Bernanke is on the tape saying inflation will remain under control. We would add it certainly will as long as the Bureau of Labor Statistics omits commodity groups from the PPI.

We added shares of Ford at $13.55, RFMD at $8.38 and CIEN at $4.96 to our larger aggressive accounts earlier this morning.

1:24pm and the DJIA is now positive while the NAZZ remains in negative territory. It is really slow out there today.

There was a net inflow of $28 billion into equity mutual funds in February versus $42 billion in January.

2:02pm and entering the final hour of trading all the major measures are in plus territory. Breadth is positive on the NYSE and flat on the NAZZ.

3:02pm and the DJIA closed up 50 points at 10380. The S&P 500 rose 5 points to 1127 and the NAZZ closed 7 points higher at 2000.

And tomorrow is another day.

29 March 2004 - Daily Comment

7:11am and Wal-Mart says that sales for March will be near the high end of estimates. U.S. futures are indicating a higher opening. Overseas Europe is higher while in Asia Hong Kong and Japan were lower.

7:15am and the payroll number on Friday is the one statistic that the markets will be focusing on all week. Payroll has assumed the roll that the Balance of Payments, now called the trade deficit, used to occupy in the mid 1980s and before. Back then when computers were in their infancy and traders were fewer and times were mellower there weren’t enough computer geeks around to generate the statistics that traders now have on a daily basis to move their markets. And so bond traders and market mavens concentrated on the BOP.

The guesstimate on the payroll number is slowly rising with 120,000 as the consensus for now.

9:02am and stocks have opened higher across the board. Volume is good and breath is strongly positive.

We are initiating a position in Rowan Co, the oil and gas drilling folks. It is trading near the low of its 12 month range and with OPEC meeting on Wednesday we think there may be a trade in the stock. Since the shares are on their low for the quarter there may be selling through month end but we think the trade makes sense and the risk is manageable.

9:11am and the Bureau of Labor Statistics reported that it excluded four categories of commodities from its long delayed January report on the Producer Price Index which was released last week. Those four commodity classes were excluded because they contained erroneous index levels. It just happens that those commodity classes were also showing large price increases i.e. inflation. Games are being played with numbers.

10:11am and breadth is 4/1 positive and up volume exceeds down volume by 9/1. The DJIA is up 110 points and the NAZZ is up 35 points. Now the question is whether the markets hold these gains for the day.

10:49am and we are going to sell the QQQ we bought last week. We said we were using them as a trading vehicle and they have moved 5% off last week’s low. Unfortunately we didn’t buy the low but we are making a profit. The major measures have traded back to resistance and that is why we are taking these trading dollars off the table.

12:36pm and we completed buying the RDC at $20.94. The Major measures all remain strongly higher although volume has slowed. Breadth and up over down volume are very bullish. We will need more volume into the close to convince the bears that their party is over.

With preannouncement time a week away, traders have very little to key on.

1:55pm and CNBC is having a discussion on Fed tightening. We just read a piece that reminded that the Bank of Japan has not raised interest rates since 1990.

2:36pm and stocks are coming back in. IBM has been down all day and while the financials led by Citigroup have been acting well volume has not picked up since early morning.

3:02pm and stocks held their gains and breadth remained strong into the close. At the bell the DJIA was up 117 points at 10330. The S&P 500 was up 14 points at 1122 and the NAZZ gained 33 points to end at 1993.

And tomorrow is another day.

26 March 2004 - Daily Comment

7:11am and Japan was up 2% while the rest of Asia and Europe were and are mixed. U.S. futures are flat.

7:36am and February personal income was up 0.4% and personal spending was up 0.2%. It actually would have been up 0.7% but January’s data was revised.

There isn’t a lot of news to move the markets this morning and so we should get a good idea of the underlying trend today. If yesterday was a bottom the markets should close strongly higher after an early morning pullback. If it is a wishy washy day then nothing was accomplished by yesterday’s rally except to make the bulls feel better for a day.

9:12am and the Michigan Confidence number came in at 95.1 which was better than the last one. That provided a ten minute rally in stocks. After opening lower the major measures are unchanged.

We are repurchasing some TLAB at $8.64 and RFMD at $8.39 for some of our aggressive accounts. We are betting the rally will continue into month and quarter end.

10:36am and breadth is positive with the major measures having moved back into positive territory. Volume is light and that has been the negative in discerning trends both ways in the last month.

The markets remain range bound with no conviction. That may be because the uncertainties in the political and world situation coupled with the contrariness of the numbers regarding economic recovery are just so overwhelming to many investors that they would rather stay on the sidelines or buy houses as investments. Housing and real estate certainly have been the only sure fire winners the last five years. Eventually that bubble will burst but we and others have been predicting that collapse for so long that we are now the treated like the shepherd boy crying “wolf!”

1:03pm and it seems there is going to be a hung jury in the Tyco case. MONEY wins one and the Koz has another year of freedom before they get him the second time and send him away for 1000 years without parole. The Feds will get him. They may not be able to find Osama but when the Feds want to get a U.S. business person they do.

2:02pm and entering the final hour of trading the DJIA is up 38 points. Breadth remains positive but volume is light. Today’s action is not strong enough to suggest more than that the major measures may be moving back to the top of their trading ranges.

3:02pm and the fact that the rally couldn’t continue is a negative. At the close the DJIA was up 2 points at 10220. The S&P 500 lost 2 points to 1108 and the NAZZ also lost 5 points to end at 1963.

And tomorrow is another day.

25 March 2004 - Daily Comment

7:11am and the pound is down against the dollar. Europe is higher and in Asia Hong Kong was down 170 points and Japan was up 170 points. U.S. stock futures are higher and oil is lower.

Micron Technology, the dram maker, announced earnings or rather a lesser loss than expected but its revenues disappointed even though they were up 20%.

7:31am and first time claims for unemployment insurance rose 1,000 to 339,000 in the week ending March 20, 2004 .

8:25am and Merrill has cut CBB from buy to neutral. Raymond James downgraded CBB on March 23 and that is why the stock has been dropping on big volume the last two days. Merrill didn’t tell us first. We still like the stock and think this drop to $4 is an opportunity to buy additional shares.

Please note that Raymond James upgraded CBB on June 17, 2003 from market perform to strong buy when the shares were trading at $6.27. They downgraded the shares on March 23, 2004 when the shares traded at $4.50.

Merrill upgraded CBB to Buy on January 9, 2004 when the shares where trading at $5.75 and they downgraded it today with the shares at $4.

8:46am and stocks have opened higher on light volume. Many media mavens are hoping for a bottom and resumption of the uptrend but we don’t think it will be that easy.

9:25am and stocks are holding at higher prices. There doesn’t seem to be a rush to buy or sell.

Existing home sales were announced as expected. We do think that down payment rules are being relaxed to keep houses moving and mortgages being made since mortgage creation is a great source of revenue for the banks.

12:55pm and stocks are on their highs for the day with the DJIA up 140 points and the NAZZ up 46 points. Breath is over 2/1 positive but volume could be better. It would be unusual to have a V bottom to this correction but we are going to enjoy the rally while it lasts.

We added CBB to smaller accounts at $4.04 since it didn’t stay down long this morning and we are guessing that all who wanted to sell did so before Merrill made its sale recommendation public. We also added CHTR and Q, both at $4.10 to our aggressive trading accounts. If these two stocks go lower we will add them to more accounts. We have been trading both for the past few months and will continue to do so.

2:07pm and entering the final hour of trading stocks continue on their highs. The question is whether this is short covering or the start of a new up trend. Time will tell and we will take it one day at a time.

3:02pm and the DJIA closed on it high up 170 points at 10218. The S&P 500 gained 18 points to finish at 1109 and the NAZZ rose 58 points to end at 1967.

And tomorrow is another day.

24 March 2004 - Daily Comment

6:45am and Rick Sherlund the MSFT analyst from Goldman Sachs was just on CNBC saying that the EU fine of $600 million announced to day is not to worry. He also suggested that MSFT may be considering paying a $20 billion special dividend and initiating a $20 billion stock buyback in the near future. That would amount to $2 per share and 1 billion shares of stock and would be a nice no FICA payday for Bill Gates. It would also get the stock moving up which would benefit the whole tech area.

A one time special dividend really would have no long term benefit for the company except to relieve the company of some cash it might want to use to purchase someone else. We had our fling with MSFT and we own it through ownership of the QQQ so we aren’t going to act on this guess. But the markets need a catalyst to get moving higher and this kind of action would help.

With the Bush attack ads on Kerry going full bore now we have a feeling that Bush’s polling numbers will begin to improve and that too might be positive for stocks over the short term. Kerry let Dean spend himself out before ramping his campaign and we think he may do the same thing this time. All the Republican experts are telling Kerry he has to spend money to match Bush’s attacks. It is so good to know that they have Kerry’s best interests at heart. Our take is that only the political wing nuts like us are currently paying attention and the real battle for hearts and minds won’t occur till after Labor Day.

So we welcome any pop in Bush’s poll numbers now if it will get the markets moving higher.

6:58am and Europe is lower this morning and Japan closed higher. U.S. futures are also lower.

The question as we se it is whether the S&P 500 is going to be content with a 10% correction of its big 11 month move or whether a 15% or 20% correction is necessary. A 10% correction would occur at S&P 1060 and a 15% at 960. We are inclined to think that the 960 number will be reached since that was very strong resistance on the way up at that level two years ago.

