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


The princess and prince are here at the farm for their Spring Break this week and so we will not post again until April 4. Happy April Fool’s Day.

March 31, 2011

Model Portfolio Value As of 31 March 2011

$ 603,062


March 30, 2011

Model Portfolio Value As of 30 March 2011

$ 606,762


March 29, 2011

Model Portfolio Value As of 29 March 2011

$ 605,283


March 28, 2011

Model Portfolio Value As of 28 March 2011

$ 605,329


March 25, 2011

Model Portfolio Value As of 25 March 2011

$ 604,976


Thoughts

Asia was higher overnight as is Europe at midday. Gold is $1433 and Oil has a $105 handle in early trading. U.S. futures indicate a mildly positive opening.
*****

We added shares of Intel and initiated a position in Best Buy as it hit two years lows on analyst downgrades on earnings news. We’d rather buy on the lows and sell the highs.
*****

(WSJ) Best Buy Co. reported a 16% quarterly profit drop and warned that an ongoing sales slump could continue through this fiscal year as the world's largest electronics chain continued to struggle amid stepped-up competition from Wal-Mart Stores Inc. and Amazon.com Inc. The Richfield, Minn., retailer said sales at stores open at least 14 months declined 4.6% during the three months ending Feb. 26, due largely to disappointing demand for flat-screen televisions. Revenue was also hurt by a sharp drop in demand for new computers compared to 2009, when Microsoft Corp. released its Windows 7 operating system.

Still, Best Buy managed to eke out higher gross profit margins of 24.3%, up from 24% a year earlier, thanks in large part to an increased emphasis on more profitable smart phones.

Excluding a bevy of one-time charges tied to Best Buy's recent decision to shutter operations in Turkey and close its namesake stores in China, the earnings of $1.98 per share were better than Wall Street braced for. But factoring them in, net income dropped to $651 million or $1.62 a share, from $779 million in 2009.

Best Buy shares dropped 4.4% to $30.46 early Thursday afternoon following the lackluster news.

"We are never 100% satisfied with our customer experience and we intend to make it better," Best Buy Chief Executive Brian Dunn said in a conference call with investors, vowing to retool the company's big-box stores to separate the retailer from discount stores and online merchants.

With online sales growing far faster than those of physical stores, and customers growing increasingly comfortable comparing online and in-store prices with their mobile phones, analysts are growing increasingly concerned that Best Buy's business model will be under pressure.

Best Buy acknowledged that its U.S. share of the electronics market dropped more than one percentage point for the full year to roughly 22%. But Mr. Dunn and other executives played down the threat, saying that they were boosting online TV assortments to better compete with competitors such as Amazon, and evolving to emphasize appliances and used videogames in stores.

Still, company executives acknowledged they have begun considering ways to downsize the company's aging fleet of big-box stores, which have reduced selections of former hot sellers such as compact discs as digital music downloads have become dominant. Craig Johnson, president of retail consultancy Customer Growth Partners, estimated Best Buy's operating earnings per square foot dropped 8% to $36.52 over 2009, highlighting an excess of store space.

For the current fiscal year, Best Buy cautioned that comparable store sales would range from flat to down 3%, and that revenue would range from $51 billion to $52.5 billion, a modest rise of 1% to 4%.
*****

If you paid $1 in federal taxes you paid more taxes this year than did GE: General Electric CEO Jeffrey Immelt was hired this year by President Obama to advise on future corporate tax changes.

General Electric paid no tax at all in America last year and even managed to get a $3.2 billion ‘rebate’ from the government.

The utilities giant allocated just 7.4 per cent of its $5.1 billion U.S. profits in tax - around a third of what others companies its size are paying.

But through a complex series of measures GE, which is America's largest company, will not even have to hand that over.

Making money: General Electric, whose CEO is Jeffrey Immelt, avoided paying tax in the U.S. at all last year

Instead it will get $3.2 billion back from the U.S. government after paying top tax lawyers and lobbyists to work the system on its behalf.

The disclosure by the New York Times will enrage small business owners and taxpayers who are struggling to get on their feet after the recession.

They end up paying their fair share - or being clobbered by red tape - simply because they do not have the money to hire expensive lawyers to help them avoid paying up.

Across the whole of America such strategies have pushed the corporate share of the nation’s tax receipts down from 30 per cent in the mid 1950s to just 6.6 per cent today.

GE has emerged as one of the most skilled practitioners of tax avoidance. Last year it set aside a mere 7.4 per cent of its $5.1billion U.S. profits for tax.

But according to the New York Times, this percentage will only be paid if GE brings overseas profits back to the U.S.

If it does not do so the company effectively gets money back from the IRS.

Working together: General Electric’s chief executive Jeffrey Immelt was hired by President Barack Obama to advise him on future corporate tax changes

GE has hired a string of lobbyists to ensure it pays as little tax as possible including one law firm made up of former officials from the IRS, the Treasury and almost all the tax committees in Congress. Over the last five years records show that the firm has chalked up $26 billion profits - but received a net benefit from the IRS to the tune of $4.1billion.

Worldwide GE made $14.2 billion last year alone.

‘In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,’ said Len Burman of the Tax Policy Center.

‘But in our system, there are corporations that view their tax departments as a profit centre, and the effects on public policy can be negative.’

GE claims its tax strategy is necessary to help it survive in a competitive global environment but critics say the loopholes are little more than ‘corporate welfare’. General Electric allocated just 7.4 per cent of its $5.1 billion U.S. profits in tax last year, but it will not even have to hand that over. The money GE is saving should be used to help small firms and entrepreneurs to create jobs and boost the economy, they say.

President Barack Obama shows no sign of clamping down on corporate tax and even hired GE’s chief executive Jeffrey Immelt to advise him on future changes.

‘He understands what it takes for America to compete in the global economy,’ M. Obama said after his appointment. Company spokeswoman Anne Eisele said: ‘GE is committed to acting with integrity in relation to our tax obligations. ‘We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.’

Read more:
http://www.dailymail.co.uk/news/article-1370001/General-Electric-avoids-paying-tax-entirely-dodges-incentives.html#ixzz1Hdt8HixU
*****

Diane Swonk, Chief Economist Mesirow Financial: Books Close on Fourth Quarter

Real GDP rose a revised 3.1% in the fourth quarter, up from the revised estimate of 2.8%, and largely in line with most economist expectations. The increases showed up as a smaller-than-previously-reported slowdown in inventory accumulation and somewhat better investment numbers. Business spending on computers alone added almost 0.1% to fourth quarter growth.

Today's figures close the books on revisions to 2010 for the moment. We still have the benchmark revisions and changes to the inflation basis, however, which could dramatically alter how we view this period in the years to come. Indeed, the GDP data is one of the many places in life where hindsight is not 20/20; instead it is miserably distorted by the limits to information we have while actually living it.

More importantly, preliminary data on the first quarter of 2011 is shaping up to be significantly below most initial estimates. The housing market remains particularly dismal, a sector I will be focusing on in the next edition of Themes on the Economy. Indeed, it now appears that growth decelerated rather than accelerated from the end of 2010 into the start of 2011. Everything, from unusually inclement weather to political instability in oil-producing regions of the world (and surging oil prices) and the disruptions to economic activity associated with Japan's devastating earthquake and tsunamis, accounted for the slowdown in growth.

Bottom Line: The key issue is whether we can regain momentum during the remainder of the year. The answer is yes, but not enough, especially for the ranks of long-term unemployed who are now turning to welfare rolls and disability insurance to try to keep food on the table in the absence of more robust job growth.
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Gold dropped $7 during the day to end at $1426. Oil closed at $105.30 and European bourses ended higher.
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The major market measures closed higher in light trading. Breadth was positive.
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March 24, 2011

Model Portfolio Value As of 24 March 2011

$ 605,942


Thoughts

Asia was higher as is Europe at midday. Gold is $1441 and Oil has a $106 handle as the trading day begins.
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Nvdia is higher.

(Schaeffer reports) NVDA has tacked on more than 4% this morning, after announcing the launch of its GeForce GTX 590 -- which it describes as the world's quietest and fastest dual graphics card. Thanks to today's surge, NVDA is extending a recent rebound from support at the $17 level and its 120-day moving average.

If the stock continues to trek higher, NVDA could catch a lift from short-covering support. Following a 6.3% increase during the most recent reporting period, nearly 4% of NVDA's float is dedicated to short interest.
*****

We doubled our BP holdings and added Sprint, Medtronic and Coldwater Creek. Sprint is the odd telephone company out in the merger game and even though Verizon said it has no interest in Sprint is a logical acquisition for Verizon at double the current share price. 50 million users is the bait. Medtronic is losing share to St. Jude in defibrillators and is unloved-- as is Coldwater which is priced as if it is going out of business. CWTR is a reward/risk speculation.
*****

Matt Taibbi on the effect of speculation on Oil prices:

In other news, Goldman has done an analysis of the 2008 commodities spike and concluded that speculators added some $9.50 to oil prices on average during the 2008 bubble (when Oil jumped to $150). This is interesting and very telling because Goldman's analysis excludes so-called "passive" index speculators -- i.e. pension funds who buy commodity futures as investments. Since there was nearly $300 billion of this sort of passive "long-only" money (meaning that all of this was money betting on prices to rise) in the commodities markets in 2008, it stands to reason that Goldman is wildly underestimating the effect of commodities speculation.

