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30 March 2007 Daily Comments

Observations from March 2007:

In considering the present market environment and in thinking about our profitable trades over the years it is a truism that we make money when we buy stocks with large cash positions and/or low revenues to price ratio when we they are under selling pressure. The companies also have to be of the quality that there is no risk of permanent failure. That may seem like a simple idea and it is but it also the kernel of our profitable run over the last many years and when we cease being Masters of the Universe we usually return to that simple way of trading. The reality is that if no immediate 10% or more sell off is near and if we continue an all cash mindset we will miss opportunities that we usually seize.
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We haven’t been posting much lately because we really don’t have much to say beyond what we already have. The markets are meandering and we wouldn’t be surprised by a rally beginning soon that could carry into the summer. We aren’t going to try and participate unless the stock markets see more of a correction before the rally. That’s because at these levels for stocks the risk versus the reward of a guaranteed 4% interest rate favors cash for us. We think the economy is slowing and if the Fed changes the language of its comment at its meeting today to suggest that they are leaning towards an ease the markets may respond with a move higher. But the only reason the Fed would ease would be to try to prevent a recession and if there is the chance of a recession we would posit that stocks are overpriced. But that is our opinion and the big boys and girls are much more interested in trading potential takeover stocks in the greater fools’ game.
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The buyout craze is a true greater fools’ game because the purpose of the buyouts is to take the companies private, pay big dividends to the private shareholders by loading up on debt and then resell the highly leveraged company to the public and  mutual funds and institutional investors ( the greater fools) several years in the future.

All the companies going private now will be back on the market in a few years because that is the only way but buyout folks can realize their gains. Of course the markets have to cooperate by buying the new highly leveraged shares in an IPO but they usually do. It’s too bad that the executives running these companies supposedly for the shareholders benefit can’t figure out how to manage them so that the shareholders receive the dividends and profits instead of the buyout folks and management that participates in the buyout. But that is capitalism in 21st Century America, the era of the new Robber Barons.
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Housing Starts for February were above expectations and Housing Permits were below expectations. The first is a lagging indicator which means that Starts tells us what happened. The second, Permits, is a leading indicator in that it gives an idea of where building will be in the future. The Starts number was up 9% versus January 2007 and down 27% versus the February 2006 number.
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Corporate welfare: privatize the profits in good times and socialize the losses in bad times.
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Mother Merrill is saying that house prices could tumble 10 percent this year and raise the chances the United States may slip into recession unless the Fed cuts interest rates to cushion the fall in economic growth.

When we were driving over the weekend we were thinking of the above and the fact that every time the big brokers and major banks get in trouble for making or buying stupid loans the Fed rushes in and cuts interest rates. In effect the Fed rescues the banks and brokers from their misguided chasing of profits by reducing the incomes of prudent savers and retirees.
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Several gurus are suggesting that the amount of takeovers occurring is evidence that stocks are cheap. We would use the same news as evidence of rampant speculation. We have never seen takeovers occur at market bottoms. This may be the first time but we are holding cash and not our breath.
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It looks like the tail may have become the dog. On Wednesday the Asian markets did not follow the U.S. markets higher after Tuesday’s large gain in the U.S.market. Asian markets mimicking American markets have been the norm for nigh these many years. Overnight Wednesday (Thursday in Asia) the Asian markets were strongly higher and this morning the U.S. markets are going to open higher.
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We often speak of market breadth. Breadth is a measure of overall market strength and is the relationship of stocks that are higher on the day vs. stocks that are lower.

Thus if 1000 stocks are trading higher than last night’s close and 500 stocks are trading lower market breadth would be 2/1 positive. Conversely if 1000 stocks are trading lower than the previous night’s close and only 500 are trading higher market breadth would be 2/1 negative.
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The Gap is lower on lousy earnings and a warning going forward. We like that Gap is closing the new Forth & Towne chain to concentrate on the main business. GPS is priced at one times sales while many of the other specialty retailers are 3 times or more sales. Of course The Gap is a mature line of stores but there is potential to turn it if they can develop a concept that works.
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The carry trade may be the proximate reason for the correction but the underlying reason is the pendulum effect and the need for markets like all other events, conditions, and creatures to seek equilibrium. A move for too long in one direction requires a move in the opposite direction to relieve stress. That is what is occurring now. After such a move has run its course then the markets either resume their upward move or in very rare instances they move violently lower in a mirror move to the topping move that they have been correcting. That is our maxim that markets never crash off the top.
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Carl Icahn filed to buy more Motorola stocks. As with Time Warner Icahn has no long term interest in the company, he is just trying to make a buck. While that is a laudable goal for Carl we are mystified as to why managements cater to him. In goofy markets like this there are enough cowboys and cowgirls around to hitch a ride and move the stock price higher for Carl to exit at a profit.

Icahn wants Motorola to spend its $10 billion cash on hand on a special dividend or stock buyback. That is what Ford did in 2000 with the result that it is close to bankruptcy this year.
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Today’s WSJ had a story on today’s front page about traders who benefited from Tuesday’s stock collapse and Treasury rally. And the first person they mentioned was John Meriwether. He is the fellow who ran Long Term Capital which was the hedge fund that blew up in 1997 and almost took the whole financial community to the woodshed as the fund went out of business and lost billions of dollars for investors in the fund. Market investors not affiliated with the fund but who had to sell or sold in panic when the markets collapsed also lost billions. And that is when hedge fund investments were measured in billions no trillions as they are now.

That this fellow is still running money is a tribute to Wall Street’s lack of memory and other people’s money syndrome. Meriwether now runs $2.6 billion and the WSJ say his fund was up in February. Whoopee
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29 March 2007 Daily Comments

Observations from November 2001:

Enron finally blew up yesterday. An accident waiting to happen. All the analysts on Wall Street thought Enron was a can't lose buy at $50 per share. At the top it sold for $85 per share. Now at 67 cents per share, that's something like $80 billion dollars in market value gone. Include debt of $15 billion and we are talking about some real money down the drain. As we said earlier this month, Enron is the outfit that caused the California electricity crisis last winter. Guess they laughed all the way to bankruptcy. Interestingly, a lot of the company officers sold stock at much higher prices while lowly employees were prevented from doing so. No one will go to jail. Too bad. And so now we know how unregulated deregulated utility markets work. Everyone but a few insiders lose their shirts.
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A comment on farmers, red and black steers, and trading stocks.

Farmer Pete, as my grandson Tyler calls him, lives down the road a piece from us. At one mile he is our nearest neighbor which suits us all just fine. Can't even see his security light. For those of you who don't know, security lights are bright globes that come on automatically at dusk and shine brightly all night, illuminating the barnyard and half the countryside. Why they are called security lights is beyond us, since their brightness provides thieves the light needed to see their way around the farm. Whatever, city folks who move to the country rarely have security lights because one of the reasons they moved to the country is to get away from bright lights.