7:31am and Producer Prices were up 2.5% in February and ex transportation were down 0.3%. There were revisions to January so this number is meaningless. The dollar has been stronger overnight versus most other currencies.

8:48am and stocks have opened hesitatingly higher. We have purchased an initial position in Ford in our more aggressive accounts at $12.90. At the end of 2003 Ford shares closed at $16 and made a high of $17.75 in February. The stock is off because the markets are lower and also because the increase in steel prices will affect auto maker profits. We aren’t sure whether the big boys and girls will want to move the share price higher or lower their holdings as quarter end approaches.

We repurchased BMY at $24.10 for accounts in which we sold it in January at $29.36. Since it is quarter end and the big boys and girls are death on drug stocks most are well off their highs and we are willing to take a flyer. BMY goes ex dividend on March 31 and we may by more at that time for more accounts.

9:20am and new home sales were up slightly in February. When we were in Chicago last week we were driving through Evanston when we saw a “house for sale” sign with an attachment in big red letters saying “no money down”. We were talking to our banker yesterday and he mentioned that land up here in the boonies is selling for top dollar at a rapid clip. With acre prices at $2000 for hunting land we believe a bubble is forming. But we have been wrong for ten years about land prices so we only whisper our concern. Our banker did mention that a lot of folks applying for mortgages are maxed on their credit cards and that that debt hinders their ability to borrow from conservative banks like the local ones around here.

9:33am and NYC will spend $2.8 billion to build a new home for the Jets. All over the country cities are building coliseums for major league teams and the tax payers are footing the bill so politicians can have good seats at games. In these same cities the inner city school buildings are collapsing.

12:01pm and stocks dropped about 0.5% in mid morning on reports that there was a bomb on a train in France . It turned out to be a bomb on train tracks and the markets rallied back to up 0.5%. Volume is light and there is little conviction evidenced. CHTR and Q are trading under $4 per share and we are looking at them again. TLAB and RFMD are both off 15% from where we sold them but we are waiting to see how stocks react over the next few days before reentering unless we get a good buying opportunity.

1:25pm and CNBC just showed a graphic that displayed that the pay of the CEO of Pfizer for 2003 was $55 million. The pay of the CEO of Schering Plough was $10 million down from $20 million last year when they had a different CEO. Those salaries are unbelievable.

3: 02pm and in the final hour the DJIA and S&P sold off into negative territory but the NAZZ stayed positive. That action by the NAZZ gave the bulls some hope. At the close the DJIA was down 15 points at 10048. The S&P 500 also closed lower at 1091 down 2 points and the NAZZ rose 10 points to end at 1911.

And tomorrow is another day.

23 March 2004 - Daily Comment

7:11am and the www.dictionary.comword of the day is woebegone which is an apt definition of the stocks markets and our trading of them recently. Overnight Japan was down over 2% but then rallied to close fractionally lower. Taiwan was fractionally higher after the previous session’s 7% sell off and the rest of Asia was mixed. Europe is currently higher as are U.S. stock futures.

With yesterday’s big downer we would expect a higher opening and then a test to the downside with the battle being decided in the last hour this afternoon.

Several clients have asked why we sold the MSFT after just buying it last week. That’s a good question. We bought it because we had decided a few months ago that if MSFT broke $25 we would purchase it. Over the week end we realized that we would get as much bang for or buck from the QQQ without having our tech eggs in one basket. Moreover on a technical basis MSFT has broken down. We knew that when we bought it but in rethinking the purchase we decided that we want to participate in an overall tech rebound and if that is the case we should be in the QQQ and not MSFT.

Another part of our reasoning was that if either the TWX or SGP, which we purchased at the same time, trade above $17 we will be even on the MSFT trade and so that made the sell decision easier. MSFT is going through a legal wrangle with the EU and the WSJ yesterday afternoon said that MSFT would have to pay a $600 million fine and unbundle its office software. We know this fight is going to drag on and we decided we didn’t want the vagaries of news affecting what is basically a trading position. We hope to place that money in QQQ.

We sold our trading positions in HPQ and INTC because we noticed that they were moving the same as the QQQ and we have decided to concentrate on trading the QQQ.

This morning we posted the Model Portfolio and it is up 2.7% for the year. That means that some of our accounts are probably negative for the year at this point. We have engaged in a lot of work to earn money for our clients and we dislike seeing those profits disappear.

We do take some comfort in the fact that the DJIA is down 3.7% and the S&P 500 is off 1.5 %. But beating the major measures with a negative return of our own has never been satisfactory for us.

7:30am and as we said yesterday we expect a rally before a summer downturn. In looking at the last five years, March has been a turning point for a longer term negative return the first four years and an up return last year. But in all five years, after a lousy March, April into May has been positive. Our task right now is to understand what the same is and what is different about this year.

One difference is that it is an election year that is turning increasingly nasty. While we don’t think most folks are concentrating on the election, the negativism of the campaign adds and speeches coupled with the uncertainty in the economy and the terrorism nebualrity are all enough to cause a person to say cash is comfortable even though cash has a negligible yield.

There is early morning short covering occurring in the markets and that is the reason for the higher major measures.

8:36am and the opening rally is fading as fast as a setting sun. There is no real buying interest being exhibited and this could set up for a good down move in the stock markets.

8:59am and the major measures are holding at higher levels. CBB is off today after announcing earnings. The share price is down 10% and we are buying stock gingerly. Eventually someone has to buy Cincinnati Bell and we think the price for the franchise is about $2 billion which is double today’s price.

10:56am and we added the CBB to accounts at $4.40. The stock markets have had a few chances to roll over but haven’t done so. Breadth remains positive and trading is light.

11:46am and NAZZ breadth has turned negative while NYSE remains slightly positive. All the major measures are down for the day but there is no panic selling although there is some pain.

1:20pm and the major measures have moved to the plus side in lethargic trading. We added more QQQ to accounts at $34.20. The final hour will give an indication of who is in control of the markets.

3:02pm and stocks ended in a draw with the DJIA up 1 point at 10065. The S&P 500 lost 1 point to finish at 1095 and the NAZZ gave up 5 points to end at 1905.

And tomorrow is another day.

22 March 2004 - Daily Comment

7:11am and we enter the day with Taiwan having closed down 7% since their election is following the scenario of the 2000 U.S. election with the added twist that the opposition in Taiwan are saying that the current president took a bullet for the sympathy vote. Japan was also lower. The Israelis killed the spiritual leader of Hamas and that has European markets rattled with terrorism fears.

Europe is 2% lower and the U.S. futures are off about 1%. The hangover in the U.S. may be from Friday’s expiration.

7:09am and the WSJ is reporting that the NASD and SEC have changed a rule so that Investment Banks underwriting an IPO may sell shares in that IPO to hedge funds in which the Investment Bank has a less than 10% ownership. The more things change... Or is it we have to take care of our own.

The NAZZ has been down seven weeks in a row and is now over 10% off it high. This morning the S&P futures are below 1100 which was an important support level with 1086 the next place for a bounce.

8:38am and all the DJIA stocks except Merck are in the red. The S&P 500 has been down 7 of the last nine days and the DJIA doesn’t have far to go to reach 10,000. That is not a technical support level but it probably will be a psychological level for a bounce.

9:06pm and breadth is 5/1 negative. The DJIA is down 120 points and the NAZZ is off 28 at 1911. The S&P 500 is through 1100 on the downside.

10:53am and stocks show no signs of wanting to rally. The buyers are on strike and prices are dribbling lower. Breadth remains 3/1 negative, down volume is swamping up volume and new lows are in the mid 20s while new highs are under 100. One positive is that volume is light as it has been for most of the year whether the markets are rallying or declining.

11:32am and all the technicians are down on the markets at this juncture. We are willing to give the market some more room on the downside before we give up on our rally thesis. We are buying QQQ at $34.25 for our smaller accounts in amounts equal to about 10% of portfolio value.

We bought INTC and HPQ on Friday in aggressive accounts for a pop this morning and since we aren’t getting it we are going to sell those two issues for a about 55 cents per share loss on each. We are also looking for a way out of MSFT which is trading at $24.05. Our tech exposure is enough with the QQQ, CIEN, and Cabot Micro that we will take our lumps on these three since the markets aren’t doing what we expected.

1:05pm and our stock screen is a sea of red. Terrorism in the Mid-East is being blamed as the reason for the downturn. Maybe the markets are just tired. It is really getting ugly out there in stock land. The problem with this kind of action is that we won’t know for a week whether this is a bottom or the beginning of something larger. Our philosophy has to be to error on the side of caution and that is why we sold the INTC and HPQ.

MSFT has rallied a bit and we sold our position at $24.25 for a 55cents per share loss. We should have listened to the technicians who said it broke down when it passed through $26 on its way down. This is our third trading loss with MSFT and so we are bidding it adieu. Obviously the Karma is not right.

2:11pm and entering the final hour the DJIA has rallied a bit but still is off 120 points. The bulls have to show their mettle here.

2:45pm and volume is 10/1 on the downside. We haven’t seen that kind of number for a long time. if new lows were up around 1000 we would guess the markets were at a bottom. But with new lows just exceeding 50 there could be a ways to go.

3:02pm and there was a bit of a mark up into the close. At the bell the DJIA was down 120 points at 10065. The S&P 500 lost 15 points to end at 1095 and the NAZZ dropped 30 points to end at 1910.