Piggybacking on Goldman's math, Energy Intelligence Finance did its own analysis and concluded that speculation more likely added a $60 premium to oil prices in 2008. With oil prices again soaring well past $100 a barrel, we appear to be in a virtual repeat of the 2008 scenario, although there are obviously other factors involved this time around. But be prepared for all sorts of "analysis" papers of this sort that underestimate the effect of speculation on the current food and energy price spikes -- I will be shocked if they don't manage to keep commodity speculation from being an issue in the next presidential campaign, no matter how high gas prices end up going

http://www.rollingstone.com/politics/blogs/taibblog/lloyd-blankfein-gets-a-pass-in-rajaratnam-testimony-goldman-gets-it-wrong-on-speculation-20110324
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(MarketWatch) — Women’s clothing retailer Talbots Inc., which has underperformed the broader market, saw its shares surge 28%, their biggest percentage gain in more than two years, after the company reported a fourth-quarter loss less than it had previously expected. Acknowledging a fashion mistake that hurt Talbots holiday sales, Chief Executive Trudy Sullivan also laid out plans to help turn around the retailer’s business. The company used actress Julianne Moore in its March catalog and featured a more traditional and classic assortment after it said its January issue was perceived by its customers as too “fashion-forward.” It’s also using more models to appeal to a wider age, diversity and size spectrum. The company also is expanding its plus-size concept. “Although fourth-quarter bottom line results were slightly above our revised expectations, as we previously noted on January 11th, we are disappointed with our performance,” Sullivan said. “Weaker than anticipated customer response to our merchandise assortment and high levels of competitive promotional activity were key factors impacting our results.”
*****

The S&P 500 gained 1%; the NAZZ gained 2% and the DJIA was up .75% in light trading. Breadth was 2/1 to the good. Europe closed on the upside. Oil gave ground in the afternoon to close with a $104 handle and Gold was also lower at $1426 after touching the new high early on.
*****

 

March 23, 2011

Model Portfolio Value As of 23 March 2011

$ 599,361


Thoughts

Asia was lower; Europe is higher; Oil has a $105 handle; Gold is $1433 and Elizabeth Taylor died at 79. She got her money’s worth from life.
*****

We are not surprised. Good luck on getting any money.

(WSJ) Federal regulators are blaming Wall Street's biggest firms for the collapse of five institutions at the heart of the nation's credit-union industry and are seeking to recoup tens of billions of dollars in losses on securities that doomed the five. In one of the broadest accusations that Wall Street helped cripple financial institutions during the crisis, the National Credit Union Administration, or NCUA, has threatened to sue several investment banks unless they refund over $50 billion of mortgage-backed securities sold to the five institutions, called wholesale credit unions. The NCUA is accusing Goldman Sachs Group Inc., Bank of America Corp.'s Merrill Lynch unit,  Citigroup Inc. and J.P. Morgan Chase & Co. of misrepresenting the risks of the bonds to wholesale credit unions, which loaded up on the bonds in their role of investing on behalf of retail credit unions, according to people familiar with the situation.
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(Huffington Post) Portugal's government could collapse Wednesday after opposition parties withdrew their support for another round of austerity policies aimed at averting a financial bailout. The expected defeat of the minority government's latest spending plans in a parliamentary vote will likely force its resignation and could stall national and European efforts to deal with the continent's protracted debt crisis. The vote comes on the eve of a two-day European Union summit where policymakers are hoping to take new steps to restore investor faith in the fiscal soundness of the 17-nation Eurozone, including Portugal.
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Diane Swonk, Chief Economist, Mesirow Fianancial: New Home Sales Plummet Along with Prices
New home sales fell almost 17% to a 250,000 unit annual rate in February, after being revised up slightly for January. Every region but the West posted record lows.

Moreover, prices for new homes took a nosedive and plummeted almost 14% between January and February alone. This reflects a confluence of events, including the surge in foreclosures, which banks are finally putting on the market. Not only do foreclosed properties suppress the prices on all homes in their general vicinity, they offer first-time buyers an extraordinary opportunity to buy cheaply and renovate the property into a much larger home than they could afford in the market for new houses. Indeed, some estimate the premium to build a new house over buying an existing one to be more than 30% now.

Separately, inventories of unsold new homes expanded again; this will continue to put downward pressure on prices in the months ahead. It's significant for several reasons: it makes both buyers and sellers more leery of entering the market, lenders more conservative in their underwriting standards, and last, but by no means least, creates even greater headwinds for employment growth. We have lost some two million jobs in construction since the start of the housing market bust, and have little hope of regaining those jobs until the vicious cycle we are seeing in housing reverses itself.

Bottom Line: The housing market is expected to regain some momentum later this year, but even that forecast may be optimistic. Housing appears to be entering a double dip, and is likely over-correcting. That creates an opportunity for cash-rich, savvy investors, but it's a loss for everyone else. The sheer volume of homeowners whose mortgages are at, or close to being, underwater (i.e., they owe more than the market value of the home) is already staggering, and clearly on the rise.

© 2011 Mesirow Financial Holdings, Inc. ("Mesirow Financial"). All rights reserved.
The information in Diane Swonk's Fed Flash is the proprietary and copyrighted material (the "Copyrighted Material") of Mesirow Financial. The Copyrighted Material, or any portion thereof, may not be reproduced, retransmitted, altered or submitted to any media outlet, or posted on any website aside from mesirowfinancial.com without the express written consent of Mesirow Financial. This information provided here in is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic or other decisions. The views expressed herein are those of the author and may not necessarily represent the views of Mesirow Financial, its operating businesses or other of its employees. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.
*****

We doubled our GE holdings and added BankAmerica to accounts that own Fifth Third.
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Barnes & Noble Said to Be Likely to End Search for Buyer Without a Sale

(Bloomberg) Barnes & Noble Inc. (BKS), the largest U.S. bookstore chain, is likely to end its months-long search for a buyer without a sale of the company, said five people with knowledge of the bidding process.

Private-equity firms and strategic bidders have backed away from the auction, said the people, who asked not to be identified because negotiations aren’t public. Interest from at least seven potential buyers waned after the first round of bidding, the people said.

The auction isn’t over and will probably last a few more weeks before the company officially calls off the search, one person said. Mary Ellen Keating, a spokeswoman for New York- based Barnes & Noble, said the process is still ongoing and declined to comment further.

The chain, facing increasing competition as more people buy electronic readers such as Amazon.com Inc. (AMZN)’s Kindle, hired Lazard Ltd. last year to explore a possible sale. Barnes & Noble makes the Nook e-reader, and some potential bidders balked at a purchase because of how long it may take the chain to generate more digital sales, two of the people said.

A few private-equity funds determined Barnes & Noble is relatively unproven in digital sales and would have to compete in that area with companies such as Apple Inc., Amazon.com and Google Inc., said the two people.

Digital Content

Barnes & Noble Chairman and founder Leonard Riggio has sought to improve results after three years of profit declines, hurt by consumers’ switch to digital content. The chain, which suspended its dividend in February and has sacrificed profit to invest in its e-reader, saw its closest rival, Borders Group Inc. (BGP), file for bankruptcy this year.

Remaining public may put more pressure on Barnes & Noble shares as the company tries to transform itself, Michael Souers, an analyst for Standard & Poor’s in New York, said earlier this month.

“Investors don’t have the most patience in the world,” Souers said. He recommends holding Barnes & Noble shares.

Barnes & Noble fell 16 cents, or 1.7 percent, to $9.09 at 9:40 a.m. in New York Stock Exchange composite trading, giving the company a market capitalization of about $550 million. The shares had plunged 50 percent from Feb. 18, the last trading day before the company eliminated its $1 annual dividend, through yesterday.

Poison Pill

Riggio, the largest shareholder, and the rest of the board began examining a possible sale under pressure from Ron Burkle, who began building a stake in the company in late 2008.

The board responded to Burkle’s stock purchases by introducing a so-called poison pill in November 2009 to limit his ownership to 20 percent. Yucaipa Cos., Burkle’s Los Angeles- based investment fund, sued to overturn the pill and lost.

Yucaipa then waged a proxy contest last year to add Burkle and two other candidates to the board, losing to Riggio’s slate. Yucaipa held almost 19 percent of Barnes & Noble as of October, compared with about 30 percent for Riggio, according to data compiled by Bloomberg.

Riggio’s empire began in 1965 with a college bookstore in Manhattan’s Greenwich Village. In 1971, he bought the Barnes & Noble name and its flagship store in Manhattan. The company expanded through acquisitions, buying B. Dalton Bookseller and Doubleday Bookshops.

U.S. Expansion

The chain shifted from mall-based locations to superstores in the early 1990s. An initial public offering in 1993 provided the capital to expand across the U.S., and by 1996 the company had more than 400 of these locations. The company now has more than 700 superstores and has closed its mall sites.

Barnes & Noble added to its retail locations in August 2009 after buying Barnes & Noble College Booksellers Inc. from Riggio for more than $500 million.

More recently, the company’s investment in developing its Nook digital reader and creating an e-book library have fueled revenue gains. Sales at Barnes & Noble stores open at least a year rose 7.3 percent in the quarter ended Jan. 29, the first gain since 2007. Online revenue, where all digital content purchases are recorded, surged 52 percent to $319.4 million last quarter.

The spending has helped Barnes & Noble narrow the gap with market leader Amazon, which released its Kindle digital book reader in 2007, two years before the Nook’s debut.

E-Book Sales

The Kindle has 67 percent of the e-reader market in the U.S., followed by the Nook at 22 percent, according to a February report from Goldman Sachs Group Inc. (GS) Amazon also generates 58 percent of e-book sales, followed by Barnes & Noble’s 27 percent and Apple at 9 percent.

The retailer may also receive a boost from the bankruptcy filing of Ann Arbor, Michigan-based Borders, the second-largest U.S. book chain, in February. Borders plans to close at least 200 of its superstores as part of its restructuring. Barnes & Noble may take over some of those locations, Chief Executive Officer William Lynch said in February.
http://www.bloomberg.com/news/2011-03-22/barnes-noble-is-said-to-be-likely-to-end-search-for-buyer-without-a-sale.html
*****

The major market measures closed higher in light trading. Breadth was positive.
*****

 

March 22, 2011

Model Portfolio Value As of 22 March 2011

$ 598,220


Thoughts

Spring and Turnaround Tuesday are here. Overnight Asia was higher with Japan up 5% while Europe is mixed and U.S. futures indicate a flat opening. Oil has a $92 handle and Gold is $1427.
*****

States selling future revenue streams is nuts.