Anyway, Farmer Pete runs cattle on our farm. Each fall he sells his steers and bull calves, which he did last week. A few days after he shipped them we asked how he did on price. Without revealing too much, which of course is the country way, he allowed as he got 82 cents a pound for the black ones and 76 cents for the red ones. We asked why he got different prices since all the cattle were in good shape and about the same except for the color. His response was that the cattle buyers usually prefer black ones and so they usually pay more for them. We then asked him why he didn't raise all black ones, since he'd get a higher price for them. His response was simply, "I like red ones better."

Makes sense to us since that is usually our response when folks ask why we trade certain stocks when other stocks sometimes move better. As traders we have to own stocks with which we are comfortable. A good example of this philosophy was our catastrophic Barnes & Noble trade last week. We lost a good piece of change on the trade and this week the stock is back to our purchase price where we could get out even if we still had it. We have learned over the years that when a trade goes against us and we hold to get out even, our mind tends to focus on the bad trade to the exclusion of other opportunities. In this case, having taken our lumps and moved on, our accounts are back to their pre-Barnes & Noble trade value and our mind has been clear to focus on other more comfortable opportunities.
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Several clients have e-mailed to remind us that we are repurchasing stock this week that we sold last week at lower prices. Our response is that last week when we sold we were expecting a pullback. More importantly, the Northern Alliance and US forces weren't doing well in Afghanistan. On Wednesday of this week, when it became clear that the US was winning big, one very large uncertainty was removed from the markets. Seasonally, the market often sells off for a few weeks in December, but the timing of the big down this year was mid September not October as has been usual. So, even though the market needs a pullback, we are guessing that maybe the push higher will continue. Greed is coming back. Remember, we are only trying to catch the year end bounce. All stocks are anchovies to us. Anchovy stocks are for trading, not for keeping. The easiest course was to go back into stocks we know and want to own. The reality is that all stocks are higher than they were a week or month ago. The stocks that are still moving lower should probably be avoided until they turn higher or until year end, whichever comes first.

(note: we finished 2001 up 21% while the S&P 500 was down 12 %.)
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Rate cuts at these levels are hurting savers. Folks who have been prudent and patient and not speculative are being used by Washington as the voiceless funders who will rebuild the capital of the high rolling banks and brokers. The brokers and gurus say cash is trash, buy stocks and high yield bonds. Shame! It's not different this time. It's just like it was at the end of 1968when the markets were at new highs which were not pierced for 12 years. September 11 was a travesty, and a tragedy. But because the USA was attacked, and because the USA has chosen to fight back, it does not follow that the markets are through their time of trouble.
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28 March 2007 Daily Comments

We will be traveling Thursday and Friday to visit clients and our next daily post will be Monday April 2. We have added observations we made during the months of March 2007 and November 2001 in the post above dated March 29 and March 30 to provide some material for thought while we are away.
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Thoughts

Rumors of a missile being fired at U.S. warships in the Middle East caused Oil to spike $5 overnight before is settled back to up $1.50 when the U.S. said they had no knowledge of such a missile.

But with Gold up $3 to $666 and Oil at $64.50 the stock markets were nervous as the day began. Interestingly European bourse indexes were lower but not by much at midday. Asian market indexes closed mostly lower overnight and Treasuries are rallying on the scare and also on disappointing Durable Goods numbers.

Investors Intelligence has an increase in bulls to 48% in the latest reporting period and Bears have dropped to 27%.
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The major stock measures are down about ½% out of the gate but volume is muted. Uncle Ben testifies before a joint session of Congress this morning.
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"Uncomfortably high" is how Uncle Ben described inflation while he also expressed a degree of worry about the economy. Fed watchers took Uncle Ben’s testimony to mean that the Fed isn’t going to cut rates until it gets inflation under control and that while the economy isn’t doing as well as a Fed Chairman might hope that the Fed isn’t inclined to rescue it just yet.
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As Bernanke speaks the DJIA has cratered to down 110 points at 10:30am.
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Apple is the darling of Wall Street. Their next big item is their Apple phone which will retail for $500. Apple has a market value of $82 billion and yearly revenues of $20 billion. AAPL has $11 billion in cash and a cash flow of $3.7 billion and free cash flow of $2.3 billion

For a definition of cash flow and free cash flow see: http://en.wikipedia.org/wiki/Cash_flow

Motorola is a dog on Wall Street. MOT has a market value of $42 billion and yearly revenues of $42 billion. MOT has $11 billion in cash and a cash flow of $3.4 billion and free cash flow of $1.9 billion.

Intel is another tech stock in the dog house. INTC has a market cap of $110 billion and $35 billion in yearly revenues. INTC has $8 billion in cash and a cash flow of $10 billion and free cash flow of $3.4 billion.
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Gold ended at $666.70 which is as aficionados know the sign of the devil. Oil gained $1.15 to $64.02 just in case that missile is fired tonight. Treasuries surrendered their gains after Big Ben’s testimony with the two-year ending at 4.57% and the ten-year at 4.62%.
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Europe followed the U.S. markets lower and Brazil and Mexico did likewise.
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The DJIA closed down 105 points at 12295. The S&P 500 lost 12 points to 1415 which took out its 50 day moving average and the NAZZ dropped 20 points to 2417.

Breadth was 2/1 negative for the second day but volume remained moderate.

New highs again contracted to 195 and new lows expanded to 85.

And there are two more days at the casino for the big boys and girls to spin the wheel of fortune and then the billions of dollars in the March Madness office pools will move closer to payoff day on Monday.
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27 March 2007 Daily Comments

Thoughts

Asian indexes were mixed overnight and European bourse indexes are small fractions higher at midday. Treasuries have a bid and Oil is down 40 pennies at $62.50 while gold is at $665 in the early going in NYC.
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Utilities and Railroads were given a public franchise and protected from competition by the government for eons. They were given public property on which to construct their facilities and public protection with a guaranteed return. The railroads were given millions of acres of land from the public weal. The idea of taking utilities and railroads private and out of the semi-public realm is ludicrous but is going to occur. The same goes for hospitals which feed at the public trough of Medicare to support their operations but are being taken private. Heck, Hospital Corp has been taken private for the second time after screwing the public out of billions of dollars though their Medicare scams. Eventually the piper will be paid, and it will be the public that does the paying.

The more we think about this period the more it reminds of the Robber Barons, the latter part of the 1920s, the 1985 to 1987 time period, and the late 1990s. None of those periods ended well but the ones we lived through did last longer than we thought they would. Greed may be good to some but most pigs are eventually slaughtered.
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Consumer Confidence was 107 for March versus 108 expected and 111 last time. That is being given as the reason for the sell off in stocks this morning with the DJIA down 75 points after an hour of desultory trading.
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$1.3 trillion in adjustable rate mortgages will reset this year according to CNBC.
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Gold ended the day down $2 at $662 and oil reversed to close up 2 pennies at $62.93.