And tomorrow is another day.

19 March 2004 - Daily Comment

7:11am and the President and Vice President of Taiwan were shot while campaigning for election. It is not affecting our markets. They are Ok.

Ciena was raised to neutral from reduce by UBS.

The ultimate irony will be if Koslowski and Schwartz of Tyco infamy beat the rap while Martha does time.

9:19am and stocks are slightly lower in moderate trading. There is a spring snowstorm in NYC and that may have slowed down the trading a bit. Also many traders avoid Witching Day because of the uncertainties and so while volume will be large we don’t think it will be extraordinary. Also most recent Quintuple Witching days have been relatively calm affairs with the fireworks occurring earlier in the week.

We are re-establishing positions in Time Warner at $16.90 and Schering Plough at $16.85. We have traded these stocks for the past two years and we want to add them to our portfolios for large cap stock exposure. These purchases will get the Model to about 20% equity exposure and we will be comfortable adding to them if there is a further pullback next week.

After realizing we didn’t want to own a bunch of low priced speculative stocks and selling them, we then realized we didn’t want to be totally out of the markets. Our plan of adding some names we trust and will add to at lower prices feels comfortable to us at this time.

Restoration Hardware announced earnings last night and the stock is off a bit today. The entire company is priced at $160 million with sales exceeding $400 million this year. With only $10 million in debt which will be retired this year and the projection of a second year of free cash flow we think the stock is a good speculation. We are adding a few shares on todays selling since the earnings news is out of the way.

Should RSTO move higher we will trade out of a portion of the stock since RSTO has forecast a first quarter loss of 16 cents a share and that news will come in June when we think the markets will be in a swoon.

LYNX sold off two days ago on news that the company was reducing its work force by about 15 folks to concentrate on bring it sequencing machines to market. LYNX has raised another $9 million this year in stock offerings and the entire company is selling for about $32 million with about $15 million in cash on hand. That cash gives a sufficient cushion for the company to spend the next few years trying to market their machines.

9:42ma and from www.minyanville.com we learn that Donald Trump is trying to trademark the term “You’re fired.” He should have the trademark on “I’m an ass.”

11:17am and we bought some shares of VITX at $1.12 in our aggressive accounts. We bought a small amount because this company is either going to go broke or succeed on their Phase III trials. The company just sold stock newly issued stock to investors at $0.98 per share and we may buy more if it backs off a bit. It had been selling at $1.50 per share for the last month.

Vitex is developing products designed to improve the safety of the world’s blood supply. The Company's proprietary INACTINE(TM) technology, currently in Phase III clinical trial, is designed to inactivate a wide range of viruses, bacteria and parasites, and has demonstrated its ability to remove prion proteins, while preserving the therapeutic properties of red blood cells. The technology works by binding to the RNA or DNA of the pathogen. Once bound, the compound forms an irreversible bond to the pathogenic nucleic acid, preventing replication and thereby "killing" the pathogens. The Company's lead product is INACTINE(TM) Pathogen Reduction System for red blood cells. Over 40 million red cell units are transfused annually in the U.S., Europe and Japan, representing an over $4 billion market opportunity.

11:25am and breadth is flat. The technical gurus are expecting a lower close this afternoon. The major measures have been fluctuating between slightly positive and slightly negative all morning.

Asia was mixed overnight with Japan and Hong Kong off slightly. Europe is also mixed. Treasuries are higher in yield and lower in price.

1:30pm and RSTO is off 60cents per share on its earnings news. We were satisfied with the news and so we are adding shares in small amounts to larger accounts at $4.32. If the stock revisits the $3.50 level we will add more shares. The price action in the shares is why we tried to unload the stocks at $5.20 three days ago.

2:46pm and expiration became interesting with sellers deciding they wanted to be out over the weekend more than buyers wanted to be in. We added HPQ at $21.75 and INTC at $26.83 to aggressive trading accounts. With the DJIA down 100 points it looks like the trading gurus were correct in predicting a lower close.

3:02pm and the DJIA closed down 105 points at 10190. The S&P 500 lost 12 points to end at 1110 breaking another support level and the NAZZ dropped 22 points to finish at 1940. There may be more downside next week before the month end rally.

And tomorrow is another day.

18 March 2004 - Daily Comment

7:11am and the almost obligatory pull back from yesterday’s rise is occurring in the stock futures this morning. As the morning wears on the futures have been cutting their losses. The long awaited January PPI (Producer Price Index) which has been closed for a remake will be announced at 7:30am and that may affect the opening.

The PPI is the producer corollary to the consumer CPI. If the PPI rises faster than the CPI then it means that producers aren’t passing on cost increases to consumers. If the opposite is true then the economy is in fat city.

For some reason the Bureau of labor Statistics decided to reconfigure the manner by which is calculates the PPI and it has taken three months to arrive at the January figure. Images of little elves in back rooms with boxes of pencils comes to mind. Whatever, the great unveiling is scheduled for a few minutes from now. Since the BLOS won’t release the PPI figured the old way there is no way to compare. Our bet is that the new PPI will be a non event.

7:32am and the PPI was up 0.6%, ex food and energy plus 0.3%. Initial claims for unemployment were 336,000 and continuing claims were 3.06 million. PPI was higher than expected and initial claims were a bit lower.

7:35pm and Tellabs was downgraded by Morgan Stanley. Last night, in reviewing our performance over the last few weeks, we came to the conclusion that the present market demands concentration in larger cap names because the institutional folks have taken over the buying and selling as the low priced speculators have taken their lumps and receded to the sidelines.

We don’t like giving back hard earned gains. We began 2003 in gangbusters fashion with accounts up over 10% and the fact that we haven’t been able to repeat that performance this year 2004 is a function of the fact that the year end stocks we purchased weren’t as sold out as the previous year, and our selection and sales left a lot of money on the table. Trading is not a science and there is a lot of ‘feel” in the way we trade.

Our current position is under 10% and is as we regroup and reconsider our approach we are looking at the QQQ for an initial trading position. That is because the NAZZ led the markets higher and lower and we think that pattern will continue. The QQQ gives us the top 100 NAZZ stocks in a package. As we have been saying for five years this is a trading market and we are listening to ourselves with this projected purchase.

8:26am and Europe is lower this morning while Asia closed higher. Treasuries have risen a bit in yield on the PPI number. The dollar is up versus the yen and oil is under $38 per barrel.

9:13am and MSFT is leading the markets lower as it remains in brouhaha with the European Commission. We had a mental buy at under $25 and we bought the stock in accounts this morning at $24.77.

11:39am and we are buying QQQ at $35.15 in our more aggressive accounts. The QQQ are off 10% from their yearly high. Quintuple Witching begins tonight and the markets may remain volatile till Monday. Today’s market statistics are a reverse of yesterday except not quite as bearish as they were bullish. Volume again is relatively light.

11:47am and the Enron rip-off continues. Neal Batson and his law firm Alston & Bird are going to receive $80 million plus and an additional $15 million for expenses for their probe into the Enron Scandal. According to Reuters, Batson acknowledged that his fee might seem expensive, “"I feel like that, while it was expensive, we brought value and you will continue to see value brought to the creditors and other parties in interest in the estate.” It is obvious he also took a little value from the estate. His firm is Atlanta based and was appointed by the U.S. Bankruptcy Court for the Southern District of New York. According to Reuters, his law firm has also done work for the banks now accused of knowing about the fraud in the entities they helped Enron set up.

12:18pm and the major measures have rallied on Bin Laden capture rumors.

12:22pm and as we wrote the rally evaporated. We guess it wasn’t Osama.

We get e-mails:

I have noticed that, recently, you have been quiet in your trading activity. I have not. In March of 2000, I noticed that there was a severe divergence in the NASDAQ market volatility from what had been a very conformal up pattern. I sold everything then and the market crashed. Guess I was lucky. During the recent run of volatility (mostly down) I decided that I would experiment with some dip buying and definitely caught a few falling daggers. I learned a lot about the behavior of about 30 or so stocks over a wide diversification and only lost a very small amount of money. I was hoping that we would get a good bounce, but I am beginning to doubt that now. I may still be wrong, but I am going to almost all cash now in anticipation of a major market top similar to March 2000. Some of the gurus think this also. What do you think? If we go down big, maybe early summer, depending on the election politics, will be a trading opportunity? Regards

Our Reply:

Over the past four years the stock markets have rallied from mid-March to early May. Don’t know whether this year will make five. We are using the QQQ down 10% from their high right here and then going to buy every 5% down to try and catch this pattern. No more than 5% of our money on any one purchase even for the QQQ. The individual stocks we have traded this year were OK till... and then we gave back most of what we had made. We still have a couple, CIEN and LYNX that we are way under water and we are hoping for quarter end mark ups to lighten up. We will probably be out of most stocks by May.

12:29pm and the major measures are higher. Is Osama in sight again?

12:33pm and it wasn’t Osama it was Ayman al Zawahri, a top Osama leader who surrendered in Pakistan , and down go the markets again. He was #2 man. No longer.

3:02pm and the DJIA closed down 5 points at 10295. The S&P 500 lost 2 points to finish at 1122 and the NAZZ dropped 15 points to 1962.

And tomorrow is another day.

17 March 2004 - Happy St Patrick’s Day Comment

Please Note: Writing one day and posting with the next day’s date is just too confusing for us. And so we are going to post on the day we write (in the afternoon) and our readers can pick the time of day they want to read. There will be only one post a day as long as we continue our ‘get healthy’ regimen.