Profits on liquor sales generate $228 million for the state of Ohio every year. JobsOhio is set to take over liquor sales oversight and own that revenue stream. They, in turn, will sell 30 years worth of that revenue — worth around $6.8 billion — to a group of investors (recruited by a Wall Street firm, who will of course take a cut) in return for a lump sum payment to the state. According to the administration, they expect to receive about $1.5 billion in return for this $6+ billion in state revenue.
http://ohiobudgetwatch.com/2011/03/wall-street-math-jobs-ohio-funding-resolved/
*****

And now there will be three.

Back in 1983 AT&T broke up into what eventually became 10 different entities. There were also MCI and GTE and a bunch of regional telephone companies. After all the investment banking fees involved in the break ups and now re-combinations we are back to Verizon, AT&T and Sprint.

1983 AT&T Breakup: Lots of Stocks, Subpar Returns
http://tickersense.typepad.com/ticker_sense/2006/01/1983_att_breaku.html

Recently we were asked by the Wall Street Journal how an investor would have fared if they had 500 shares of AT&T prior to its 1983 breakup and held it through today. As the table below details, it is not such a simple calculation. But we thought the results provide an interesting timeline of the evolution of the telecom industry over the last 20+ years. What was once a dominant American long distance telephone company now spans a panoply of wire line, wireless, domestic, international, and cable businesses.

After all is said and done however (and with the help of our Bloomberg terminal), we calculate that the investment which was worth $30,750 then would now be worth around $123,000 spanning a portfolio of 10 different stocks. Over the same period the investment in the S&P 500 would now be worth $239,000.
*****

The major market measures closed slightly lower in desultory trading. Breadth was negative.
*****

 

March 21, 2011

Model Portfolio Value As of 21 March 2011

$ 600,315


Thoughts

This is one of our favorite days since it is the Feast of St. Benedict and was a holiday when we were in high school. Markets around the world are/were higher on news that Japan may be getting the nuclear reactor under control. Unfortunately the death toll continues to rise. The actions in Libya suggest the Western World is interested in keeping the oil supplies flowing.

The markets are also celebrating the news that AT&T is going to acquire T Mobile from Duetsch Telecom for $39 billion. Citigroup is also going to reverse split 1 for 10 so it will get the price of its shares in the $40s.

Gold is $1441 and Oil is $104 as the trading day begins.
*****

Krugman on Greenspan: Rantings of an Ex-Maestro
http://krugman.blogs.nytimes.com/2011/03/20/rantings-of-an-ex-maestro/?smid=tw-NytimesKrugman&seid=auto

Some people have asked me for reactions to this piece by Alan Greenspan on how Obama’s activism is preventing economic recovery. I could go through the weak reasoning, the shoddy econometrics that ignores a large literature on business investment and ignores simultaneity problems, etc., etc...

But never mind; just consider the tone.

Greenspan writes in characteristic form: other people may have their models, but he’s the wise oracle who knows the deep mysteries of human behavior, who can discern patterns based on his ineffable knowledge of economic psychology and history.

Sorry, but he doesn’t get to do that any more. 2011 is not 2006. Greenspan is an ex-Maestro; his reputation is pushing up the daisies, it’s gone to meet its maker, it’s joined the choir invisible.

He’s no longer the Man Who Knows; he’s the man who presided over an economy careening to the worst economic crisis since the Great Depression — and who saw no evil, heard no evil, refused to do anything about subprime, insisted that derivatives made the financial system more stable, denied not only that there was a national housing bubble but that such a bubble was even possible.

If he wants to redeem himself through hard and serious reflection about how he got it so wrong, fine — and I’d be interested in listening. If he thinks he can still lecture us from his pedestal of wisdom, he’s wasting our time.
*****

Diane Swonk, Chief Economist Mesirow Financial:  Home Sales Take a Nose Dive in February

Existing home sales plummeted almost 10% to a 4.88 million annualized rate in February, after being revised up in January. First-time buyers, who are best suited to take advantage of record affordability, surged as a share of buyers during the month, along with all-cash buyers. The proportion of investors fell slightly but remains at elevated levels.

The composition of sales underscores several disturbing trends: the difficulty in gaining financing, the number of contracts that are canceled once appraisals fall short of the agreed price, and how difficult it remains for existing-home buyers to trade up when they are stuck carrying mortgages that are close to, or actually underwater.

Moreover, home prices continued to fall - more than 5% from a year ago - as the number of distressed sales rose to almost 40% of the market. The economics of the market have now made it more attractive for investors to snap up foreclosed and distressed sales to renovate and try for a resale or rental. Indeed, rents exceed the marginal cost of ownership in most markets, especially in the multifamily market, which will eventually play a key role in alleviating inventories.

Bottom Line: The housing market remains the Achilles' heel of the recovery. The lack of home construction is particularly troubling for job creation, as construction is where the bulk of the jobs were lost in the housing market in recent years. The good news is that the economics are shifting in favor of investment in housing, particularly in the multifamily market. Look for apartments that had been condominiums being converted back into apartments in the year ahead. We don't expect to see much of a boost from housing, however, until credit market conditions ease a little further, which is not likely to occur until 2012.
*****

Europe closed higher; Gold at $1426 and Oil at $102.
*****

The major market measures ended on their highs up over 1.5% in light trading. Breadth was 3/1 positive.
*****

 

March 18, 2011

Model Portfolio Value As of 18 March 2011

$ 598,618


Thoughts

March 17, 2011

Model Portfolio Value As of 17 March 2011

$ 596,700


Thoughts

March 16, 2011

Model Portfolio Value As of 16 March 2011

$ 596,121


Thoughts

Japan regained 5% of its 15% two day drop and Asian and European markets also rose overnight. Gold is back to $1400 and Oil has a $99 handle as the trading day begins.
*****

Investors Intelligence had 52% Bulls: 22% Bears; and 25% Correction in the latest week but that was before the Japanese earthquake.
*****

Diane Swonk, Chief Economist Mesirow Financial: Ben Maintains Control over FOMC; Housing Starts Plummet, Producer Prices Soar

The Federal Open Market Committee (FOMC) voted unanimously to continue the $600 billion bond buying program and to hold rates down for an "extended period." The FOMC statement acknowledged both the firming of economic conditions and the recent spike in oil prices, in a nod to hawks among the regional Federal Reserve bank presidents.

The economic gains that we are seeing, however, are still not enough to fulfill the Fed's dual mandate of achieving full employment and long-term price stability. Unemployment remains too high, and any inflation we see with regard to the recent spike in oil prices is expected to be transitory. Indeed, higher oil prices still represent more of a threat to demand than to long-term inflation trends, given the pace of economic growth we are seeing.

Moreover, the Fed is likely to finish its buying program as planned in June.  Members will have little new data, particularly about the labor market, prior to their next meeting in April. The next debate will be whether the Fed sticks with the decision it made last August to continue offsetting the runoff of its maturing portfolio of mortgage-backed securities. The best bet is that hawks will prevail on the latter point, and that the Fed's balance sheet will be allowed to shrink naturally during the second half of the year. That would represent a first step by the Fed toward normalizing monetary policy in the aftermath of the recession. The first rate hike by the Fed is still forecast to occur in January 2012.

Separately, the Fed deliberately shied away from addressing the tragic events in Japan. Frankly, there are too many unknowns to comment; it would be imprudent for the U.S. central bank to attempt to sway market sentiment one way or the other.

Housing starts dropped to a 479,000 annualized level, off more than 22% after increasing a revised 18% during January. That upward revision to January was a bit of a surprise. We knew there was a rush by builders to secure permits in December and start building in January to escape new zoning laws. But lackluster demand and intense competition from the existing market set the stage for a near collapse in February. Housing permits, which precede starts, improved slightly but were still off substantially from January's abysmal level. The course of housing construction is particularly important for employment, as the biggest bang for the buck in job creation comes from starts.

Separately, the producer price index (PPI) surged at a much faster than expected 1.6% rate in February, fueled by sharp increases in food and energy prices. Indeed, this was the first month that the effects of oil associated with political instability in North Africa and the Middle East were included in the data. Moreover, wealthier countries increased subsidies for both food and energy prices to prevent civil unrest. Those subsidies, however, will ultimately blunt market reaction to higher food and energy prices, keeping them artificially elevated for some time to come.

Core PPI (excluding the more volatile food and energy categories) edged up a more modest 0.2%, which underscores the Federal Reserve's position about how difficult it is for higher energy prices to be passed along to other prices. Indeed, the Fed remains extremely concerned that higher energy prices represent more of a threat to demand, than to overall inflation in the longer term.

Bottom Line: Recent blows to confidence combined with the ongoing weakness in housing illustrate how vulnerable the U.S. economy remains to external shocks such as the recent energy price spike. This has allowed the Fed some credence in its view that the current spike in energy price will be transitory. The economy is improving, but against a backdrop of greater uncertainty than just a month ago. That uncertainty is not likely to clear, prior to the next FOMC meeting. I have given up guessing where the next downside or upside shock to the economy may come from.
*****

There is an American talking head on CNBC currently who is standing outside in Tokyo reporting that many people in Tokyo are staying inside because of fear of radiation poisoning.
*****

Nvdia:
(Wikipedia) On June 2, 2008 NVIDIA officially announced its new Tegra product line.[20] The Tegra, a system-on-a-chip (SoC), integrates an ARM CPU, GPU, northbridge and southbridge onto a single chip. Commentators[who?] opine that NVIDIA will target this product at the smartphone and mobile Internet device markets.