Treasuries were mixed with the short end firm and the long end lower. the two-year end at 4.58% and the ten-year was 4.61%.
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European bourse indexes closed higher while Mexico and Brazil were lower on the day.
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The DJIA was unlabeled to mimic yesterday’s last hour rally and closed on its lows for the day.

The DJIA was down 60 points at 12405. The S&P 500 closed down 8 points at 1430 which was above its 50 day moving average at 1425. The NAZZ lost 18 points to 2438.

Breadth was 2/1 negative all day and volume was moderate.

There were 215 new highs and 75 new lows.

And the games continue tomorrow at the casino.
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26 March 2007 Daily Comment

Thoughts

Asian and European markets were mixed overnight and Oil is up to $62.80 this morning with Gold up to $660. Treasuries are better as a flat opening is expected.
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The DJIA is down 100 points after one and one half hours of trading. The Iran/British navy standoff is weighing on the overall tenor of trader thinking and New Home sales fell 3.7% in February to the lowest level since June 2000 and the supply of new homes completed but not sold is up 43% year over year.
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Citigroup is going to fire 15,000 folks and take a $1 billion charge. They are doing it to cut costs and save the CEO’s job. 15,000 for 1 is the trade required in today’s capitalist system.
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Folks often ask us about long term care insurance. We have never been a fan and the story in today’s NYT is the reason: http://www.nytimes.com/2007/03/26/business/26care.html?hp
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The S&P 50 day moving average is now at 1425 which is where it stopped going down in this morning’s retreat.
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Gold closed up $7 at $663 in NYC. Oil was up 70 pennies to $62.98. as the stock markets recovered Treasuries weakened with the two-year ending at 4.58% and the ten-year at 4.60%.

European indexes closed lower on the day as their market trading ended when U.S. stocks were on their lows for the day. Mexico and Brazil also lost ground.
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The DJIA closed lower but well above its lows for the day. At the bell the DJIA was down 15 points at 12465. The S&P 500 gained 1 point to 1438 and the NAZZ rose 6 points to 2455.

Breadth improved from 2/1 negative early on to 5/4 negative at the close and volume was moderate.

There were 300 new highs and 60 new lows.

And there are four more days of fund games at the casino this week.
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23 March 2007 Daily Comment

Thoughts

Asian indexes finally and grudgingly closed lower on Friday and European market indexes are also slightly lower at midday. Gold is down a couple of dollars and Oil has given up 30 pennies of yesterday’s $2 plus gain. Treasuries are a bit better as U.S. stocks look to open lower.
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Existing Home sales were up 3.9% in February. That represents closings from houses sold in December and earlier. On the news of an increase in home sales Treasuries have retreated to negative on the day.
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Gold ended the day in NYC down $8 at $657. Oil was higher on the Iran/British navy news at $62.22 up 53 pennies and Treasuries lost ground with the two-year at 4.61% and the ten-year at 4.61%.

European stocks closed slightly lower.
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The DJIA gained 20 points to close at 12480. The S&P 500 rose 2 points to 1437 and the NAZZ was up 5 points at 2456.

Breadth was positive and volume was moderate.

There were 320 new highs and 50 new lows.

And the casino is closed until Monday.
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22 March 2007 Daily Comment

Thoughts

For the last month and one half we have been in an all cash position. That is a record for us.  In that time the markets have had a 5% correction and recovered from that correction. We expected more of a correction and that is why we were in cash. We also wanted to step aside and do some thinking. Netting the stocks that rose in price after we sold with the stocks that dropped in price we didn’t sacrifice any gains by going to cash. We live and trade and learn.

The Fed action of yesterday suggests that they are willing to lower interest rates if the economy falters, even in the face of inflation. That is a significant change in their position and one for us to consider in our analysis.  Inflation is not running away by the measures the Fed uses but it is higher than the 2% benchmark that Fed Chairman Benanke has suggested is his target.

Because the markets stopped going down and rallied back we have had to reevaluate our thinking. Our consistency is that we are always willing to change our relation to the markets as the market give us reason to do so. We do believe that a more sustained correction is somewhere down the road (after all the Fed changed the wording because of the weakness in the economy) but for now our guess is that a rally higher into May or later may be in the cards.

In considering the present market environment and in thinking about our profitable trades over the years it is a truism that we make money when we buy stocks with large cash positions and/or low revenues to price ratio when we they are under selling pressure. The companies also have to be of the quality that there is no risk of permanent failure. That may seem like a simple idea and it is but it also the kernel of our profitable run over the last many years and when we cease being Masters of the Universe we usually return to that simple way of trading. The reality is that if no immediate 10% or more sell off is near and if we continue an all cash mindset we will miss opportunities that we usually seize.

And so the long and short of it is that we purchased a few stocks today in which we have been interested.

Motorola is down $1 on a reduction in earnings announcement and the shares are $1 below where we sold them last month in many accounts. MOT has $12 billion cash and is selling for less than one times sales. We don’t like the fact that Carl Icahn is involved with the stock but his involvement probably means that the share price will go higher over the next year.

We think General Electric will have to participate in any further rally. We sold the shares at $37.50 in January and we are buying them back today at $35.60. We continue to believe that if the company were split up it would command a combined price north of $50 a share in today’s market climate.

We want to own Sprint. We sold it as part of our going all to cash scenario but would rather own and add to it that not own it. The company is out of favor on the street as it continues to try and integrate the Nextel takeover. But as AT&T and Verizon move higher in price the disparity in valuation of Sprint versus the other two becomes more glaring. Eventually the markets are going to resolve that disparity and we think it will be by Sprint rising in value. We are paying 20 pennies more than the price at which we sold.

Intel is the dog of the large cap technology stocks. The introduction of Vista by Microsoft has not created unusual demand for computers and AMD is giving INTC more competition and so Intel is mired in the price doldrums. Eventually Intel will recover its luster. We are repurchasing at $19.30 which is $1.50 lower than where we sold it.

Finally we purchase The Gap. Our better half actually commented favorably on their Spring offerings for the first time in five years. And with buyout folks paying 3 times earnings for specialty retailers we think that GPS with $2 billion in cash, no debt and selling at 1 times earnings has value at the $18 level. Gap has been dragging for 3 years and even a stopped clock is right twice a day.
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Asian markets continued their three day rally on Thursday following the U.S. lead and European markets are also 1% or higher at midday. Oil is back over $60 and Gold is up $5 as all the markets are in a rally mode. Treasuries are flat after yesterdays up move in price on the short end of the market.
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Jobless claims dropped to 316,000 in the latest reporting period.
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Energy Trader Brian Hunter whose outsized bets in the energy market caused the collapse of $8 billion Amaranth Hedge Fund is forming his own hedge fund. It used to take a year or two before failed traders could return, the time elapsed for this guy is six months.
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Oil closed up $2.08 at $61.69. Gold was $5 higher at $665. Treasuries gave ground with the two-year at 4.58% and the ten-year at 4.59%.

European indexes closed 1% to better than 2% higher. Mexico and Brazil indexes were fractionally lower.
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The DJIA gained 12 points to end at 12463. The S&P 500 was down 2 points at 1434 and the NAZZ dropped 5 points to 2451.