6:59am and Japan and ASIA were higher overnight as is Europe this morning in celebration of St Patrick’s Day we assume. Oil is also higher as are bonds and the dollar versus the euro. The dollar versus the yen is lower.

Higher openings after confusing days are not a positive. But yesterday’s late day action when the major measures rallied in the last half hour after looking like they were going to belly flop has not happened for a while. That up move adds a new element to the mix and suggests that the bulls have some steam behind them.

We sold TLAB because CIEN is acting poorly and if telecom stocks trade lower we think TLAB may succumb. We sold Lu because Nortel is acting poorly on news of more accounting irregularities. Both stocks are expensive as is TLAB on a price to sales and price to (no) earnings basis. We know that being fearful of owning stocks because their fundamentals are lousy is a quaint notion. We sold RFMD because RFMD has already stated that this quarter’s earnings are going to be punk as will sales. We don’t want to hold a trading stock through that type of report in a correcting volatile market. We owned all three stocks for a trade. The trades didn’t work this time.

We are left with four stocks; we tried to sell RSTO at $5.20 yesterday morning because we didn’t want to hold through this Thursday’s earrings. We were unable to get it off and the stocks closed at $4.50. That is an example of the lack of liquidity in the markets.

In hindsight we should have taken all our money off the table when we started selling in January. But that is the coulda woulda market where as we all know everyone is always right. Most accounts are slightly higher for the year and we may be satisfied with that situation for the time being. Our age is showing as we want to preserve capital more than we want to make money.

A client called this morning and said his account was down $16,000 in the last few days. We said that was a 1% drop while the S&P was down 4%. The client wasn’t impressed. We don’t like losing money but when markets drop and we own any stocks the accounts will usually drop also.

But we are now under 10% invested and so we are at least going to hold our own. If there is any kind of rebound in our holdings we will probably go all to cash. We have been thinking that we will use the QQQ and SPY to participate in market moves during the rest of the year.

7:31am and CPI was up 0.3%, ex food and energy up 0.2%. Where is PPI? Real Average Weekly Earnings fell 0.1% in February.

The gurus are happy that the pullback was 5% in the S&P 500 before the rally yesterday afternoon. They think that was enough to set up a move to new highs. We don’t think so.

7:35am and BankAmerica will lay off 13,000 folks after its merger with Fleet Boston and take a nice charge with which to pump up future earnings if loans go sour.

The NYT is reporting that three investment banks, J. P. Morgan, Deutsche Bank, and Bank of America privately expressed reservations about WorldCom’s debt and cut off credit even as they were selling bonds to the public. We find that hard to believe.

9:05am and stock have opened higher with the NAZZ up 1% and the DJIA up 65 points. After the obligatory pull back we’ll see whether the bulls or bears are in control.

10:51am and there has been no pull back. Breadth is positive and up volume exceeds down volume 8/1 on the NAZZ and 4/1 on the NYSE. The DJIA is up over 100 points and the NAZZ has risen 1.5%. Volume is good.

1:18pm and stocks continue to display strength. The DJIA is on its high for the day up 120 points, the NAZZ is up 30 points and the S&P has gained 13. Breadth and up versus down volume remain very positive. The last hour will show whether the shorts are on the run.

Its interesting that MSFT and MRK are both down on the day. DJIA leadership has now been assumed by PG and MMM and CAT.

3:02pm and stocks held their gains throughout the day. The only negative was that volume was light to confirm the validity of such a big move.

At the bell the DJIA was up 120 points at 10303. The S&P 500 gained 13 points to close at 1124 and the NAZZ rose 34 points to finish at 1976.

And tomorrow is another day.

17 March 2004 - Daily Comment

A Review of March 16 Action.

7:09am and after a brisk walk we are at our desk with a chipper attitude. Japan was off a bit overnight and Europe is mixed. U.S futures are higher which we think is not positive for bring about an end to the sell off. The next morning’s buying of yesterday’s route has not been working lately. It takes time for folks to understand the change.

After our March 14th missive about short term trading versus longer term investing a client e-mailed to ask what it was going to be. With this question we realized we were at least successful in obfuscating our plans. Actually we plan on staying with short term position trading until the “fat lady sings” and we haven’t heard her yet.

Corporations may be reporting higher earnings but we think much of the increase year over year is still coming from lower tax rates, and downsizing, and the wonders of special write-offs.

The only industry exceptions are the brokerage stocks that are all reporting wonderful trading profits. And so the question arises, “where are the customers’ yachts?” Well if brokers are locking up wonderful trading profits there can’t be any customer yachts because the brokers are making their trading profits from their customers. That seems a simple truism but that fact is often overlooked when the profits of brokers rise. So we offer three cheers for the brokers and condolences to their customers.

7:35am and housing starts fell 4% in February and building permits were down 1.5%. This is the first time in 5 months that housing starts have fallen.

7:44am and the NYT is reporting that Alan Greenspan has decided that debt is good and that the rising value of homes and stock portfolios makes debt incurred manageable and good for the economy. The obvious question is what happens when home values fall and the stock market collapses. Is debt still good for the economy or is it a time bomb? Could it be that election year politics has overtaken the Oracle of the 1990s who urged Bill Clinton to eliminate deficits because they were bad?

8:44am and stocks are higher with the NAZZ up 1% and the DJIA up 80 points. Today Greenspan is meeting with his cohorts to decide on the future course of interest rates. No change is expected.

9:13am and the rise has slowed. Volume is poor but breadth is over 2/1 positive. The FED announcement comes at 1:15pm and while no change is expected the time of the news gives traders something on which to focus.

10:12am and CNBC reports that Sprint CEO Gary Foresee made $53 million and the CEO of SBC earned over $20 million. Both those figures are a bad joke on shareholders and accountability.

11:27am and breadth is moving to flat on the NAZZ while it remains 2/1 positive on the NYSE. The major measures are giving up their gains of earlier this morning and the NAZZ has slipped into negative territory.

1:18pm and the FED said nothing new, we think. No change is occurring in stocks yet but short bonds are rallying. Before the announcement we eliminated our holdings in TLAB for a 10% or less loss. Ciena is not acting well and we have no desire to go be overexposed to the telecom equipment sector.

1:36pm and we just learned from Art Cashen on CNBC that Friday is a Quintuple Witching Day.

1:49pm and as we approach the final hour stocks are trying to decide whether or not to give up the ghost. We sold our Lucent holdings in most accounts for a 25 cents per share loss. That is the second losing trade in that stock and so we bid it adieu. We still have Ciena left in the telecom equipment area and we will suffer along with that position for now.

The stocks markets look like they are going to roll over in the last hour.

3:02pm and stocks did trade down with the NAZZ going about 10 points negative in the last hour before rallying into the close. We sold our RFMD holdings for 25 cents per share loss.

At the bell the DJIA was up 82 points at 10185. The S&P 500 gained 6 points to 1110 and the NAZZ rose 4 points to 1943.

With today’s action we are at a loss as to what to expect tomorrow. So we’ll wish all a Happy St Patrick’s Day and take the night off.

15 March 2004 - Daily Comment

6:44pm and we were traveling most of the day and so our comments will be short. The stock markets rolled over today proving that Friday’s rally was mostly short covering ahead of the weekend. At the close the DJIA and S&P 500 were both down over 1.3% and the NAZZ dropped over 2%.

We presume the downturn today will carry over into Asia tonight and Europe tomorrow. If the sell off continues in the morn and knocks the major measures down another 2% on big volume then we would expect a pretty good snap back rally to occur. If there is a rally in the morning then we would guess there would be one more downside day before any sustainable rally.

We remain negative on the long term outlook but think that a trading opportunity is setting up. We have lost some gains in the pullback so the rally when it happens may only move us back to slightly better than the up 6% we were a few weeks ago. With today’s retreat we are now in the 3% up range which is better than being negative as are most of the major measures.

We are looking to add to the stocks we own since we have confidence in them and they seem to rebound strongly when the markets rally.

And since tomorrow is today, let the games begin.

14 March 2004 - Daily Comment

10:05pm 3/14/04 and we will still be in Chicago tomorrow morning (Monday 3/15) for the funeral of a client. We will be driving home in the afternoon. We have decided that we are going to reduce the number of our posts to one a day. We will write the post in the evening and review the day’s market action and give our prediction of the next day’s action. That post will be on the web by 10pm.

We are making this change for our good looks. With the reemergence of 6am sunrises we are going to begin a walking regimen to lose the 40 pounds that we don’t need. In order to accomplish this task we need to walk four miles in the morning and two in the afternoon.

By eliminating the morning post we will have the time to accomplish this activity and still be at our desk by 8am. Our goal is to eliminate the weight by our 61st birthday on October 9, 2004.

Last week the stock markets experienced their worst sell off in almost 9 months. It happened on the week that was the anniversary of the low in 2003 and the top of the bubble mania in 2000. For the week the DJIA lost 3.4% and is now down 2.1% for the year. The S&P 500 dropped 3.1% and is now up 0.8% for the year. The Model Portfolio is up 4.2% for the year.

On Friday MCI announced that is was restating pretax revenues by about $80 billion. Now that is a restatement.

On Thursday of last week there was pain and panic in the markets and that panic which was occasioned by the sell off and also the terrible bombings in Madrid led to a strong rally on Friday on suspect volume.