On January 5, 2011 NVIDIA announced at CES 2011 a "full custom processor" ARM core called Project Denver which is targeted at the high performance computing market.[21]

On February 15, 2011, Nvidia announced and demonstrated the first quad-core processor for mobile devices at the at the Mobile World Congress in Barcelona. This chip is expected to ship with many tablets to be released in the second half of 2011. [22]

The existence of Project Denver was revealed at the 2011 Consumer Electronics Show[2]. Microsoft also announced that the upcoming Microsoft Windows 8 operating system will be able to run on ARM architecture CPUs such as Project Denver.[3] In a March 4th 2011 Q&A article CEO Jen-Hsun Huang revealed that Project Denver is a five year 64-bit ARM architecture CPU development on which hundreds of engineers had already worked on for three and half years and which also has 32-bit ARM architecture backwards compatibility.[4]

In 2005, about 98 percent of the more than one billion mobile phones sold each year used at least one ARM processor.[3] As of 2009[update], ARM processors account for approximately 90% of all embedded 32-bit RISC processors. ARM processors are used extensively in consumer electronics, including PDAs, mobile phones, digital media and music players, hand-held game consoles, calculators and computer peripherals such as hard drives and routers.

The ARM architecture is licensable. Companies that are current or former ARM licensees include Alcatel-Lucent, Apple Inc., Atmel, Broadcom, Cirrus Logic, Digital Equipment Corporation, Freescale, Intel (through DEC), LG, Marvell Technology Group, Microsoft, NEC, Nuvoton, Nvidia, NXP (previously Philips), Oki, Qualcomm, Samsung, Sharp, STMicroelectronics, Symbios Logic, Texas Instruments, VLSI Technology, Yamaha and ZiiLABS.

Our Reporters Conclusion
ARM is a computer processor architecture that is an alternative to the X86 (Intel) architecture.  ARM uses less power. I don’t have any real experience with these processers.  However, it all seems like good stuff.  Nvidia is now making CPU chips (ARM Processor chips) packages with their GPU (graphics chips) that are/can be used in smartphones and tablets (they can be used in PC’s also, but there Intel dominates).  The advantage of ARM is that it has lower power usage than X86 (Intel); which is good for battery operated devices.  However, Intel is improving and when you add a big screen it takes more power anyway.    Note that ARM will be able to run Windows 8. It seems like Nvidia is positioned in the right places going forward.
*****

This Just In: Wall Street Offers People Unlimited Chances to (Mess) Up

Three years after the collapse of Bear Stearns Cos., which helped fuel the worst financial crisis since the Great Depression, former bond executives of the firm are running businesses at one-time rivals, including Bank of America and Goldman Sachshttp://dealbreaker.com/2011/03
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Now it can be told: The bank that exposed the federal government to the greatest potential loss during the government bailout was Citigroup, which received a grand total of $476.2 billion in cash and guarantees, according to a new report of the Congressional Oversight Panel which oversees the TARP program. For more: http://www.cnbc.com/id/42099554
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Warren Buffett Cancels Trip To Japan (CNBC)

Buffett had been scheduled to attend a Tungaloy Corp. plant opening in Fukushima prefecture on Tuesday, March 22. Tungaloy is owned by Berkshire subsidiary Iscar, a toolmaker headquartered in Israel. He had hoped to make the trip, but canceled after authorities in Japan suggested it would not be the best time to visit.
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Close-up picture of damage at nuclear reactors: http://www.dailymail.co.uk/news/article-1366670/
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There is no constitutional right to local self-government in the United States. In 1907, the Supreme Court decided, in Hunter v. Pittsburgh, that under the Constitution local governments are nothing more than "convenient agencies for exercising … such powers as may be entrusted to them" by the state. As a result, "the state may modify or withdraw all such power, may take without compensation such property, hold it for itself, or vest it with other agencies, expand or contract the territorial area, unite the whole or part of it with another municipality, repeal the charter and destroy the corporation … with or without the consent of the citizens, or even against their protest."
http://www.slate.com/id/2288428/

On the other hand: http://thinkprogress.org/2011/03/16/snyder-power-grab/

Yesterday, the Michigan legislature passed a “financial martial law” bill that allows Snyder to appoint “emergency financial managers” with the power to terminate collective bargaining agreements:

Contracts & Collective Bargaining Agreements. The bill would authorize the emergency manager to reject, modify, or terminate one or more terms and conditions
of an existing contract.

After meeting and conferring with the appropriate bargaining representative and, if in the emergency manager’s sole discretion, a prompt and satisfactory resolution were unlikely to be obtained, the emergency manager could reject, modify, or terminate one or more terms and conditions of an existing collective bargaining agreement.

There’s a pretty serious problem with this power grab, however — invoking it would violate the Constitution. The Constitution forbids state laws “impairing the Obligation of Contracts.” This provision provides a robust limit on a state’s ability to dissolve contracts between the government and a private party. As the Supreme Court explained in United States Trust Co. v. New Jersey, state laws impairing such contracts must be “reasonable and necessary to serve an important public purpose.”

The bill does contain some language requiring the emergency manager and the state treasurer to determine that they are not violating this constitutional limit before a collective bargaining agreement can be blown up, but Snyder’s own budget gives the lie to any claim that an assault on working Americans is “necessary” to ensure that Michigan governments can pay their bills. Snyder proposed a massive $1.73 billion business tax cut even as he was arguing that his anti-union power grab was necessary to restore the state’s fiscal balance.
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This news is from November 2010:
Dresden, Germany - Germany is to drastically cut its armed forces, abolish conscription and prune its military bureaucracy, Defence Minister Karl-Theodor zu Guttenberg announced to senior officers in Dresden on Monday. He said his target for the army, navy, air force and their joint forces corps was 180,000 to 185,000 personnel. Currently the forces, known collectively as the Bundeswehr, have 240,000 to 250,000 people in uniform, so the cut would be about one quarter. (That’s a cut of 50,000.)

The U.S. has 52,000 service people in Germany. Why?
*****

We added shares to our Nvdia and Barnes & Noble positions, and Ford warrants in tax free accounts. We also initiated Boston Scientific and AT&T.
*****

Oil settled with a $97 handle; Gold at $1395. European bourses closed lower on the day.
*****

Quadruple Witching and March 31 Quarter end are in play. Money managers are getting nervous as the major stock measures turn negative on the year. The happy quarterly report that would have made clients content is slowly evaporating.
*****

The DJIA and NAZZ were down 2% at the close and the S&P 500 dropped 1.6% and is now flat on the year and right at support at 1260. Volume was active and Breadth 3/1 negative.
*****

 

The Ides of March 2011

Model Portfolio Value As of 15 March 2011

$ 599,815


Thoughts

The Ides of March have arrived with a vengeance as markets around the world are lower because of the nuclear problems Japan. Gold is down $33 and Oil off $3 in early U.S. trading. But it also Turnaround Tuesday so maybe the magic wand will wave and buying will arrive. This is also a Quadruple Witching Week and so there are myriad cross currents as the HFT boys and girls lick their chops.
*****

It’s always something but we never know when and what until… Who would of guessed?
*****

The Nikkei was down 10% this morning before rallying back to close at 8781. The Nikkei made its all-time high of 40,000 in 1989 when Japan could do no wrong and the property in Tokyo was worth more than the property in the entire United States. That was a bubble.
*****

Diane Swonk, Chief Economist Mesirow Financial: Japan Faces Worst-Case Scenario

Radioactive leakage from the Fukushima Daiichi nuclear plant would be disastrous, second only to an actual meltdown. For the moment, the hope is that winds will shift and Tokyo will be spared, but frankly no one knows the true outcome of such a catastrophe.

The Bank of Japan is now widely expected to ease. Markets around the world are tanking, and I would not be surprised if the Federal Reserve's most vocal hawks are reined in a bit, at least for today's Federal Open Market Committee (FOMC) meeting. We could very well get another unanimous vote for maintaining this second round of quantitative easing (known as QE2). The Fed's terminology for assessing events as they unfold could also take on a whole new meaning.

Note: Japan is a major supplier to China, so it is unclear how China's economy will be affected in the short term. There are clearly going to be some offsets in the global economy, as both the U.S. and Europe move in to fill any gaps caused by interruptions from Japan.
*****

Pity the poor banksters; the Congress comes to their rescue again, and again and again.

(Bloomberg) U.S. Senate and House lawmakers will propose legislation to delay proposed debit-card “swipe” fee caps that have been challenged by financial companies and questioned by bank regulators. Senators worked to complete their bill late yesterday as House Republicans got a first look at language that would put a hold on Federal Reserve rules aimed at making fees paid by retailers “reasonable and proportional” to processing costs, as required by the Dodd-Frank Act.

A proposal by Senator Jon Tester, a Montana Democrat, could be introduced as soon as today, according to his spokesman Andrea Heller. Tester’s bill may seek a two-year delay. House Republicans are planning a bill that would impose a shorter hold, Representative Randy Neugebauer said yesterday. “In the House bill you’re going to see a one-year delay and a study of what should be the composition of an interchange fee,” Neugebauer, a Texas Republican who leads a Financial Services subcommittee, said in an interview. Complete story: http://www.bloomberg.com/news/2011-03-15/lawmakers-preparing-bills-to-delay-debit-card-swipe-fee-caps.html
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If there is a nuclear meltdown in the U.S. don’t worry about the utility stocks because as with the banksters the utilities get the profits and the taxpayers assume the risk.

(Wikipedia) The Price-Anderson Nuclear Industries Indemnity Act (commonly called the Price-Anderson Act) is a United States federal law, first passed in 1957 and since renewed several times, which governs liability-related issues for all non-military nuclear facilities constructed in the United States before 2026. The main purpose of the Act is to partially indemnify the nuclear industry against liability claims arising from nuclear incidents while still ensuring compensation coverage for the general public. The Act establishes a no fault insurance-type system in which the first approximately $12.6 billion (as of 2011) is industry-funded as described in the Act. Any claims above the $12.6 billion would be covered by a Congressional mandate to retroactively increase nuclear utility liability or would be covered by the federal government. At the time of the Act's passing, it was considered necessary as an incentive for the private production of nuclear power — this was because electric utilities viewed the available liability coverage (only $60 million) as inadequate. [1]

In 1978, the Act survived a constitutional challenge in the Supreme Court case Duke Power Co. v. Carolina Environmental Study Group (see below). The Act was last renewed in 2005 for a 20-year period. http://en.wikipedia.org/wiki/Price%E2%80%93Anderson_Nuclear_Industries_Indemnity_Act
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This time it will be different?