Breadth was slightly negative and volume was active.

There were 370 new highs and 50 new lows.

And March Madness basketball begins again tonight.
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21 March 2007 Daily Comment

Thoughts

We haven’t been posting much lately because we really don’t have much to say beyond what we already have. The markets are meandering and we wouldn’t be surprised by a rally beginning soon that could carry into the summer. We aren’t going to try and participate unless the stock markets see more of a correction before the rally. That’s because at these levels for stocks the risk versus the reward of a guaranteed 4% interest rate favors cash for us. We think the economy is slowing and if the Fed changes the language of its comment at its meeting today to suggest that they are leaning towards an ease the markets may respond with a move higher. But the only reason the Fed would ease would be to try to prevent a recession and if there is the chance of a recession we would posit that stocks are overpriced. But that is our opinion and the big boys and girls are much more interested in trading potential takeover stocks in the greater fools’ game.
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Speaking of takeovers, Apollo Investors which is run by Leon lack of Drexel Burnham fame is buying Claire Stores for $3.2 billion. Claire has sales of $1.2 billion and thus the buyout folks are paying three times sales which seems rich to us but then... By the by, we note that in this instance insiders are selling out and not participating in the buyout which says something (see next post).
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The buyout craze is a true greater fools’ game because the purpose of the buyouts is to take the companies private, pay big dividends to the private shareholders by loading up on debt and then resell the highly leveraged company to the public and  mutual funds and institutional investors ( the greater fools) several years in the future.

All the companies going private now will be back on the market in a few years because that is the only way but buyout folks can realize their gains. Of course the markets have to cooperate by buying the new highly leveraged shares in an IPO but they usually do. It’s too bad that the executives running these companies supposedly for the shareholders benefit can’t figure out how to manage them so that the shareholders receive the dividends and profits instead of the buyout folks and management that participates in the buyout. But that is capitalism in 21st Century America, the era of the new Robber Barons.
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Asian markets were again higher overnight and European bourses are mixed. Oil is up 50 pennies and Gold is up $3 in early NYC trading. Treasuries are unchanged.

U.S. stocks are opening mixed awaiting the 1:15pm Fed statement.
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FedEx said on Wednesday that quarterly earnings fell and warned its growth targets would be at risk if the U.S. economy did not improve. Fed Ex has become a bellwether of economic activity.
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Crude oil inventories were higher than expected while gasoline and distillates inventories dropped by more than expected.
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Investors Intelligence has 48% bulls and 28% bears in the latest reporting period.
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The Fed left rates unchanged and stocks and Treasuries both rallied on the news. Traders in both types of securities see gold in the Fed’s revised statement.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5.25%.

Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.
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According to the markets and to Bill Gross of Pimco, who is an expert, the changes in the above statement mean that the Fed has removed its tightening bias and will begin easing within the next six months.
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The markets’ interpretation of the Fed’s statement is counterintuitive since the Fed has always seen inflation as the important bugaboo that needs to be controlled. But traders read the statement as saying that even though the Fed is worried about inflation the Fed is going to loosen to aid a slowing economy. If that is the case then traders and maybe the Fed need to convince The Bureau of Labor Statistics to adjust the inflation numbers to get rid of inflation. The BLS can do that by including housing prices as a measure of inflation instead of using rents as the measure as the BLS has over the years. Now that housing prices are falling the BLS may be willing to make the change that they didn’t when housing prices were rising.
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European bourses closed mostly higher on the day.
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Gold ended up $1 at $660 in NYC trading and Oil was up 40 pennies at $59.61. Treasuries ended strong with the two-year at 4.53% and the ten-year at 4.54%.
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The DJIA gained 155 points to close at 12442. The S&P 500 was up 23 points at 1434 and the NAZZ gained 44 points to 2452.

Breadth improved all day and ended at 3/1 positive and volume picked up to active after the Fed statement.

There were 360 new highs and 65 new lows.

The casino will be open tomorrow and Friday. Today’s action is the reason we never short stocks when we are bearish.
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20 March 2007 Daily Comment

Thoughts

Housing Starts for February were above expectations and Housing Permits were below expectations. The first is a lagging indicator which means that Starts tells us what happened. The second, Permits, is a leading indicator in that it gives an idea of where building will be in the future. The Starts number was up 9% versus January 2007 and down 27% versus the February 2006 number.
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Asian exchanges were large fractions higher overnight while European bourses are small fractions lower at midday. Gold is up $2 and Oil is 50 pennies higher in the early going. Treasuries are firm as traders concentrate on the Housing Permits number.

The Fed begins its two day meeting today. In the early going the major stock measures are mixed as the markets digest yesterday’s gains and traders vacillate awaiting the Fed’s statement tomorrow afternoon.
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Oil ended up 14 pennies at $56.73. Gold gained $5 to $659 and Treasuries were better with the two-year at 4.61% ands the ten-year at 4.55%.

European bourses finished higher.

The DJIA gained 61 points to 12288. The S&P 500 was up 9 points to 1410 and the NAZZ gained 14 points to 2408.

Breadth was again better than 2/1 positive and volume was active.

There were 250 new highs and 95 new lows.

And the Fed speaks tomorrow and the trading world will be listening.
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19 March 2007 Daily Comment

Thoughts

Traders in the U.S. stock markets are celebrating St. Patrick’s Day a few days late as the big boys and girls paint the trading screens green in the early going Monday.

Asia markets were strong over night with most of them up over 1% and European bourses are also higher but more constrained. Gold is up $1 and Oil is 50 pennies lower. Treasuries were giving ground as the stock markets move higher.

The Fed meets on Tuesday and Wednesday of this week and the markets are concentrating on that and hoping for intimations of a rate cut in their Wednesday afternoon release.

Deals continue to proliferate and there is talk of a bidding war for TXU which is currently a $45 billion deal and may go higher.

Gurus are suggesting that the worst of the sub prime loan meltdown has occurred and that now the smart folks are buying rather than selling.
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Corporate welfare: privatize the profits in good times and socialize the losses in bad times.
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China raised interest rates over the week-end in part to place a damper on speculation. China’s market rose 3% overnight on the news.

Several gurus are suggesting that the amount of takeovers occurring is evidence that stocks are cheap. We would use the same news as evidence of rampant speculation. We have never seen takeovers occur at market bottoms. This may be the first time but we are holding cash and not our breath.
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European bourses closed up 1% or better.
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Oil ended down 52 pennies at $56.59. Gold was unched at $654. Treasuries closed lower with the two-year at 4.63% and the ten-year at 4.57%.

The stocks markets were strong all day and Breadth was over 2/1 positive at the close in active trading.

The DJIA gained 115 points to 12225. The S&P 500 rose 16 points to 1402 and the NAZZ gained 22 points to 2395.

There were 220 new highs and 93 new lows.