For the last five years we have been in a trading mode and that trading mode allowed us to miss the big downturn from 2000 to 2004. It also caused us to miss a small portion of the rally in 2004. But over the five year period our accounts have risen 75% to 125% while the S&P 500 is unchanged. And over the two year period that includes last year’s rally our accounts our up 25% to 40% while the S&P 500 is unchanged.

When we are walking around Chicago on our monthly visits to see clients and review records in our office downtown, we often pass Citicorp branch banks. We remember owning that stock back in 1990 and selling it for a slight loss. Since that time it has risen about twelve times in value. One of our reason for selling it was that we were gun-shy from having lost serious dollars on investments in some Texas banks that eventually went “belly up”, luckily after we sold them. Over the years since then we have owned many stocks that have done well after we took our profits and we also remember stocks that have entered bankruptcy after we sold them for profits.

We mention this history to reiterate that we are constantly exploring our methods of managing client funds. In the last five years we have had very good success trading as opposed to holding stocks. We find ourselves more comfortable with this approach because we think trading limits our risk even if at times it also limits our reward. But as we grow older we are willing to make the sacrifice of some reward for the comfort of less risk.

Thus our thinking remains centered on controlling risk and preserving capital rather than on hitting home runs. At his time of year the saga of Warren Buffet always seems to grab center stage as he issues his yearly missive from Omaha. We do remember in the late 1990s a few years during the dot.com craze when Buffet’s ‘bon mots’ were dismissed but it seems that this year the press is being especially solicitous of the Buffet message of long term investing. Long term investing has worked for Buffet over the fifty years he has been investing. But it is our theory that the law of averages suggests that over any fifty year period of stock market activity there will be two or three or ten Warren Buffets and many hundreds of thousands of dot com busts.

Over the week-end, we were talking to a non client who sold real estate at a profit two years ago and began investing those funds in stocks last year. He is currently on margin and comfortable. He is half our age and has had success so far in his investing. While we wish him well we do think that being on margin after a 100% higher move in the NAZZ and a 30% plus move in the DJIA may be a risky strategy.

Our view of the markets is that we are in a situation similar to the 1927-33 market. By that we mean that in both time periods the markets experienced a bubble phase (1927-29, 1997-2000) for a number of years and then the bubble burst (1929, 2000) and stocks collapsed. After the collapse there was a strong move higher then (1932) and now (2003) that had and has the markets at a recovery high with a 50% or better retracement of the down move in both time periods.

The FED in the early 1930s didn’t know how to treat the collapse and rise and it is our view that the current FED policy is different but as misguided as the 1930s FED policy. And we think that the fiscal deficits that the U.S. Government is currently running are significantly different than the deficits Roosevelt incurred so that Government agencies could create work for unemployed Americans in the 1930s. Back then the Government ran the deficits and created the work. Now the Government is running the deficits and giving money to the private sector in the hope that private sector companies will create American worker jobs.

But Capitalism is not meant to save or create American worker jobs. Capitalism exists to maximize profits and if the way to maximize profits is to fire American workers and close American plants and say thank you to the government for the tax cuts and credits then that is what Capitalism will and is doing.

The reality of investing is that steady attention to detail and consistently following a philosophy developed over time that has worked is the way that many investors can realize a fair return on their capital. And that is what we have done for clients over the years and hope to continue doing although as we all know past performance is not an indication of future performance.

With last Friday’s low volume, Monday’s market action is going to be a key. Today is the Ides of March and also the beginning of a Quadruple Witching Week. Late Friday we sold the CBB and CCMP for a small profit that we purchased on Thursday and we are mainly on the sidelines until we see how the turmoil resolves. Restoration Hardware announces earnings on Wednesday night and if the shares move higher before then we may reduce positions. RSTO can only be sold when buyers are around and even good news has been bad news for the last week.

So let the games begin

12 March 2004 - Daily Comment

Our next comment will be Monday, the Ides of March.

6:09am and yesterday the stock markets opened about 0.5% lower and then proceeded to slowly climb back to near even with the NAZZ climbing into positive territory by 8 points at one juncture. Then about 9:30am that mini-rally fizzled and the major measures stalled and began moving lower. About 10:02pm Intel traded lower after rallying from a lower opening and the rest of the major measures also rolled over with the NAZZ moving into negative territory. That was it for the rally and although there was one more stab higher a slow drop that began about 1pm turned into a rout in the afternoon with the major measures off about 1.5%.

The markets experienced the sell off at the close that would have been better at the opening. We were driving in the afternoon but from the reports on the websites we visit it seems there was some real panic selling.

Now the question of the day is whether the rally that looks to occur at the opening will be strong enough to stem the tide before the week end. Our guess is that folks are not going to get very long ahead of two non trading days, especially with the tragedy in Spain on traders minds.

Why did the sell off occur? Well, folks have been predicting it for a while and we would guess that the Spain incident just gave a reason for folks on the fence to sell. Also there are new traders in the markets who haven’t experienced a “yesterday” and there are more experienced traders who remember the last four years too well. The last time there was a four day 5% drop in the S&P 500 was March 2000.

Yesterday’s retail sales number was headline reported as an increase of 0.6%. but ex auto sales there was no increase. That fact adds the failed recovery thesis. The entire gain was due to auto sales.

Greenspan testified before Congress yesterday and again said that the economy is recovering and job growth should turn up before long.

Luckily we sold our large cap trading stocks on Tuesday when our Monday foray in Intel failed, and while we have given up several percentage points we remain ahead a bit for the year with good cash holding.

As we said yesterday we are going to continue adding to the stocks we now hold as the markets move lower because we don’t think this down move is not the big rollover. That will come in late April or May.

We did add a few shares of Tellabs to smaller accounts and we bought a few shares of Cincinnati Bell at $5 in some larger accounts where we had sold stock in January at $5.84 and we also bought a small amount of RF Micro at $8.88.

Overseas Asia was lower overnight and Europe is lower again today but not as stridently as yesterday. U.S. futures are higher and so it looks like there will be a rally at the opening. Our prediction yesterday was so wrong will resist the temptation to be wrong again today.

So let the games begin.

Stop here if you don’t wish to read our political thought of the day.

Political Musings Derived From Web Surfing:

We present an example of what you read is not always all you should be seeing. From www.tnr.com


From a Bush campaign press release: "In My First Hundred Days In The White House, I Will Roll Back George Bush's Tax Cut..." (Sen. John Kerry, Remarks In Manchester, N.H., 12/27/03) From Kerry's actual remarks: “In my first hundred days in the White House, I will roll back George Bush's tax cut for the wealthiest so that we can invest in education and health care.”

Bush has been bashing Kerry on free trade. Bush has conveniently overlooked the Steel Quota Tariffs he, Bush imposed, and $159 billion in Farm Subsidies to allow export, and of course quotas on Chinese Brassiere Imports.

Guess who is sleeping in the White House and at Camp David now that that evil Clinton Family has left. Go to: story.news.yahoo.com

11 March 2004 - Morning Comment

6:53am and we are heading off to Chicago today to meet with accountants and clients and folks from Mother Merrill where Lemley Yarling & Co accounts are going to migrate when the sale of ABN AMRO’s Clearing Business is finalized at the end of March.

Thus there won’t be a post tonight but we will have a recap and post tomorrow morning.

This morning looks to provide a continuation of the ugliness of the last few days in the markets. There was an explosion at some train stations in Madrid Spain that killed over 100 people and injured many more. No group has taken responsibility.

The explosion coupled with the negative technical action of the last few days has markets around the world in a downturn. Asia was lower by 1% and Europe is off 2% to 4% across the board. U.S. stock futures are also indicating a down opening.

In technical terms the markets are oversold and we would expect a rally either today or tomorrow. The first rally will probably be sold and then the second rally will be the one that is important. We think it is only coincidental that the drop in the market has occurred as President Bush’s minions have started an advertising blitz supporting his reelection.

We have been readjusting and lightening up in the Model Portfolio by selling the less attractive and more speculative of the shares we held. We began on Tuesday morning when we realized the rally had failed at resistance on the S&P 500 and that INTC had broken major support. On Tuesday we lost about half as much as the markets and yesterday the major measures dropped 1.5% and we lost about 0.3 % and that is the ratio we hope to keep. We did repurchase a few shares of Cabot Micro at $41 into the close since we do like the stock. And as the markets trend lower we will be adding to positions in stocks we own.

We continue to believe that there is a rally coming this Spring, obviously it will be from lower levels. The S&P and DJIA need a 5% or more correction to regroup the interest that translates into buying strength to move higher later this month and our feeling is that the reaction correction will be short lived although it may be scary. Scary is necessary for a good correction.

Over the longer term we still expect a major retest of the lows of 2002 and we are acting with that viewpoint in mind.

For this morning our crystal ball suggests a down opening, then a rally and then off and then a feeble rally into the close.

So let the games begin.

10 March 2004 - Evening Comment

7:02am and Treasuries continue their march higher in price lower in yield. When we learned economics back in the 1960s the action in the Treasuries would have been taken as an indication that the economy is in the tank and is going to stay there.

In the whole trading arena interest rates are dropping for many reasons beyond the mere projection of deficits and their effect on borrowing. Mortgage folks and hedge funds and currency traders all have various schemes that involve the movement of interest rates and require action as rates move up and down.