(Bloomberg) Vikram Pandit, who steered Citigroup Inc. (C) through a $45 billion government bailout, has staked his bank’s future on emerging markets -- just as investors are pulling back. Citigroup, the third-largest U.S. lender by assets, now earns more than half its profit from developing countries, Chief Executive Officer Pandit said at a March 9 conference in New York. The bank increased assets in Latin America and Asia by 16 percent to more than $470 billion last year, adding customers in countries such as Brazil, Mexico and India.

Pandit, 54, predicted in June 2009 that Citigroup would become the “largest emerging-markets financial-services company,” a long-term bet that could pay off if growth rates keep soaring. The expansion, which coincides with two regulatory reports questioning the firm’s ability to manage risk, could also make it more vulnerable than other U.S. lenders.

“If it grows like a weed, maybe it is a weed,” said Mike Mayo, an analyst at Credit Agricole SA in New York who recommends investors sell Citigroup shares. “They’ve had risk- management mishaps. We’re not convinced the culture has changed enough to prevent similar mishaps from occurring.” Full story: http://www.bloomberg.com/news/2011-03-15/pandit-picks-slumping-emerging-markets-as-future-for-citigroup-in-new-risk.html
*****

We added British Petroleum to larger accounts. With the Republican Congress and President Obama afraid to make waves, BP is going to skate free of the Gulf imbroglio-well relatively free. We also added shares in small percentages of Aéropostale, Yahoo, Nvdia, Hewlett Packard, Merck, Intel and Nokia to accounts and repurchased Ford warrants in tax free accounts. We will be able to buy Ford warrants in taxable accounts next week. Ford should benefit from Toyota’s supply problems.
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(WSJ) The Fed kept its easy-money policies intact as markets reeled from a series of global shocks that could upset a firming U.S. recovery. The Fed noted a strong rise in international commodity prices was putting upward pressure on prices. But officials said that, while they would monitor the evolution of inflation closely, they expect the effects of higher oil prices to be transitory. There was no direct mention of developments in Japan.
*****

European bourses closed 1% to greater than 2% lower. Oil ended at $97.80 down over $3 and Gold lost $30 to $1396.
*****

The major market measures moved over 2% lower in early trading but rallied a bit towards session end to close about 1% lower. Breadth was 3/1 negative and volume was active.
*****

 

March 14, 2011

Model Portfolio Value As of 14 March 2011

$ 600,236


Thoughts

We mourn the passing of a very dear client who trusted us through the ups and downs of thirty five years of market action and was a constant and valued friend. She enjoyed life and now has passed to a better place.
*****

The Ides of March came early in Japan this year. Over the weekend Japanese markets dropped 6% and Asia, Europe and U.S. futures are trading mildly lower this morning. Oil has a $99 handle and Gold is flat.
*****

When severe earthquakes have occurred in Asia they sometimes continue around the Pacific Rim eventually occurring in North and South America.
http://en.wikipedia.org/wiki/Pacific_Ring_of_Fire
*****

Here is a concise explanation of the reactor problems:
http://www.minyanville.com/businessmarkets/articles/nuclear-power-nuclear-power-plant-nuclear/3/14/2011/id/33344
*****

We added a few shares of GE to accounts and also Aéropostale to some large accounts.
*****

Europe closed lower. Oil closed at $101.25. The major market measures recovered half their early losses to close 0.5% lower. Breadth was 2/1 negative and volume light.
*****

 

March 11, 2011

Model Portfolio Value As of 11 March 2011

$ 600,963


Thoughts

The earthquake in Japan looked big time bad. Overnight markets were lower following the drop in U.S. markets yesterday and the knee jerk but probably quickly dissipated reaction to the earthquake. Oil has a $99 handle and gold is $1408 as the trading day begins.
*****

U.S. markets opened slightly lower but are trying to rally after fifteen minutes of trading. The 1280-1300 range on the S&P 500 which is where it is currently trading is important support according to some tech gurus.
*****

Diane Swonk, Chief Economist Mesirow Financial: Retail Sales Rebound with Better Weather; Consumer Sentiment Sours as Oil Prices Surge.

Retail sales jumped 1.0% in February compared to January, the eighth consecutive gain but much less than many expected. Better weather allowed consumers to get out and back to the stores, particularly on the East Coast. Spending on vehicle sales was especially strong, rising 2.3% from the previous month, and more than 20% from the year prior, in response to pent-up demand and easier financing. We have been scrapping vehicles faster than we have been buying them for almost three years now.

Gains in spending at gasoline stations were also fairly large, reflecting higher prices at the pump. This could be the fly in the ointment going forward as consumers, particularly middle- and low-income consumers, are forced to make trade-offs in their still-constrained budgets. Credit remains particularly tight for all but the most credit-worthy of households, while much of the recent rise in employment is occurring among the most educated. The only bright spot is the payroll tax cut, which lifted incomes across the board in January. It appears that much of that increase in spending will be used to fill our tanks, however, rather than broaden our purchases. This is to say nothing of the fiscal drag happening at the state and local levels, which in some cases, Illinois for one, wipes out any of the benefits associated with the payroll tax cut.

The Thomson Reuters/University of Michigan preliminary read of consumer sentiment plummeted from 77.5 to 68.2 in early March, in response to increased turmoil in the Middle East and soaring oil prices. Low-income households are having a particularly hard time balancing their budgets with no increase in their wages, limited (if any) access to credit and surging prices at the pump.

It is worth noting that recent market volatility has taken a toll on confidence in high- as well as low-income households. This contrasts the break between the views of the "haves and have-nots" in February, and is consistent with other measures of confidence that we have seen in recent weeks.

Bottom Line: High-income households are generally expected to do and feel significantly better than middle- and low-income households when gas prices soar. There is no place for the consumer to hide; even the top tier feels it when stock prices get hit as well, which is the case today.  Like it or not, we are all in the same leaky boat together, when it comes to riding out the recovery. Everything from the recent instability in the Middle East and resulting spike in oil prices, to the renewed pressure to make cuts on both federal and state budgets, has forced us to reassess our forecast for 2011. As a result, we are still forecasting growth this year, but it's not looking as bright as it did just a few weeks ago.
*****

Europe closed lower and Oil recovered to $101 while Gold also rose to $1425.
*****

The major market measures regained almost half their losses of the previous session in trading 75% of yesterday’s volume. Breadth was 2/1 positive.
*****

 

March 10, 2011

Model Portfolio Value As of 10 March 2011

$ 599,945


Thoughts

CAESAR
Who is it in the press that calls on me?
I hear a tongue, shriller than all the music,
Cry 'Caesar!' Speak; Caesar is turn'd to hear.

Soothsayer
Beware the ides of March.

CAESAR
What man is that?

BRUTUS
A soothsayer bids you beware the ides of March.

CAESAR
Set him before me; let me see his face.

CASSIUS
Fellow, come from the throng; look upon Caesar.

CAESAR
What say'st thou to me now? speak once again.

Soothsayer
Beware the ides of March.

CAESAR
He is a dreamer; let us leave him: pass.

*****

The major market measures are down 1.5% and more in the first few minutes of trading. Libya fighting and higher than expected Jobless claims are given as the reasons. But Oil is lower at $102 and Gold is down to $1412 so maybe it is just a tired market giving back some of its gains.
*****

GM is lower this morning because the markets are lower but also because it’s Chief Financial Officer has resigned. Since we didn’t know who the CFO is we aren’t worried but in today’s market any news is bad news.
*****

Diane Swonk, Chief Economist Mesirow Financial: Jobless Claims Rise, Trade Deteriorates
Jobless claims rose to 397,000 in the most recent week, up 26,000 from the previous week. The four-week, moving average edged up slightly, but the trend is still down sharply from the second half of 2010. More worrisome is the trade deficit, which widened by six billion dollars to $46.3 billion on a sharp increase in imports for January. Oil played a role in the rise in imports, but was not the only factor; much of the increase came from industrial equipment, reflecting demand in manufacturing. The only good news is that preliminary data from China for February suggests that we could see some narrowing of the deficit again over the quarter.

Bottom Line: A combination of unusually bad winter weather and higher oil prices shaved some growth from the first quarter. This, coupled with the trade data for January, suggests that growth in the first quarter will be much weaker than many had forecast. Indeed, we could actually see real GDP dip below the 3% threshold, a full percentage point below the consensus just a month ago.
*****

Europe was lower; Gold lost to $102.55 and Gold dropped to $1416.
*****

The major stock measures ended 2% lower in more active trading. Breadth was 6/1 negative at the close. New 12 month lows exceeded new highs for the first time in months.
*****

 

March 9, 2011

Model Portfolio Value As of 9 March 2011

$ 601,198


Thoughts

We are in the middle of a Spring snow storm and our entire world is bright with light. Asia and Europe were slightly higher overnight and Oil has a $104 handle while Gold is $1434 as the trading day begins. Investors’ Intelligence has Bulls 52%; Bears 21%; and Fence sitters 27%.
*****

We reduced our Ford position. It was outsized and we expected it to act better in a downturn. We take the blame for not realizing that on a short term basis all stocks are commodities to the hedge funds and HFT folks. We now have room to add more at lower prices and with our recently added GM holdings maintain exposure to the continuing auto rebound.
*****

A bullish view from a person we admire:
(Bloomberg) -- The money managers who picked the global stock market bottom say now is no time to sell as the biggest equity rally since 1955 starts its third year.

Laszlo Birinyi, who told clients to buy as the Standard & Poor’s 500 Index fell to a 12-year low of 676.53 on March 9, 2009, says gains that added about $28 trillion to global share values will outlast previous increases as investors who missed the first phase play catch-up. Valuations are still below historical averages, said Barton Biggs, the hedge-fund manager who purchased stocks before the S&P 500’s 95 percent advance.