And there are two more days till Spring and four more trading days in the week.
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16 March 2007 Daily Comment

Thoughts

Mother Merrill is saying that house prices could tumble 10 percent this year and raise the chances the United States may slip into recession unless the Fed cuts interest rates to cushion the fall in economic growth.

When we were driving over the weekend we were thinking of the above and the fact that every time the big brokers and major banks get in trouble for making or buying stupid loans the Fed rushes in and cuts interest rates. In effect the Fed rescues the banks and brokers from their misguided chasing of profits by reducing the incomes of prudent savers and retirees.
*****

Asian markets were mostly lower overnight as are European markets at midday. Gold is up $7 at $654 and Oil is also higher but still below $58. Treasuries are weaker as the markets are higher.

CPI was as expected with core CPI up 0.2%, and year over year up 2.7%. The Fed has set 2% as the number to seek for inflation.
*****

The University of Michigan Confidence Survey was 88 for March versus 92 last month.
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Today is Quadruple Witching day and there is big volume. Stocks were up in the early going but at 11am the DJIA is down about 35 points. With NCAA and state basketball tournaments on the TV and a snowstorm on the East Coast there is a lot of extraneous activity pulling traders away from the casino today.
*****

Cody Willard at www.realmoney.com says it well:

The topic is Blackstone Group. Here goes: Blackstone Group files to go public, although nobody knows yet if the IPO will represent shares of the Blackstone Group itself or a Blackstone-managed fund. I think it's brilliant timing. Blackstone is taking something off the table and spreading its risk to the public while the trumpets of private equity are sounding.

What's really mind-blowing here is that the public is sucker enough to buy this stock from these guys, who obviously are smarter about when to buy and sell than the public is, given their outsized ownership of capital vs. the average Joe who'll buy their stock. More to the point, how about the fact that bankers are allowing these guys to use OPM (other people's money, including the bank's own money) as leverage to take these companies private though debt?

So let me get this straight: The private-equity guys have been whining to the press and hiring lobbyists to help change their image of being bad for the world. But they're now about to offload their equity onto the public, enriching themselves by using the multiple at which the market will value their earnings and assets to really become richer than most any individual on this planet could ever conceive.

And all the while, they're going to borrow a bunch of other people's money to put to work generating those earnings and assets. Borrow OPM to buy companies even as you sell your own assets to take money off the table.

I wrote the other day that I believe private equity is a sell here. Apparently the guys at Blackstone agree with me. They're selling to the public, right?

When the smartest guys in the room are selling to you, it's probably not the best time to buy. Put it this way: If the Blackstone gang really thought that their equity was a great investment here, do you think they'd want to sell? This isn't a tech company trying to raise assets to grow. These are some whiny rich dudes trying to cash out on the public while the cashing out is good.
*****

Oil ended down 44 pennies at $57.11. Gold gained $6 to $653. Treasuries were weaker with the two-year at 4.62% and the ten-year at 4.53%.

European bourses closed mostly lower and Mexico was lower with Brazil down over 1%.
*****

The DJIA closed down 50 points at 12110. The S&P 500 lost 5 points to 1386 and the NAZZ dropped 6 points to 2372.

Breadth was 3/2 negative and volume was witching active.

There were 140 new highs and 110 new lows.

And the casino is closed for the weekend.
*****

 

15 March 2007 Daily Comment

Thoughts

2050 years ago on this day- maybe since we don’t know how the Gregorian Calendar affects the date- Julius Caesar was assassinated by Brutus and others. Thus the Beware the Ides of March not said at the time (since Romans spoke in Latin) but by actors in Shakespearean England for the first time.

Today PPI was double what was expected and even core PPI was higher than expected. On this news Treasuries lost a bit of their recent market down firmness but stocks held in the face of the dreaded word Stagflation. On top of that Uncle Alan just can’t seem to fade away and he commented that the sub prime loan problem may be more serious that the markets are taking them.

Overnight Asia was strong as the drop of 100 points and rally to positive territory on Wednesday by the DJIA gave overseas markets some renewed confidence. European markets closed higher by 1% or better on Thursday also.

Gold is higher by $5 to $647 on Thursday and oil is at $57.50.

We are still getting our land legs under us after our foray to Ohio and we’ll be ready to share total wisdom by next week.

With today’s action the markets have regained about half of what they lost on Tuesday and so we don’t expect much more upside for the rest of the week.

We will have another post tomorrow as the markets react to CPI which is announced at 7:30am Friday morning.

Enjoy the basketball.
*****

 

14 March 2007 Daily Comment

Thoughts

NKU was whomped last night in the regional final. And so we end our season with a great 24 wins and nine losses. Wait till next year.
http://www.nku.edu/~athletics/
*****

Yesterday the stock markets headed south with a 240 point loss in the DJIA and overnight Asia followed our markets lower. Oil dropped under $58 yesterday and hasn’t recovered today and Treasuries finished strong and remain firm today as the stock markets are trying to stage a rally.

Our guess is that there is more to go on the downside. We may consider some short term trades if the major measures get down about 10% from their high but for now we are content to remain in cash earning 4.3%.

We’ll be home tomorrow afternoon and have another post then.
*****

 

13 March 2007 Daily Comment

Thoughts

Beware the Ides of March

The stock markets closed slightly higher on Monday and at midday Tuesday they have given back all of their Monday gains. The pending bankruptcy of New Century, the sub prime lender, is a weight and Asian markets were mostly lower overnight as well.

Treasuries are stronger and Oil is approaching the $60 level again as gasoline prices rise around the country.

The game for the Regional Championship is early this evening (listen or watch streaming video at www.nku.edu/~athletics/ ) so we are going to take the rest of the afternoon to focus.

We’ll have another short post tomorrow night.
*****

 

12 March 2007 Daily Comment

Thoughts

We are still in Findlay Ohio for the NCAA division II regional basketball final. The Northern Kentucky Men’s Basketball Team has made it to the final 16 teams in the country still playing in that division by beating the number 3 ranked team in the country in Division II. If you would like to read the story you may at www.nku.edu and then click on the first news story.

The Sweet 16 Final is tomorrow night and we are remaining for that game.
*****

The markets were mixed on Friday. After being up 75 points on the DJIA in the early going because of a just right Employment Report the major measures surrendered their gains and moved to negative territory until the final hour when most of the major stock measures moved to positive territory.

In Monday’s early trading the markets were mixed. Oil was down over $1 to 58.35 and Treasuries were weak with the two-year at 4.62% and the ten-year at 4.53%.

We are heading off to see if we can find the family farm on our father’s side of the family. It is near Mt Gilead, Ohio which is near where we are staying.

We’ll have another short post tomorrow.
*****

 

8 March 2007 Daily Comment

Thoughts

There will be no post on Friday as we are heading to Chicago on business and then to Ohio for business and the NCAA Division II Regional in which NKU is playing.