For the last two months the Labor Department has not released the PPI, the Producer Price index. The word is that they are having trouble correlating the numbers after adjustments. Conspiracy theorists, of which we are one, believe that the PPI would show inflation in producer costs while the CPI, the Consumer Price Index, which is being released on a monthly basis, is showing no inflation in prices paid by consumers. If the PPI is rising and the CPI is not then that would demonstrate that costs to producers are increasing while producers cannot pass those price increases on the consumer. That is called Stagflation and is a dreaded word among politicians in power because it represents the worst of all economic scenarios next to outright recession or depression.

The employment picture is not improving, oil and food prices are rising, wages are not rising and interest rates are falling. Why is the market holding up? Because it is the only game in town and because the low interest rates are forcing folks to try and generate some income from owning and trading stocks. That is a dangerous game.

And that is why we are so quick on the trigger and treading lightly in stocks. Including folks who stopped seeking work and aren’t trying we think the overall unemployment rate is over 10%. The jobs that folks are getting are not paying the salaries or benefits that the old jobs did. The huge deficits over the next five years are going to sap the ability of the government to continue to stimulate through tax cuts. And the present administration seems to want to continue the wait and see policy that they have been waiting and seeing for the last three years.

It must be time for another war.

7:08am and PG has raised guidance for 2004 and 2005. That will be a stock to watch today. Texas Instruments raised guidance yesterday and traded lower. For the last two days the markets have been in no news is good news frame of mind.

The NYT and WSJ have had stories the last few days on the fact that Royal Dutch Shell misstated its reserves by 3.9 billion barrels over the past few years. That is not an insignificant amount but the share price while lower since the January 9 announcement has not tanked. The major oil companies are like countries with sales and earnings greater than many of the world’s countries’ GDP. As power becomes concentrated again in the media and industry there is the danger that economies will return to the “Robber Baron” years of the 19th century.

7:35am and the trade deficit was a mere $43.06 billion in February. UPI is reporting that Japan bought $100 billion in Treasuries in the first quarter to prop up the dollar versus the yen. That buying also has helped keep rates down.

8:48am and after opening a tad higher stocks have now resumed their journey to the abyss, or at least lower prices this morning. One year ago this week the markets made their lows for the year as we were reminded this morning by Helene Meisler at www.realmoney.com . That means that new 12 month lows will begin increasing because of the rally that ensued last year and also that stocks will more easily approach their 200 day moving averages on the downside in any sell off.

At www.mimayanville.com Todd Harrison reminds that today is the four year anniversary of the top in 2000. What is that about the Ides of March?

11:06am and stocks have settled at lower levels. There is no panic selling. Strength in PG which is up 4 points is keeping the DJIA from being down 50 points. Breadth is negative on the NYSE and flat on the NAZZ. The NAZZ is only off 2 points.

We sold our Q holdings for 20 cents per share profit. As a continuing step in raising cash into month end we are eliminating the stocks with big debt loads and so we still have CHTR to go. We have sold half the position so far today but then the stock backed off. Since we are even money at this price we are hoping for an afternoon rally to rescue us. CHTR ran up a bit this morning on rumors that Viacom was looking for a cable company to buy and backed off when Sumner Redstone said he wasn’t interested in buying a cable company.

1:12pm and we sold all our CHTR for a scratch.

We are buying a bit more LYNX at $5.50. The share price is lower because the company completed its second private placement of the year today at a price of $5.10 for over 800,000 shares with options to purchase more at $6.25. For those of you who care and may understand: LYNX is a leader in the development and application of novel genomics analysis solutions that provide comprehensive and quantitative digital gene expression information important to modern systems biology research in the pharmaceutical, biotechnology and agricultural industries. These solutions are based on Megaclone(TM) and MPSS(TM), Lynx's unique and proprietary cloning and sequencing technologies.

1:36pm and breadth is now 2/1 negative across the board. New highs are only 250 and up volume is way behind down volume. The DJIA is off 80 points and would be down 100 without PG. The NAZZ is now down 15 points.

1:51pm and CNBC has Robert Prechter the Elliott Wave man of 1987 fame and Arch Crawford the Stars and Planets man are giving their opinions. Far Outttttttttttttt.

Actually they are both bearish which is a position with which we agree.

2:09pm and entering the final hour there is no rally yet. This hour’s action is important for the bulls. The DJIA is below 10400 and the S&P 500 is below 1137. Those were formally support levels. The NAZZ is in minus territory for the year.

3: 02pm and there was no rally. At the bell the DJIA was down 160 points at 10296. The S&P 500 lost 16 points to end at 1124 and the NAZZ dropped 30 points to 1965. The bears finally win one.

And tomorrow is another day.

10 March 2004 - Morning Comment

6:36am and the Model Portfolio has dropped 1.3% in the last two days as the failure of the S&P 500 to break through the 1160 resistance level last Thursday and Friday set up a reversal pull back.

As of this morning, the DJIA and NAZZ are basically unchanged for the year and the S&P 500 is up 2.6% while the Model Portfolio is up 4.3% and only 20% invested in stocks. The DJ Transports are down 5.7% for the year and the NAZZ 100 (QQQ) is off 2%,

So all in all we are holding our own in a very difficult market. All those numbers are history though and the question is where to from here. We don’t know. We are content to hold the stocks now in the portfolio and we will add to them on any severe sell off but since most of them are near our purchase prices we are will watch the action. We were aggressive the last few weeks in trying to catch a break out before it occurred and so we are now properly chastened and a bit poorer to boot.

Asia was lower overnight, gold is off a bit, oil is up a bit and Europe is lower today also. U.S. stock futures are indicating a slightly higher opening but it is early.

For today our optimum scenario would be down big early followed by a rally into the close. That is not a prediction, only a wish.

So let the games begin.

9 March 2004 - Evening Comment

8:15am and we spent the early morning reviewing our accounts and decided to sell our big cap tech trading stocks. With yesterday’s technical breakdown we want to be prepared for any eventuality even though we hope for a rally through month end. But hope only carries so far and we want to have the accounts prepared in case stocks head lower. We are holding our low priced speculative stocks for the rally and selling the big caps in case it doesn’t occur. Selling the big caps raises a nice amount of cash.

GE sold the 118 million shares of stock during the day yesterday at $31.85 and now those shares are overhanging the market. That trade soaks up a goodly amount of cash.

Texas Instruments had positive news last night and NIKE announced a 20% sales gain this morning so maybe that will give the bulls some hope.

Europe is now trading lower.

9:11am and stocks opened mixed. There is bid in tech and we are using the bid to sell the big caps as we said we would.

We want to add a word about the sales. We bought the large cap stocks for a trade. We bought Intel as it was dropping towards support at its moving average in the hopes it would bounce off that average and move higher. When it didn’t and instead traded down through the moving average our trading discipline required us to sell for then support became resistance.

We sold the other big cap techs because if INTC is going lower we are guessing that they will also. If we are wrong and these stocks we sold move higher the low priced speculative tech stocks that we own on a longer term basis will also move higher.

11:08am and the NAZZ and DJIA are going down in unison. The NAZZ is now under 2000 and may be on its way to 1900.

1:15pm and we weren’t able to sell all the CCMP but we were able to reduce positions to a level where we can add to our holdings if the stock craters in any big sell off. We don’t see that happening in the near future, in fact a bounce wouldn’t surprise us but with the lousy action of the last two days we think any bounce will be a selling opportunity.

Breadth is lousy and volume is picking up. The TV gurus are saying normal correction and everything is OK and they aren’t “taking any chips off the table”. We have and will.

The NAZZ is now negative for the year.

2:07pm and it is really ugly out there. We sold our LVLT for 10 cents to 30 cents per share loss which wipes out the profit we made the last time we traded it. As the markets head south we decided to sell another stock. That discipline has saved us from torment over the last five years and while it cost us some gain last year we managed to make a decent amount. LVLT has a ton of debt and we already own CHTR and Q which are also debt heavy and which we would rather own.

3:02pm and the DIA recovered slightly into the bell to close off 72 points at 10457. The S&P 500 lost 7 points to end at 1140 and the NAZZ closed off 13 points at 1995.

And tomorrow is another day.

9 March 2004 - Morning Comment

6:10am and yesterday afternoon was much too interesting for us as our tech stocks decided to head south with a vengeance. We had become much too complacent and the 1% gain that took us two weeks to accumulate was wiped out in 20 minutes.

And so the question today is whether the downturn/correction/move to the lower end of the range is going to continue. And the other question is whether the dead cat bounce in the NAZZ is over and whether that’s all it was.

We have so many questions and so few answers. Our inclination is to blow out the big cap tech stocks we purchased and hold our low priced speculative shares. But the fact that quarter end is only a few weeks off is suggesting to us that the big boys and girls may have enough buying power left with all the cash inflows to offer one more selling opportunity on a quarter end pop up mark up scenario.

We don’t have the answers yet and so we’ll await the opening. Japan was slightly positive overnight, Europe is mixed and U.S. futures are a tad higher. We would guess down at the opening and then a rally and then…

So let the games begin.

8 March 2004 - Evening Comment

7:17am and GE is going to sell 118 million shares of stock to raise equity. As a result the shares are trading a bit lower this morning.

Crude oil is pennies lower but still over $37, and Treasuries are higher in price lower in yield.

The WSJ reports that IBM stated that its plan to outsource jobs could cause job loss in the U.S.