Rallies in equities, corporate debt and commodities illustrate how the more than $12 trillion pumped into the financial system by governments and central banks is spurring a recovery from the worst global recession since the 1930s. While bears say prices will fall once stimulus ends, billionaire Kenneth Fisher and Byron Wien of Blackstone Group LP are betting on stocks whose profits are most tied to economic growth.

“These kinds of strong beginnings lead to long and durable bull markets,” Birinyi, who founded Westport, Connecticut-based research and money management firm Birinyi Associates Inc. in 1989 after a decade on the trading desk at Salomon Brothers, said in a March 7 phone interview. “While there will be corrections and while there will be pauses, we’re still of the view that this is a bull market that we expect to go on for several years.”

For complete story:
http://www.businessweek.com/news/2011-03-09/birinyi-buys-as-biggest-bull-rally-since-55-hits-third-year.html
*****

Move to ‘synthetic’ US junk bonds

Demand is growing for “synthetic” financial instruments that enable investors to take positions in the US junk bond market without owning the underlying securities.

The instruments, created by using credit derivatives on junk bond or high-yield indices, resemble transactions linked to US mortgages that proliferated before the financial crisis.  The full story:
http://www.ft.com/cms/s/0/168566e8-49bc-11e0-acf0-00144feab49a,s01=1.html#axzz1G7TSqurv
*****

Europe closed lower while Gold ended at $1429 and Oil was $104.06.
*****

The major market measures see sawed all day width IBM up $4-$5 keeping the DJIA in positive territory most of the trading session and weakness in tech keeping the NAZZ lower for the session. Volume was light and Breadth flat.
*****

 

March 8, 2011

Model Portfolio Value As of 8 March 2011

$ 602,133


Thoughts

Asia and Europe were higher overnight and Gold is unchanged while Oil has a $105 handle. U.S futures indicate a flat opening.
*****

(http://www.minyanville.com/businessmarkets/articles/stock-market-stock-allocations-dow-transports/3/8/2011/id/33210 )

Editor’s Note: This article was written by Richard Suttmeier, chief market strategist at ValuEngine.com, which is a fundamentally based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

The first quarter of 2011 could turn out to be a multi-year selling opportunity, just as March 2009 was a multi-year buying opportunity. On March 5, 2009 91% of all stocks were undervalued and all 11 sectors were undervalued by more than 30%. Wall Street and hence Main Street missed this golden opportunity to buy stocks. In early March 2009 I made the call that stocks would rally 40% to 50%. I proved to be too pessimistic. Since then the Dow Industrial Average is up 86.9% with the S&P 500 up 96.4% and the NASDAQ up 117.0%. With stocks overvalued and weekly charts overbought with the exception of Transports, now is not the time to increase allocation to stocks, it’s the time to decrease stock allocations.

The Housing Market was the first to provide warnings as The Housing Index (HGX) topped out in July 2005, and today is 62.0% below that high, with housing currently at risk of renewed weakness.

The America’s Community Bankers Index (ABAQ) peaked in December 2006 and today is 49.0% below that high. The FDIC List of Problem Banks rose by 24 in the fourth quarter to 884 from 860, which is 11.5% of the 7,657 FDIC-insured financial institutions. When I drill down into the FDIC data I find 2623, or 34.3% of all community banks overexposed to commercial real estate loans, and 58.5% of all banks have a real estate loan pipeline that’s 80% or more funded, which is continued stress.

The Regional Bankers Index (BKX) peaked in March 2007 and today is 57.2% below that high. The “too big to fail” banks are bigger and the BKX is down fractionally so far in 2011. Under Dodd-Frank some of these banks will need to raise capital and face heavier FDIC deposit insurance fund assessments beginning in April.

Total Assets in the banking system declined $51.8 billion in the fourth quarter 2010 with C&D loans down $32.5 billion. Even so C&D loans still total $321.6 billion with non-farm, non-residential real estate loans at $1.07 trillion and problem loans continue to clog bank balance sheets.

ValuEngine Valuation Warnings on February 18 and March 3 marked tradable highs for stocks. To confirm a market top all weekly charts must shift to negative. The major equity averages remain below their February 18 highs when the Dow Industrial Average reached 12,391. My proprietary analytics still show weekly and monthly resistances, to limit the upside even if some of the averages continue to new highs. Market weakness on Friday and Monday resulted in a reduction of overvalued stocks to 60.5%, below 65%. We show 15 of 16 sectors overvalued, six by double-digit percentages.
*****

Super Moon: 'lunar perigee'
Earth will next week be at its closest point to the moon since 1992. The March 19 event - known as a 'lunar perigee' - will see the moon pass just 221,567miles away from our planet. The Internet is awash with conspiracy-minded amateur scientists warning that such a 'super moon' could disrupt Earth's climate patterns and may even cause earthquakes and volcanic activity. Previous super moons took place in 1955, 1974, 1992 and 2005 - all years that had extreme weather events. Whatever does or doesn't happen, we are still learning about the moon all the time. In January, it emerged that signals from seismic sensors left on the lunar surface by Apollo astronauts in 1971 have revealed that the moon has a liquid core similar to Earth's. Scientists at NASA applied contemporary seismological techniques to the data being emitted from sensors placed by their colleagues during the U.S. space program's heyday. The research suggested the moon possesses a solid, iron-rich inner core with a radius of nearly 150 miles and a fluid, primarily liquid-iron outer core with a radius of roughly 205 miles. Where it differs from Earth is a partially molten boundary layer around the core estimated to have a radius of nearly 300 miles. The data sheds light on the evolution of a lunar dynamo - a natural process by which our moon may have generated and maintained its own strong magnetic field.

Read more:
http://www.dailymail.co.uk/sciencetech/article-1364124/Will-Earths-climate-patterns-disrupted-moon-passes-closest-point-19-years-week.html#ixzz1G1P9FJJF
*****

(Bloomberg) ….. “The U.S. government is not broke,” said Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York. “There’s no evidence that the market is treating the U.S. government like it’s broke.”

The U.S. today is able to borrow at historically low interest rates, paying 0.68 percent on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren’t attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so.

To be sure, the U.S. confronts long-term fiscal dangers. Over the past two years, federal debt measured against total economic output has increased by more than 50 percent and the White House projects annual budget deficits continuing indefinitely.

“If an American family is spending more money than they’re making year after year after year, they’re broke,” said Michael Steel, a spokesman for Boehner.
*****

The statement by Boehner’s spokesperson is disingenuous (lacking in frankness, candor, or sincerity; falsely or hypocritically ingenuous; insincere). First of all many real estate moguls pay no income tax because they continually borrow money to live on against the properties that they own with the idea that they will eventually pay off that debt when they sell the property and/or the property will appreciate in value over time and allow continued borrowing against the appreciated value. More over the government is not an individual.

The U.S. Government has borrowing power because it has the assets to back up the borrowing and it also has the power to tax (increase its income). Eliminating all the  Bush tax cuts; withdrawing from Iraq and Afghanistan; taxiing ‘carried interest’ at regular rates; and adding a 1% Medicare tax to all individual and corporate income (before deductions) would eliminate the yearly deficit. No one likes to pay taxes but everyone like government services. No one likes to pay interest on a home mortgage, or the light bill and the heating bill but they do because they need a home to live in. taxes are payment for government services i.e. fire, police, school, health, and food.
*****

Mulally deserves his pay; Ford doesn’t because he is the guy who led them down the road of almost ruin.

(Bloomberg) Ford Motor  awarded Chief Executive Officer Alan Mulally $56.5 million in stock, and Executive Chairman Bill Ford received in $42.4 million shares as a reward for the automaker’s turnaround. Ford paid the unrestricted stock to its top two executives as part of an incentive plan for 2009 and 2010, according to filings with the U.S. Securities and Exchange Commission. Ford earned $9.28 billion in the last two years after $30.1 billion in losses from 2006 through 2008. The shares, which traded as low as $1.01 on Nov. 20, 2008, rose 8 cents to $14.09 at 9:46 a.m. in New York Stock Exchange composite trading. The executives will receive other compensation for 2010, including salary and benefits, which will be revealed in a proxy report in the coming weeks, said John Stoll, a company spokesman. Dearborn, Michigan-based Ford withheld some of the stock awards to cover their income taxes. After taxes, Mulally received $33.4 million and Bill Ford got $25.1 million. “This is an indication of the performance that the company has experienced under Alan Mulally and Bill Ford’s leadership,” Stoll said today in an interview. “Ford is committed to aligning executive compensation to the company’s performance and long- term shareholder value.”

Mulally, 65, also received 884,433 stock options with a strike price of $14.76, which he can exercise until 2021, and he was awarded 543,734 restricted stock units that can be converted into shares in 2013. Bill Ford, 53, received 412,735 stock options with a strike price of $14.76, which he can exercise until 2021, and he was awarded 253,742 restricted stock units that can be converted into shares in 2013, according to the filings.
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In a 0% money market the only way to make these returns is through leverage, a lot of leverage.

(Bloomberg) Bank of America’s investment banking and trading division is seeking at least a 15 percent return on tangible equity, a lower profitability target than the firm’s biggest rival, JPMorgan Chase. Goldman Sachs, the Wall Street bank that makes the most revenue from trading, has stood by its target of a 20 percent return on tangible equity. New York-based JPMorgan, the second biggest U.S. bank by assets, is sticking to a target of 17 percent return on equity at its investment bank. Credit Suisse Group AG, based in Zurich, last month lowered its firm wide goal for return on equity to more than 15 percent from more than 18 percent.
*****

Nice non-financial story about Seattle Slew:
http://www.esquire.com/features/the-game/ESQ0801-AUG_GAME?click=main_sr
(Seattle Slew died May 7, 2002. This story was written in 2001)
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Carl Icahn Returning Money To Investors:
http://dealbreaker.com/2011/03/carl-icahn-returning-money-to-investors/#more-37595
*****

Europe ended mixed to lower; Oils had a $104 handle and Gold was $1430.
*****

The major market measures were higher all day  and loosed up 1% as banks stocks gained on BankAmerica’s investor day comments that all is well and they will be making oodles of money in a few years after artificially low interest rates and ridiculous leverage allow BAC to earn back the dollars it lost on dumb mortgages and other foolish things.