Thoughts

It looks like the tail may have become the dog. On Wednesday the Asian markets did not follow the U.S. markets higher after Tuesday’s large gain in the U.S.market. Asian markets mimicking American markets have been the norm for nigh these many years. Overnight Wednesday (Thursday in Asia) the Asian markets were strongly higher and this morning the U.S. markets are going to open higher.

Australia All Ordinaries     - 0.06%
Hong Kong Hang Seng      + 1.36%
Japan Nikkei                       + 1.94%
Singapore STI                     + 2.07%
South Korea Composite      + 0.92%
Taiwan Weighted                + 1.24%
India Sensex                         +3.73%
*****

Gold is up $2 in the early going and Oil is off a few pennies.

Treasuries are giving ground on the higher stocks scenario since about 10 basis points of the yield rally in Treasuries is due to the sell off in stocks in the last week and the flight to quality trade.
*****

Twenty-nine of thirty DJIA stocks are higher out of the gate this morning as the bulls are in control for now. Wal-Mart is the only DJIA stock lower on a disappointing same store sales increase of 0.9% for February.
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The yen feel sharply overnight, which boosted Japanese exporters and relieved some of the pressure on the carry trade which is what helped Japanese stocks.
*****

An interesting interview with George Soros:
http://www.ft.com/cms/s/269b437c-ccca-11db-a938-000b5df10621.html
*****

At 1pm New Century Financial’s, a sub prime mortgage lender, share price fell $1 (it was already down from $51 to $5) on rumors that would seek Chapter 11 bankruptcy protections.

This drop in NEW precipitated a drop in the DJIA from up 100 points to up 40 points at 1:30pm before stocks began to recover.

The worry of a bankruptcy in NEW and the effect of sub prime lender bankruptcies on the earnings of major banks and brokers that have financed their lending is the reason for the market nervousness.
*****

Gold ended unchanged at $653 and Oil was down 18 pennies at $61.64. Treasuries had a bid at the close but still were lower with the two-year at 4.55% and the ten-year at 4.51%.
*****

European bourses closed higher:

FTSE London       +1.16%
CAC France         +1.27%
DAX Germany      + 1.44%
IBEX Spain           +2.02%
MILAN                +1.27%
AMSTERDAM    +1.48%
STOCKHOLM   +1.96%
SWISS                  + 0.87%
*****

The DJIA backed off toward the close but still was up 66 points at 12260. The S&P 500 gained 10 points to 1401 and the NAZZ was up 13 points to 2387.

Breadth was better than 2/1 positive and volume was active.

There were 175 new highs and 95 new lows.

And there will be no post tomorrow but the big boys and girls will be playing their games. The Employment report is released in the morning and that will set the tone for the day.
*****

 

7 March 2007 Daily Comment

Thoughts

Asia closed mixed overnight with Japan and Hong Kong and India lower but Shanghai was higher. European bourses are also mixed at midday. Gold is up $2 in early NYC trading and Oil is a few pennies higher. Treasuries are flat.

The Fed Beige Book is released today.
*****

Oil inventories and gasoline and distillates inventories were all lower than expected by a wide margin and Oil is rallying up $1 on the miss. There was fog on the Houston Ship Channel that prevented delivery of supplies.
*****

Investors Intelligence showed a drop to 46% Bulls and a rise to 27% Bears and 26% for a correction in the latest week.
*****

Google was raised to a buy by UBS and it is trading lower at 10:30am. Maybe everyone who wants to won it already does own it.
*****

The Beige Book release was a non event for the markets.
*****

Oil ended up $1.16 at $61.85 in NYC. Gold gained $7 to $653 and Treasuries were firm with the two-year at 4.53% and the ten-year at 4.50%.
*****

European bourses were higher at their close:

Belgium          + 1.21%
U.K.                + 0.29%
France             + 0.33%
Germany         +0.34%
Netherlands     +0.78%
Norway           + 0.29%
Spain               +0.63%
Italy                  -0.01%
*****

We spent the day watching the Big East tournament which we will also be doing tomorrow. There will be no post on Friday as we are heading to Chicago on business and then to Ohio for business and the NCAA Division II Regional in which NKU is playing.
*****

After being higher most of the day the DJIA lost ground in the last hour to finish in the minus column.

The DJIA closed down 20 points to close at 12188. The S&P 500 lost 3 points to 1391 and the NAZZ dropped 10 points to 2382.

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

There were 135 new highs and 80 new lows.

And there are two more trading days this week.
*****

 

6 March 2007 Daily Comment

Thoughts

Asia was higher over night as Japan was up after five losing sessions:

Australia All Ordinaries        + 1.91%
Hong Kong Hang Seng         + 2.11%
Japan Nikkei                          + 1.22%
Singapore STI                        + 1.82%
South Korea Composite        + 1.95%
Taiwan Weighted                  + 1.45%
*****

European bourses are higher at midday and U.S. futures are indicating a strong opening. The bulls are going to have their way in the early going and then we’ll see how much latent buying desire there is. Gold is trading +8.50 to 647.5 and crude oil  is +0.55 to 60.62 this morning. Treasuries are weaker as the stock markets are up.
*****

United Health the second largest health insurance company whose CEO resigned because of an options backdating scandal (but kept the money he made) said options backdating at the managed-care provider will result in the company reducing previously reported earnings by a combined $1.55 billion. Now that is a miss. And so far no one has gone to jail.
*****

Citigroup announced a $10.78 billion deal to take control of Nikko Cordial, in what would be the biggest foreign acquisition of a Japanese brokerage firm. We suppose the money was burning a hole in their pockets. The CEO of Citi has been under pressure to get the price of the shares moving higher.
*****

Productivity was revised to down to + 1.6% from the +3% figure released Februarys 7. Unit Labor Costs was revised to + 6.6% from an initial figure of up 1.7%. The net effect of the rise in Unit Labor Costs was almost entirely due to one-time payments to high income workers like bonuses to Wall Street workers. (Nonfarm productivity and costs provide measures of the productivity of workers and the costs associated with producing a unit of output. During times of inflationary concern, the unit labor cost index in this report can move the market. If productivity is falling, unit labor costs may be rising faster than hourly earnings and other labor cost measures. Because productivity can be quite volatile from one quarter to the next and because the previously released GDP report will give a good indication of productivity growth, this report seldom has a significant impact on the market. In addition to the preliminary report, a revision to the productivity data is released in the third month of each quarter.
*****

Alan Greenspan said there's a ``one-third probability'' of a U.S. recession this year and that the current expansion won't have the staying power of its decade-long predecessor.

``We are in the sixth year of a recovery; imbalances can emerge as a result,'' Greenspan, 81, said in an interview yesterday at his office in downtown Washington. ``Ten-year recoveries have been part of a much broader global phenomenon. The historically normal business cycle is much shorter'' and is likely to be this time, he added.
*****

We often speak of market breadth. Breadth is a measure of overall market strength and is the relationship of stocks that are higher on the day vs. stocks that are lower .