By the way, Warren Buffet also thinks CEOs are greedy, corporate taxes should be raised, and that mutual funds aren't doing their job for shareholders.

9:29am and stocks opened higher but are going nowhere. This morning looks like a repeat of last week. Some deal stocks are seeing action but most stocks are just floating along with no real buy or sell interest. Time is one way for markets to work off overbought conditions.

11:57am and the paint is slowly drying. We haven't been writing much lately because there is nothing that tickles our fancy to write about. The major measures are range bound and until there is a break out one way or the other the markets are going to be boring.

We can't imagine what would cause a breakout to the upside and we have been waiting for the downside breakdown for so long that we are uncertain as to what may cause that.

And so we are watching. We added a few shares of INTC and CSCO to some smaller trading accounts and also a few shares of TLAB for investment accounts. And now we are out of ideas.

12:39pm and The Guardian is reporting that U.S. contractors are hiring former soldiers from Chile to act as guards at Iraqi oilfields. The contactors are supposedly paying these guards up to $4,000 per month to do this duty. And this is how the Bushies are saving money? What the heck is wrong with the Congress and the American public? Why not pay U.S. soldiers to volunteer for this duty and pay them the same $4000 per month. At the end of last year there were 10,000 hired security guards in Iraq.

Every time we read stories like this we think of the Hessian soldiers that the British hired to fight in the Revolutionary War.

12:43pm and the DJIA is up 12 points while the NAZZ is down 12 points. We would rather have the NAZZ leading the way.

1:08pm and large cap tech stocks are selling off and INTC has broken down through its 50 day moving average. According to the gurus the QQQ have to hold the $36 level or they will tip the scales to the negative also.

1:30pm and it is getting more interesting as stocks sell off and volume picks up. The DJIA is down 35 points and the NAZZ is off 30 points. Since the NAZZ has been the leader both up and down, the 30 point drop in the NAZZ is suggesting a turn down. But we really won't know for sure until the final hour.

3:02pm and there was no NAZZ rally in the final hour. The DJIA closed down 67 points at 10527. The S&P 500 closed below 1150 support down 10 points at 1146. The NAZZ lost 38 points or 1.5% to end at 2009. And the QQQ broke $36 to finish at $35.82.

The rallies didn't carry over to the next day the last few weeks so it will be interesting to see if the sell offs have legs.

And tomorrow is another day.

8 March 2004 - Morning Comment

6:46am and Warren Buffet, the Oracle of Omaha, delivered his yearly letter to shareholders over the week-end and in it he says he doesn’t like the tax cuts, that the trade deficit is too large, and he is betting against the dollar. That sounds a little bit like us although we will defer to him since we aren’t quite at $48 billion in net worth and say we have been saying the same things he is now saying.

In other news it seems as if Martha news is never going to end. It is like the Clinton trashing machine. We were sympathetic to Martha but it is time for her to know when to quit. If she wants to save her company she should go do her time and get the thing behind her. She isn’t the first or last person to be skewered on her success and we think she has the potential to save the company she built. The polls show an even or a bit less split in her favor and if 45% of the folks are in favor of you that is one very large market.

Over night Japan was lower, while Europe is positive and U.S. futures are muted. We would guess we’ll have a positive opening and then a pullback and then a move up into the close.

So let the games begin.

5 March 2004 - Evening Comment

7:45pm and stocks aren’t off that much given the numbers. After an initial sell off, there is going to be a rally today. Bonds remain strong, the dollar is weak and oil is above $37. Bush is going to have to work real hard just to create 1 million jobs by November. The revisions today mean that no new jobs were created in the last three months of the economic recovery.

8:37am and stocks have opened lower while bonds are higher in price lower in yield. On the opening the DJIA broke down through its 50 day moving average.

9:32am and stocks have reversed their drop which was never very steep and now most major measures are higher. The S&P 500 is poised at the 1162 mark and with a little push it may cause a lot of protective short buy stops to be triggered. If so there may be a significant outbreak to the upside. A lot of low priced but not cheap speculative stocks are popping this morning which is a sign that the trading public and even hedge funds are having fun.

Breadth has gone from 2/1 negative to 2/1 positive and volume is good.

We bought a few shares of INTC for accounts when it was under $29 this morning and we are trying to add to our Q holdings at the $4.75 level.

10:18am and the rally has failed and stocks are moving lower again. We said today was going to be interesting.

11:42am and a client called wondering whether our “Special Bulletin” this morning meant more than it said. Our response was we were doing a Walter Winchell and nothing more. Actually the markets didn’t fall as much as we thought and now they are meandering, trying to decide whether they will “wishy wash” out tonight or give a victory to either the bears or the bulls.

We’ve decided we are going to hold the Cabot Micro for a while and so we are reducing position size to a more holdable level in our smaller accounts. We are selling the shares for a de minimis profit.

1:59pm and entering the final hour trading as slowed as all eyes are on the media awaiting the verdict in the Martha trial. At least we were right on one prediction today.

2:10pm and the verdict is GUILTY. Too bad, if we had been jurors we would have found them both innocent. The lesson of this trial and verdict is to let your lawyer do the talking.

3: 02pm and there is more Martha now than before. Ah silly us to think it would all go away. At the bell the DJIA was up 8 points at 10596. The S&P 500 was up 2 points at 1156 and the NAZZ lost 7 points to end at 2047.

And tomorrow is another day.

5 March 2004 Special Bulletin

7:32am and the Labor Department reported that the economy added only 25,000 jobs in February. And the last two job numbers have been revised downward which means that there were no new jobs added in February. That is a bad number for Bush and stocks. Bonds are on fire. Watch out below for stocks and how high for bonds. Dollar gains are gone

5 March 2004 - Morning Comment

6:28am and today is a big day. Intel lowered guidance last night or rather narrowed the range of its revenue guidance which in effect said that sales are not as good as they would have hoped. On that news INTC sold off about 50 cents from the 3pm close.

This morning the major event is the employment report. 125,000 or below will be bad, we think, unless it’s good because it means better numbers are coming. Above 200,000 will be good unless it is bad because that means the Fed will have to tighten sooner. Anything in between will be confusing.

Also today we are betting that the Martha verdict will arrive since we don’t think the jurors want to spend the week-end having to think about going back to the trial. And the timing is perfect for mindless media because the jury is being picked in the Scott Peterson murder trial, and when that ends the Kobe rape case will be heard. Oh Joy!

Europe is mixed this morning with France and Germany higher and London lower. U.S. futures are lower now. Japan was up big time and Hong Kong edged higher.

Today all eyes are on 7:30am .

So let the games begin

4 March 2004 - Evening Comment

7:45am and initial claims for unemployment were 345,000 which was 7,000 below estimates and has placed a bid in stocks. Final Fourth Quarter productivity was announced at 2.6% revised from 2.7%. PPI which was due tomorrow has been delayed again as the Treasury department massages the numbers to make them come out favorable.

9:33am and stocks are trading like yesterday with the DJIA off a bit and the NAZZ higher a bit. It looks like there isn’t going to be any definitive action until tomorrow, if then. Breadth is slightly negative and volume is light.

11:59am and we have been remiss in our postings because not much is happening. The major measures are positive and breadth is also positive. Volume remains light.

3:02pm and is obvious from the lack of our comments we found today boring. We did have a few stocks we own make nice moves. At the bell the DJIA was down 5 points at 10589. The S&P 500 gained 4 points to 1155 and the NAZZ rose 22 points to 2055.

And tomorrow is another day.

4 March 2004 - Morning Comment

6:25am and one more day till the employment report. According to the gurus, the markets are marking time until that report is released at 7:30am tomorrow morning. The expected number is plus 125,000. That has been the expected number for about five months and the markets have been disappointed but still managed to hold their gains.

With tax rebate checks in the mail the theory is that business have been lean for long enough and that now is the time for them to begin hiring. Moreover the election campaign has begun and a good number would shut the Dems off from using the term “jobless recovery”.

Yesterday’s market was a no show from an action standpoint and today’s may be the same unless some traders decide to begin placing their bets early.

We’d like to pick up some more Cisco for a trade because we think the Labor Department is going to be able to find job creation over the next six months come hell or high water. Elaine Chou, the wife of Republican Senator McConnell of Ky. , is a team player and knows what is needed. And so a few adjustments here and there will produce the headlines needed.

Overnight Asia was mixed as is Europe . U.S. futures are basically unchanged.

So let the games begin.

3 March 2004 - Evening Comment

7:40am and it looks like it will be all Disney all day on CNBC. They actually moved their set to Philadelphia in hopes of watching the defenestration of Michael Eisner. If Eisner was overpaid, fire the guys who paid him. As we said yesterday Disney has gone through a difficult period but maybe Eisner did the best anyone could. Cisco and Microsoft have lost more market value over the same period but we don't hear folks calling for the jobs of Gates or Chambers. The media in this country has in the main become a hindrance not a help to rational discourse. It has probably always been so but with the growth of instant communication it is just more obvious than it once was.

8:45am and stocks have opened lower in light trading. We are re-establishing our trading position in CCMP under $45 per share in more accounts.

9:01am and breadth is 2/1 negative. The Institute of Supply Management Index of Non Manufacturing activity was 60.8 in February when 63.3 was expected. The Index was 65.7 in January. That is adding some weakness to the major stock measures

10:35pm and the weakness continues. The DJIA is holding steady down about 20 points, the real damage is occurring in tech stocks. Oil stocks have been strong lately with the price of oil at $37. We remember that even in the 1980s one of the truisms was that oil stocks would see strength in March and when oil stocks were strong in March that usually marked the top of the market.