Volume was much lighter than the down days and Breadth 3/1 positive.
*****

 

March 7, 2011

Model Portfolio Value As of 7 March 2011

$ 599,783


Thoughts

Oil is $106; Gold is $1442; Asian markets were mostly lower overnight and Europe is mildly higher at midday. U.S. futures indicate a slightly higher opening.
*****

In the current rules of discourse, $250,000 makes you poor when it comes to taxation and $50,000 makes you absurdly rich with respect to everything else. No none of this makes any sense. http://www.eschatonblog.com/
*****

The following article was written by Raymond James Chief Investment Strategist Jeff Saut.
http://www.minyanville.com/businessmarkets/articles/jeff-saut-market-top-tech-stock/3/7/2011/id/33195

Everyone kept saying "a top is not in place yet." They persistently pointed to the "normally reached" levels of this or that statistic that were not yet there to reinforce their desire to remain bullish. Apart from statistical measures of increasing blindness, this unwillingness to acknowledge what they themselves were already feeling revealed a comfortableness, a confidence, a conviction that whatever was happening -- short-term survivable dips -- would continue until "the top," like a striptease artist of our youth would with decorum appear on stage, bow, and then, accompanied by applause from all the bulls eager to cash in on their excitement, would begin to twirl its statistical tassels in front of everyone.

I’ve gotten so old I can’t remember the names of those ladies at the Old Howard, but I can remember that all you got was a flash of this or that, before they waltzed off. Stock market tops are like that. You know it’s there somewhere if you squint hard enough, but you never quite see it, so you keep waiting for more. And then, in the end, as the curtain comes down on the bull market you realize that the one rule about tops is not that they provide this or that signal, but that they come before anyone is ready.

-- Justin Mamis, Insights, 1987

He said, “We are getting a lot of calls about why Jeff Saut has been so bearish the last few weeks.” I said, “I am not bearish, I am cautious and have done what prudent portfolio management calls for, I have sold partial positions, raised some cash and allowed long-term capital gains to accrue to portfolios.” He said, “That is being interpreted as bearish.” I said, “Not my problem.” In this case the “he” is Harry Katica, director of Raymond James’ Retail Liaison Desk, which fields questions from our financial advisors.

As for the aforementioned quote, long-time stock market observers will remember Justin Mamis as one of the most respected authors, philosophers, market pundits, and investment advisers of all time. His “Mamis Letter” frequently appeared in Barron’s and The Wall Street Journal, as well as many other publications. I was reminded of Mamis’s quote while perusing various stock charts recently because I saw more “rounding top” chart formations on individual companies’ stocks than I have encountered in some time. In fact, the past few months remind me a lot of the “topping” environment that took place between December 1968 and the first quarter of 1969. Back then, while the major indexes moved higher driven by a few favored stocks, there were similar “rounding top” formations on the majority of stocks. Verily, in early 1969 Wall Street was focused on but a few stocks that had captured participants’ fantasies. Back then it was any technology stock with a futuristic name: Xerox (XRX); Telex; Itek; University Computing; Control Data, etc. Meanwhile, as these fantasy stocks swirled higher, the broad base of stocks were traveling lower (read: being distributed; aka, being sold by smart money).

Fast forward to the last few months, Wall Street’s attention has again been captured by names like Apple (AAPL), Netflix (NFLX), Baidu (BIDU), First Solar (FSLR), etc., which were streaking higher while many other stocks were being distributed beneath the headline excitement of the darlings du jour. Indeed, since the first of the year I have felt like I was in the trading “twilight zone” as the major indexes danced higher despite the numerous cautionary signals often mentioned in these missives. Yet the “dance” continued, that is until the past few weeks. Clearly, the last two weeks have felt like a change in the market’s tone punctuated by February 22’s 90% Downside Day (90% of total points lost and volume occurred on the downside) with a near 90% Downside Day last Tuesday (-168 DJIA). It was the second official 90% Downside Day of the year accompanied by the two nearly Downside Days of March 1 and January 28. Counter-balancing Tuesday’s near Downside Day was last Thursday’s nearly 90% Upside Day, but alas that was erased by Friday’s Fade of 88 points (DJIA). Accordingly, I continue to think we are at/near a “tipping point,” as highlighted by the always insightful GaveKal organization.

Now if the US$ bounces from here, it is likely that oil will follow food prices into their recent consolidation, allowing for equities to once again bounce back. However, if the US$ melts down, or if oil shoots up on further Middle East unrest, then it is hard to see how equities will maintain the past few months' uptrend. So it does seem that we are at an important tipping point not just for the US$, but for most asset prices as well, which should not come as such a surprise since most assets in the world are priced off of the US$. [That] reality brings us back to a point Charles has been very vocal about over the past couple of months: We are rapidly reaching the stage in the cycle where the Fed needs to start tackling the weakness of the US$, and the surge in commodities, or risk undermining the very [economic] recovery it managed to jump-start. With that in mind, we would not be surprised if, in the coming days and weeks, various Fed directors come out to sound somewhat more hawkish in a bid to prevent commodities from further undermining the current recovery. ... Anyway, with so many unanswered questions, it is not surprising that equity markets are taking a breather.

From GaveKal’s lips to God’s ears because late last week Fed Governor Thomas Hoenig suggested just that when he opined that short-term interest rates should be higher.

To be sure, the stock market’s changed tone over the past few weeks has been palpable, raising the question: Does the recent sell-off, from S&P 500 (SPX) 1344 to 1294, represent the sum total of the long-anticipated correction? To answer said question we turn to the excellent Lowry’s service:

Perhaps a better question to ask is, did market conditions prior to the recent rebound suggest adequate preparation for a renewed and sustainable rally? An examination of Lowry’s measures of the forces of Supply and Demand suggests the answer to both questions is likely no. ... Strong rallies that experience weak and short-lived corrections are typically characterized by expanding Demand and contracting Supply. However, that has not been the recent pattern. . . . The market deals, however, in probabilities, not certainties. Thus, while conditions over the last few weeks were such that the probabilities suggested a correction longer than three days, investors should still be alert for signs a new, sustained rally has begun. The key element for any renewed rally is likely a pattern of strong, sustained Demand. Probably the clearest indication of this strong buying would be provided by two or more 90% Up Days, or a combination of a 90% Up Day and back to back 80% Up Days. The near-90% Up Day on February 25 proved a one-day wonder, so evidence of more sustained buying will likely be needed to indicate the start of a new rally…..

…..The call for this week: This week I am celebrating the two-year anniversary of the stock market’s bottom by attending our institutional conference where more than 300 companies will be presenting to nearly 600 portfolio managers. It’s a great conference, as well as an appropriate time to reflect on the past 24 months. Recall, the bottoming process began on October 10, 2008, when 93% of the stocks traded on the NYSE recorded new annual low prices. It was then I declared, “The bottoming process has begun.” However, some five months later, on March 2, 2009, I stated, “The stock market bottoming process is complete and we are -- all in!” Since then I have not really “backed up” on that call, although I have turned cautious at times. My best cautionary call was in late March 2009. My worst has been coming into this year for while my short-term caution on the emerging markets proved correct (long-term I remain very bullish), my caution on the US markets has been wrong-footed, at least up until the last few weeks.
*****

We have to head out to finish some business. As we leave at 2:15PM the major measures are lower but better than their worst levels of the day with the S&P 500 and NAZZ down 1% and the DJIA down half that. Oil ended at $105.60 and Gold at $1335. Breadth was 3/1 negative and volume light.
*****

 

March 4, 2011

Model Portfolio Value As of 4 March 2011

$ 602,500


Thoughts

Epistemic relativism: the view that there is no objective standard for evaluating some lines of reasoning as better than others. Instead, the epistemic relativist holds that what counts as a good reason for holding a view is relative to one’s situation and interests.
*****

(WSJ) The U.S. economy added 192,000 jobs in February, the Labor Department reported Friday, with the private sector adding 222,000 jobs -- the biggest jump since April 2010. January payrolls were revised to show an increase of 63,000 jobs from a previous estimate of 36,000. The unemployment rate, which is obtained from a separate household survey, fell to 8.9% last month, the first time it dropped below 9% since April 2009. About 13.67 million people who would like to work can't get a job. Economists surveyed by Dow Jones Newswires had forecast payrolls would rise by 200,000 and that the jobless rate would inch up to 9.1% from the previous month's 9%.
*****

Asia and Europe were higher overnight and Oil has a $103 handle as the trading day begins. U.S. futures are flat after trading higher overnight as the Employment Report met but did not exceed expectations.
*****

(Bloomberg) Ford Accounting Move May Add $13 Billion to Profit, Expert Says

Ford Motor Co. (F), after earning $9.3 billion in the last two years, may make an accounting change this year to reflect confidence in its recovery, a move one tax expert said could boost its 2011 profit as much as $13 billion.

Ford in the second half may eliminate from its balance sheet a valuation allowance held against deferred tax assets, it said in a federal filing this week. The reserve was created in 2006 as Ford began four years of operating losses. Eliminating the allowance may add $10 billion to $13 billion to Ford’s net income this year, said Robert Willens, president of Robert Willens LLC of New York, a corporate tax specialist.