Thus if 1000 stocks are trading higher than last night’s close and 500 stocks are trading lower market breadth would be 2/1 positive. Conversely if 1000 stocks are trading lower than the previous night’s close and only 500 are trading higher market breadth would be 2/1 negative.
*****

It’s interesting and important that today’s market up is following on the heels of up markets in Asia. Five years ago Asian markets followed U.S. markets. That seems to have reversed to some degree.
*****

In the early going our screen is a sea of green.
*****

Pending home sales were down 4.1% for January when down 1.7% was expected. Factory Orders for January were down 5.6% when down 4.8% was expected.
*****

General Motors, the auto company, may have to take a $ 1 billion charge (loss) on its mortgage portfolio held by 51% owned subsidiary GMAC.
*****

European bourses closed higher on Tuesday:

Belgium          + 0.75%
U.K.                + 1.32%
France             + 0.97%
Germany         +  0.92%
Netherlands     +   0.54%
Norway           +  1.06%
Spain               +  0.56%
Italy                 +   0.54%
*****

Oil ended up 60 pennies at $60.69. Gold gained $7 to $646. Treasuries were higher in yield and lower in price on the increase in stocks with the two-year at 4.57% and the ten-year at 4.53%
*****

The bulls won the day with up over down volume as skewed to the upside today as it was skewed to the downside on last Tuesday.

The DJIA gained 155 points to 12205. The S&P 500 was up 22 points to 1397 and the NAZZ rose 45 points to 2385.

Breadth was better than 3/1 positive and volume was active.

There were 120 new highs and 110 new lows.

And the big boys and girls have three more days of fund games this week.
*****

 

5 March 2007 Daily Comment

Thoughts

Asia was lower last night- big-time: Hang Seng -4.00%, Nikkei -3.34%, India -3.66%, Taiwan -3.74% and Shanghai -1.63%.
European markets are also lower at midday: France -1.68%, Germany -1.94%, London -1.61%, Austria -2.08%, Swiss Mkt. -1.68% and Stockholm -2.92%.

Gold is down $3 at $640 and Oil is down $1.13 at $60.57 in the early Monday going. Treasuries have a bid on the backs of the Asian and European sell off.
*****

Stocks opened lower and then rallies to the plus side after 9am and now after and hour of trading are holding at better levels.
*****

The ISM non-manufacturing Index was 54 versus 57 expected.
*****

The DJIA moved to up 65 points in the second hour of trading only to move to the negative side in the third hour. In the fourth hour the DJIA is again up 40 points.
*****

European bourses took heart form the U.S. market holding and halved their losses by the close of trading.
*****

Oil ended down $1.62 at $60.02 in NYC. Gold dropped $5 to $639. Treasuries closed flat to lower as the stock markets strengthened and the two-year closed at 4.54% with the ten-year at 4.51%.
*****

The DJIA lost 65 points to close at 12050. The S&P 500 was down 13 points at 1372 and the NAZZ dropped 27 points to 2341.

Breadth was more than 2/1 negative and volume was active.

New lows expanded to 275 while new highs contracted to 95.

And there are four more fund and games days for the big boys and girls this week.
*****

 

2 March 2007 Daily Comment

Thoughts

Asia was mostly lower overnight:

Australia All Ordinaries     - 0.40%
Hong Kong Hang Seng     + 0.49%
Japan Nikkei                    - 1.35%
Shanghai Composite         + 1.20%
Singapore STI                - 0.45%
South Korea Composite   - 0.20%
Taiwan Weighted             -0.10%
Sensex India                   -2.07%
*****

European bourses are mixed at midday. Gold is off $10 in morning trading in NYC and Treasuries have a bid.

The University of Michigan Sentiment Index was 93 in February versus 96 in January.
*****

Dell is higher on lousy earnings and a warning going forward.

The Gap is lower on lousy earnings and a warning going forward. We like that Gap is closing the new Forth & Towne chain to concentrate on the main business. GPS is priced at one times sales while many of the other specialty retailers are 3 times or more sales. Of course The Gap is a mature line of stores but there is potential to turn it if they can develop a concept that works.
*****

Stocks opened lower on Friday but after two hours of trading the major measures are trying to poke into positive territory. Trading volume is active and breadth is 3/2 negative.
*****

Top Single-Day DJIA Declines of the Last 10 Years

Date

% Decline

Notes

10/27/97

7.2

 

9/17/01

7.1

First trading day after 9/11

8/31/98

6.4

Long term Capital management blowup

4/14/00

5.7

Top of the market

7/19/02

4.6

 

9/20/01

4.4

 9/11

8/27/98

4.2

 

9/3/02

4.1

 

3/12/00

4.1

 Top of the market

9/27/02

3.7

 

3/7/00

3.7

 Top of the market

10/12/00

3.6

 

3/24/03

3.6

 

8/4/98

3.4

 

2/27/07

3.3

3/7/00 ??

The top in 2000 came in the early March time period as did the top in 1972.
*****

Warren Buffet’s annual letter to shareholders: http://berkshirehathaway.com/2006ar/impnote06.html
*****

With the Chinese market up 130% in the last year it is ironic that in China 2007 is the year of The Pig. It is not the Year of the Bull or the Year of the Bear. And we all know what happens to pigs.
*****

European bourses ended unchanged to lower:

Belgium            0.10%
U.K.                  0.00%
France              -0.49%
Germany          -0.47%
Netherlands      -0.37%
Norway              0.69%
Spain                -0.73%
Italy                  -0.28%.
*****

Gold closed down $21 at $644. Oil lost 36 pennies to end at $61.64 in NYC. Treasuries rallied as stocks dropped and the two-year went out at 4.55% and the ten-year at 4.52%.
*****

Mexico lost 0.75% and Brazil was down 2.17%.
*****

The DJIA and S&P 500 are now down about 5% from their highs a few weeks ago. That is the correction many bulls were calling for so the coming week may see a rally into Triple Witching on Friday next.
*****

We see one major financial blog fellow talking about a Back Friday/Monday scenario ala 1987. We don’t know where he was but as we continually reiterate, in 1987 the markets were down 20% over 45 days before the Crash that lopped another 20% off occurred.

We were there in 1987 and this is not yet a 1987 scenario. In fact is much more a 1972 scenario and we were there too.
*****

The DJIA closed down 121 points at 12113. The S&P 500 lost 16 points to 1387 and the NAZZ was off 36 points to 2368.

Breadth was more than 2/1 negative on the day and volume was active.

Combined new lows (132) on the NYSE and NAZZ exceeded new highs (129) for the second day in a row and this hasn’t occurred in many months.

And the big boys and girls need to rest and lick their wounds for the weekend so they will be ready to play fund games on Monday.
*****

 

1 March 2007 Daily Comment

Thoughts

The major measures are opening 1% lower this morning as the Asian Contagion continues. This morning’s sell off is supposedly the result to the unwinding of the carry trade. We mentioned the carry trade several days ago and have a better explanation below

One reason Tuesday's plunge in global stocks happened so fast involved money that helped fuel their recent rise: super-low-cost funds from Japan.