12:28pm and this is a very strange market today. The S&P 500 and the DJIA are holding at slightly lower levels from the close but show no inclination to move lower. The NAZZ has been down 1% today but now is only off 9 points. Volume remains light and that's a sign that there isn't much conviction in this market.

We bought the CCMP as a trade in many larger accounts at $44.65.

2:02pm and entering the final hour the DJIA is up 10 points while the NAZZ is off 3. Many gurus are suggesting that the employment number on Friday is acting as a lid and a support to stock prices.

3:02pm and at the close breadth was positive on both the NYSE and NAZZ after being 2/1 negative earlier. Today the DJIA gained 2 points to finish at 10594. The S&P 500 rose 2 points to 1151 and the NAZZ lost 6 points to end at 2033.

And tomorrow is another day.

Today's Political Comments below:

With Judge Scalia's penchant for going on duck hunting trips with plaintiffs before the Supremes we won't be surprised if he takes a duck hunting trip with #43 in October.

And the following is Scott McClellan the President's press secretary commenting on the coup d’etat that overthrew the democratically elected president of Haiti with the covert if not overt help of the U.S.

MR. McClellan: “Terry, I think that the matter has been addressed. Secretary Powell yesterday fully addressed it, too, and outlined exactly how events occurred. The situation -- the crisis in Haiti was largely the making of Mr. Aristide. It was Mr. Aristide's failed government that empowered armed gangs to control the country. It was a failed government that condoned official corruption -- including drug trafficking. It was a failed government that engaged in acts of political violence against a peaceful, democratic opposition. And I pointed back yesterday to the flawed elections of 2000 that were central to the current crisis.”

As McClellan points out a flawed election in 2000 was central to the crisis in government? McClellan missed the irony of that statement.

3 March 2004 - Morning Comment

6:48am and yesterday’s market was a downer with no carry through from the day before. In fact the markets gave back most of their gains and as the gurus say they remain range bound.

Our low priced stocks held their ground because the speculative fever is alive and well. But the low priced players don’t have enough buying power or the inclination to move the blue chips and until there is renewed strength in them the markets are going nowhere.

Overbought conditions can be worked off by a drop in prices or by moving sideways over time. It seems that the latter is occurring and we continue to think that the next leg will be up.

Our boy John Kerry is now the Democrat nominee. We think he will pick Bill Richardson of New Mexico as his running mate to cement the Latino vote. We actually would like to see him pick Oprah, but we don’t think the powers that be have the guts for that move. Anyway, the markets will take a day or so digesting that news. It is still much too early to make trading decisions based on who will win in November.

The power of the presidency gives Bush the advantage at this point and we are not yet betting on a Kerry win. But we do think he has the best chance and so we are content to let time close the gap.

For today we haven’t a clue. It looks like a lower opening and from then on we’ll just watch.

So let the games begin.

2 March 2004 - Evening Comment

7:35am and there are no economic numbers for the boys and girls to trade on this morning till 11am when auto sales are released.

We are agnostic when it comes to Michael Eisner and his leadership at Disney. Roy Disney, who tried to get Carli Fiorina fired at HPQ, is now after Eisner. And what has Roy Disney done in his life? This morning after listening to all the hoopla about the pension funds that are against Eisner we had the thought that maybe no one else could have done a better job. Maybe if Eisner hadn't been there things would be worse.

8:39am and stocks opened a bit lower but the selling is muted. Japan closed at a twenty month high. It looks to us like the rally will resume momentarily.

9:40am and momentarily seems to have been delayed as stocks have been trending lower since last we wrote. There is no real news out there to move stocks and the easiest path for now seems to be retracing the up move of yesterday.

11:48am and the markets are lower and the action is as exciting as watching a carrot grow. We are leaving early today because we have to take our new Kitten to the vet. At present the DJIA is down 62 points and the NAZZ has turned negative and is down 7 points. As it was on the upside yesterday, volume is summer light.

The real action today is in the currency trade. The euro has fallen 2% against the dollar which is a huge move and that large a move must have some hedge funds praying.

1:15pm and we have to leave for the day. The DJIA is down 90 points, the NAZZ is off 13 and the S&P 500 has dropped 8 points. Unless there is a last hour turn around it looks like 1160 remains a formidable resistance level.

And tomorrow is another day.

2 March 2004 - Morning Comment

6:40am and stocks held their gains all day yesterday and the only fly in the ointment was that volume was light. The stock markets have not been able to carry over the good movement of one day to the next day for a while and that will be the test today.

The S&P 500 is again knocking on the door of 1160 and a potential breakout. All eyes will be on that number today. Japan was up overnight and Europe is higher while U.S. futures are indicating a slightly lower opening at this juncture.

Our guess is a lower beginning and then again a rally into the close that takes out the 1160 number in convincing fashion.

So let the games begin.

1 March 2004 - Evening Comment

7:26am and so democracy bites the dust in Haiti with a big shove from the U.S. The U.S. and France in conjunction with the U.N. are now sending in troops to stabilize the country. At least the U.S. didn’t have Aristide killed as it did with Allende in Chile in the 1970s. Maybe we should consider that progress. Long live Juntas!

J.P. Morgan Stanley downgraded Intel to neutral from overweight this morning. INTC is trading about 50cents per share lower.

Personal Income was up 0.2% and Personal Spending was up 0.4% in January. The gurus say that February and March are more important because that’s when consumers receive their tax refunds and we’ll know whether folks will spend the refunds and add a stimulus to the economy. Who is kidding whom; of course that money will be spent.

7:42am and FON is going to recombine with each share of FON receiving 2 shares of PCS. That‘s about what we though the recombine would be. That’s an interesting way to confuse the arbs. We are interested in the combo. April 23 in the recombine date and the deal does not require shareholder approval. The current PCS shareholders are getting the sort end of the stick. Our guess is that MCI will make a bid for the new Sprint.

9:04am and stocks opened higher and breadth is positive. We are buying INTC at $29.05 for our larger and aggressive accounts as it dipped this morning on the JP Morgan downgrade.

Both Sprint and Sprint PCS are higher today. We want to buy but only at lower prices so we will pass for now.

11:16am and please go to this link http://billmon.org/archives/001125.html to understand how Alan Greenspan, Ronald Reagan and their Republican fiends raised Social Security taxes on the middle class back in 1983 and every year since to create a surplus in Social Security to make it solvent. And then in 2001 Alan Greenspan said that the Social Security Surplus was too large and a temptation and backed the Bush tax cuts to get rid of the surplus. And now in 2003 Greenspan wants to lower Social Security benefits to pay for the tax cuts that have decimated the surplus. Say what?

12:00pm and the major measures are higher, breadth and up volume over down volume are both 2/1 positive and new highs exceed 500. The only problem is that volume is summer light. Until volume increases any move is suspect.

12:28pm and the February employment report comes on Friday. Folks will begin trading in anticipation by Wednesday. The bulls are hoping for a 200,000 plus number.

1:57pm and entering the final hour the DJIA is up over 100 points. The NAZZ is up 22 points and breadth is 2/1 positive. Volume is low. We added more Lucent to accounts at $4.18.

If the S&P 500 can break through the 1160 level in the final hour that push would set up a bull test for tomorrow. The S&P 500 is currently at 1156 where the measure has stalled on three previous occasions this year.

Commodity prices are moving higher and oil closed near $37. Hedge funds are placing bets on economic recovery while Treasuries are saying there isn’t going to be one or at least that the Fed is going to ignore the signs of recovery till after the election.

2:10pm and we just heard our first thunder of the year. Some farmers say that the first frost comes six moths after the first thunder and that would be September 1. All we care about is that we don’t have an April snowstorm since the cows begin calving in April this year. We bred them later last year because of all the problems we had with the March snowstorm during calving time last March.

2:34pm and when Dick Grasso held power at the NYSE, CNBC and all the financial media lionized him in obsequious subservience and held his every word dear. Now these same media outlets and commentators and reporters display open contempt towards him. And all he did was make more money than all of them by realizing how the system worked. After all, it was the NYSE that he bamboozled. The NYSE, the supposed bastion of capitalism, paid him, not the public or even a public corporation. Grasso played the “bubble” for cash and walked away a rich man in the same manner that Mark Cuban got lucky and very rich by selling his company -for cash-at the top. Grasso beat the system, and the system wants revenge.

3:02pm and the DJIA closed up 95 points at 10680. The S&P 500 gained 11 points to end at 1156 and the NAZZ rose 26 points to finish at 2056.

And tomorrow is another day.

1 March 2004 - Morning Comment

Rabbit, Rabbit.

7:03am and the Oscars kept up us late last night. We went to sleep to a gentle rain and March is coming in like a lamb this morning. Hopefully the old saw is wrong because we have had enough winter and it is time for nice weather.

U.S. stock futures are higher this morning and Japan was up almost 2% and the rest of Asia was mostly higher as is Europe .

As the new month begins volume may pick up and the trend in the markets may become more defined. February was a month of to and fro and not much progress or pullback occurred.

We begin the month about 20% to 30% invested in most accounts and we are comfortable with that position.

For today we think it will be up early and up late, and dull.

So let the games begin.

Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.

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.