From 2001 until July 2006, Japan's central bank kept its benchmark short-term interest rate at zero, and even after a rate increase last week, the rate is only 0.5%. That compares with 5.25% in the U.S. and 3.5% in the euro zone. The difference has enabled investors to profit by borrowing money in yen to buy higher-yielding assets denominated in other currencies.

This technique is known as the carry trade -- because it takes advantage of the gap in returns, or "carry," from different assets. Once the preserve of sophisticated financial traders like hedge funds, its use now has spread to include mutual funds and others in countries where yen loans are available.

To execute a carry trade, investors have to sell the yen they borrow so they can buy assets in other currencies. With so many investors selling yen, the growth of the carry trade helped push down the yen in recent months to its lowest level in years against major currencies. That makes the carry trade more attractive because a falling yen makes profits earned in other currencies worth more in comparison.

When concerns about the U.S. economy and overheated stock markets around the world helped trigger market drops Tuesday, investors say the unwinding of yen loans accelerated the declines. Market participants say it is likely that when some investors grew nervous, they began to sell their holdings in everything from Indian stocks to the Australian dollar and used the proceeds to buy yen to pay back their loans.

Investors' rush to buy yen pushed up the value of the yen against the dollar by more than 2% on Tuesday. In New York yesterday, the dollar rebounded to 118.41 yen, up from 117.98 yen late Tuesday, but still below 120.57 yen the day before.

"Everything that happened was consistent" with the unwinding of carry trades, said Jay Bryson, global economist with Wachovia Corp. in Charlotte, N.C. "We had the Japanese yen strengthening and high-yielding currencies declining." Mr. Bryson thinks such unwinding could continue over the next week or two if investors reduce their positions in stock markets that have posted big gains in recent months.

There had been concerns about the risks of carry trades. When the Bank of Japan last week raised rates despite few signs of inflation, Governor Toshihiko Fukui cited "extreme positions" in financial markets that could result in sudden and dramatic swings. European Central Bank President Jean-Claude Trichet told market participants to be "aware of the risk in one-way bets," such as carry trades.
*****

The carry trade may be the proximate reason for the correction but the underlying reason is the pendulum effect and the need for markets like all other events, conditions, and creatures to seek equilibrium. A move for too long in one direction requires a move in the opposite direction to relieve stress. That is what is occurring now. After such a move has run its course then the markets either resume their upward move or in very rare instances they move violently lower in a mirror move to the topping move that they have been correcting. That is our maxim that markets never crash off the top.
*****

Asian markets were lower overnight:

Australia All Ordinaries      - 0.38%
Shanghai Composite           - 2.91%
Hong Kong Hang Seng       - 1.55%
Japan Nikkei                        - 0.86%
Singapore STI                     - 0.37%
South Korea Composite      - 2.56%
Taiwan Weighted                - 2.83%
Shanghai                              -2.93%
*****

Jobless claims for the latest week were 338,000 which a few thousand more that expected.

Personal Income for January was up 1% and Personal Spending was up 0.5%.
*****

European markets were mixed at midday but will begin selling off if the early morning down in the U.S. market continues.

Support on the DJIA is at 11855 and Resistance is at 12500. After fifteen minutes of trading the DJIA is down 200 points at 12060.

Support on the S&P 500 is at 1364 and Resistance is at 1430. After fifteen minutes of trading the S&P 500 is down 25 points at 1382.

Trading curbs are in effect which means that no computer program trades may occur.
*****

Alan Greenspan said a recession in the U.S. is possible, though not probable this year as excess inventory is being reduced quickly, according to people attending a CLSA Japan Forum in Tokyo Thursday. “By the end of the year, there is the possibility, but not the probability of the U.S. moving into recession.”
*****

ISM Manufacturing Index was 52.3 in February versus 49.3 in January. That means manufacturing is improving. ISM Prices Paid was 59 versus 54 expected.

The strong ISM number has allowed the major measures to rally 150 points. That is an indication of the lack of conviction either way in the marketplace.
*****

Carl Icahn filed to buy more Motorola stocks. As with Time Warner Icahn has no long term interest in the company, he is just trying to make a buck. While that is a laudable goal for Carl we are mystified as to why managements cater to him. In goofy markets like this there are enough cowboys and cowgirls around to hitch a ride and move the stock price higher for Carl to exit at a profit.

Icahn wants Motorola to spend its $10 billion cash on hand on a special dividend or stock buyback. That is what Ford did in 2000 with the result that it is close to bankruptcy this year.
*****

Today’s WSJ had a story on today’s front page about traders who benefited from Tuesday’s stock collapse and Treasury rally. And the first person they mentioned was John Meriwether. He is the fellow who ran Long Term Capital which was the hedge fund that blew up in 1997 and almost took the whole financial community to the woodshed as the fund went out of business and lost billions of dollars for investors in the fund not to mention the overall market investors who sold when the markets collapsed and that is when billions of hedge fund dollars were a lot more than they are now when hedge fund dollars are measured in trillions.

That this fellow is still running money is a tribute to Wall Street’s lack of memory and other people’s money syndrome. Meriwether now runs $2.6 billion and the WSJ say his fund was up in February. Whoopee.
*****

After an hour and one half of trading NYSE volume is approaching 1.5 billion shares. Program curbs are no off and programs are moving the major measures. Breadth remains 3/1 negative but the S&P 500 and DJIA are both moving toward the positive column.
*****

It took till 1:30pm for the major measures to reach positive territory but they are now positive.
*****

Gold closed down $7 at $665. Oil was up 21 pennies at $62 at the close of NYC trading. Treasuries closed better but off their best levels as the flight to quality money slowed with the markets rebounding. The two-year ended at 4.61% and the ten-year was at 4.55%,.
*****

European markets closed lower:

Belgium           -0.87%
U.K.                -0.90%
France             -1.05%
Germany         -1.12%
Netherlands     -1.68%
Norway           -0.97%
Spain               -1.291%
Italy                 -1.14%
*****

General Motors reported a 3.4% rise in U.S. vehicle sales for February, and, separately, said it will postpone filing its 2006 financial results until mid-March. A sharp drop in so-called fleet sales drove Ford's sales down 13%. Chrysler, which recently announced a major restructuring, saw its monthly sales fall 7%l. Toyota vehicle sales were up 12.2%.
*****

We are baffled by the fact that 4th Quarter GDP was revised downward from 3.5% to 2.2% and no major talking heads are commenting on the miss. Adjusting the main number of the economy by 33%, that is missing the number by 33% in the preliminary report on January 31 seems to us to be a gigantic calculation miss.
*****

The DJIA was in positive territory at 2pm but settled lower on the day. The DJIA traded in a 250 point range.

The DJIA lost 35 points to close at 12235. The S&P 500 lost 4 points to 1402 and the NAZZ was down 13 points at 2403.

Breadth was 3/2 negative at the close and volume was very active.

New lows overtook new highs 170 to 150.

And there is one more day of foolishness this week.
*****

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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