“This is a very positive statement from Ford,” Willens said. “If you take the radical step of eliminating your valuation allowance, then you’ve developed a high degree of confidence in your future profit-making ability.”  For more: http://www.bloomberg.com/news/print/2011-03-03/ford-s-accounting-revision-may-add-13-billion-to-profit-tax-expert-says.html
*****

Matt Taibbi: Rajat Gupta and Goldman Sachs: SEC After Big Fish?
http://www.rollingstone.com/politics/blogs/taibblog/rajat-gupta-and-goldman-sachs-sec-after-big-fish-20110303

I've been getting a lot of calls about the recent decision by the SEC to pursue insider trading charges against Rajat Gupta, a Goldman Sachs board member who was also the former head of McKinsey, one of the most important corporate consulting firms in the world.

It's been very interesting to watch the media reaction to this case. The spin, overwhelmingly, has been that this is proof that the SEC is more serious than ever. Business Week came out with an article whose headline blared, "The SEC Goes After Big Game." CNBC's take was "Rajat Gupta: Bigger than Madoff?" I'm sure by the time this news cycle ends, Rajat Gupta will be the single most important figure in the history of Wall Street.

There's no doubt that Gupta is a big fish and this is a good case. The evidence is remarkable and is eerily similar to the non-case that was non-made against Morgan Stanley chairman John Mack years ago. In that case, a hedgie named Art Samberg bought the hell out of a company called Heller Capital shortly after a call from Mack, who had just had a meeting with CSFB, Heller's investment banker, which was in a position to know that Heller was about the bought by GE.

In this case, Gupta, among other things, telephoned his buddy Raj Rajaratnam less than one minute -- literally -- after learning in a Goldman board meeting that Goldman was about to receive a $5 billion capital injection from Warren Buffet's Berkshire-Hathaway company in 2008.  In September 2008, Gupta disconnected from a Board conference call, in which he learned about the Buffet deal, at 3:56 p.m. By 3:57, he was on the phone with Rajaratnam, who in turn waited less than a minute to buy 175,000 additional shares in Goldman.

It's great that the SEC is moving against a figure like Gupta. But I'll be a little disappointed if he's the top of the food chain here. If the Gupta/Hathaway case is the only one they make with regard to the rampant insider trading that went on during that critical bailout period, it won't be enough, unfortunately. How many of the executives and officials involved with the various rescues and bailouts made investment decisions based upon information they got during those negotiations?

My sense of what happened in 2008-2009 -- and many of the Wall Street people I talk to regularly say the same thing -- is that all the big banks were trading massively on inside information about bailouts, interest rate changes, and announcements about government programs like the PPIP and the TALF. In a way, the whole rearranging of the economy behind closed doors -- the backroom deals in which companies like Merrill and AIG and Bear and Washington Mutual and so on were wedded to buyers in taxpayer-aided shotgun weddings --  this was all one giant insider trade. Clearly there were individuals who knew about these deals and acted on them before the rest of the world's investors did. If you look at it like that, one lonely Rajat Gupta isn't going to cut it, I don't think.
*****

We sold AT&T for a scratch.
*****

(CNBC) BHUBANESHWAR, India - Indian police detained two people after an angry mob of fired workers burned to death a senior executive of a steel factory, an official said Friday.

After learning they were laid off, about a dozen workers attacked a vehicle carrying Radhey Shyam Roy as he was leaving the factory in eastern Orissa state on Thursday, dousing the Jeep with gasoline and setting it on fire, said police Superintendent Ajay Kumar Sarangi. Two other people in the vehicle were allowed to flee but Roy, 59, was trapped inside and later died of severe burns, Sarangi said.
*****

Sunday March 6 is the anniversary of the 666 S&P 500 market low in 2009. Yesterday marked the high point in the S&P 500 at 1331.27 since that low.  2 times 666 is 1332 or a double off the low.
*****

Warning: Stocks, Bond Yields Overvalued
By Richard Suttmeier Mar 04, 2011 9:15 am

We begin Friday with a new ValuEngine Valuation Warning which occurs when more than 65% of all stocks become overvalued. Today 66.4% of all stocks are overvalued as the market attempts to rebound back to the February 18 highs, when 68.6% of all stocks were overvalued. A higher bond yield is an important factor that makes stocks more overvalued. In addition to a new valuation warning all 16 sectors are overvalued, 14 by double-digit percentages. For more http://www.minyanville.com/businessmarkets/articles/stocks-bond-yields-overvalued-valuation-warning/3/4/2011/id/33162
*****

CNBC interviewed Alan Greenspan this morning about the economy and what should be down. Why????
*****

We are ending early to watch NKU play. At 2:15PM the major measures are down 1%. Breadth is 3/1 negative and volume is light. Gold finished at $1428 and Oil has a $104 handle at the close.
*****

 

March 3, 2011

Model Portfolio Value As of 3 March 2011

$ 604,989


Thoughts

Oil is down $1.50 in early trade and Jobless Claims were better than at 368,000 with the prior week revised down to 388,000. That is three weeks out of four that Jobless Claims have been under 400,000. The markets seem to be anticipating a good Employment Report tomorrow with the major stock measure futures all trading higher in the pre-opening. Asia was strong as is Europe at midday.
*****

We sold the Motorola we bought yesterday for a $1.20 loss. Ouch! Cowen- an influential analyst in this area of tech- went from buy to neutral late yesterday and the shares are trading lower while stocks are zooming higher. We own enough soap operas. As we write the shares are $1.25 lower than the price at which we sold which is some small consolation in that we were at least initially correct that the Cowen downgrade would have a large negative effect on the share price. We have been following the share price since it hit $36 a few months ago as we think the Droid, which we have and use, is a good phone, and we thought yesterday’s $29 price was attractive given the pullback. But with the intro of the iPad2 yesterday and the Cowen downgrade plus the almost universal techy complaint that Motorola Xoom’s (MMI’s iPad competitor) price is too high and the apps too few we headed to the sidelines but may revisit later at lower levels
*****

Diane Swonk, Mesirow Financial Chief Economist: Jobless Claims Continue to Fall

Jobless claims dropped by another 20,000 to 368,000 in the most recent week, and were revised down for the previous week. The weekly claims number fell to the lowest level in nearly three years, while the four-week moving average hit the lowest level since July 2008, when we were still in recession but prior to the sharp increases in joblessness and claims that we saw in the wake of Lehman Brothers' failure in September of that same year. This reinforces a flurry of incoming evidence that the labor market is finally beginning to heal; we are beginning to crawl our way out of the hole left by the recession, albeit at a slower pace than we would like to see.

In terms of overall employment, I am expecting to see job gains in the 200,000 range when the "official" monthly data is released for February on Friday. We could also see some upward revisions to January data as the Bureau of Labor statistics tries to sort through distortions created by unusually bad winter weather. The unemployment rate, on the other hand, is likely to rise, because optimism over job creation has improved in recent months; that should pull some of those who had given up looking for work, back into the market.

Separately, productivity grew at a 2.6% pace in the fourth quarter of 2010, while unit labor costs dropped by 0.6%. These numbers confirm earlier reports, despite downward revisions to real GDP growth over the period; that's one reason profit margins remained exceptionally wide at the end of 2010. Productivity growth is expected to slow as we move into 2011. The question is by how much. Productivity growth reached the strongest pace in eight years in 2010, and is likely to remain robust, even as it slows in 2011. This, coupled with persistently high unemployment, is expected to dampen the pass-through of the recent surge in oil prices to other consumer goods.

Bottom Line: The recovery appears to be regaining momentum, but not enough to help equally across income strata. Middle- and low-income households continue to struggle, while the wealthiest and most educated of households are finally seeing an improvement in both their earnings and job prospects.
*****

Daily Kos reports (http://www.dailykos.com/ ) http://www.nelp.org/page/-/Justice/2011/UnbalancedGrowthFeb2011.pdf?nocdn=1

A report by the National Employment Law Project contains …. the news: Of the 8.84 million jobs that were lost in the recession, 1.3 million have been regained. But what kind of jobs? According to the NELP study, conducted by Annette Bernhardt and Christine Riordan:

In the private sector, there is a striking imbalance between where the recession’s job losses occurred, and where the growth of the past 12 months was concentrated:

 • Lower-wage industries constituted 23 percent of job loss, but fully 49 percent of recent growth

 • Mid-wage industries constituted 36 percent of job loss, and 37 percent of recent growth

 • Higher-wage industries constituted 40 percent of job loss, but only 14 percent of recent growth

The current recovery looks worse than the “jobless” recovery of the 2001 recession, on several fronts:

• After a year of positive job growth, the private sector after the 2001 recession had recovered almost  half (47 percent) of the jobs it had lost.  By contrast, to date the private sector has recovered only 14 percent of the jobs it lost during 2008 and 2009.

• The early job growth following the 2001 recession was more balanced than the early job growth following the 2008 recession, with significantly more growth in higher-wage industries.

Some of these trends are specific to the causes of the Great Recession (the collapse of the housing bubble and the financial crash). Others reflect long-standing shifts in the economy (such as the overall decline of manufacturing), as well as standard cyclical behavior (such as the surge in temporary jobs early in recoveries).  
A sustained analysis of the dynamics driving core sectors of the economy will be critical in the months and years ahead.

More than three years since the Great Recession began and 20 months after it ended — according to the arbiters of such matters — the U.S. is still afflicted by all the chronic problems it faced before the acute crisis struck, including wage stagnation and off-shoring of jobs as well as still-growing inequalities of income and wealth. On the one hand, government intervention saved the domestic car industry and hundreds of thousands of jobs that would have been otherwise lost, but on the other hand, new workers in that industry are being hired at far lower rates and receive far lower benefits than their predecessors.

The questions raised by the NELP report are crucial. Are the disturbing trends it has uncovered just blips that will disappear in a year or two? Or are we seeing yet another element in a race to the bottom that squeezes everybody but the top tiers of society ever tighter?
*****

We wonder whether the markets ramp higher today has placed undue expectations on tomorrow Monthly Employment Report.
*****

Europe closed higher; Oil ended with a $101 handle and Gold was off $20 dollars at $1419.
*****

The major market measures closed almost 2% higher in light trading. Breadth was 4/1 to the good in NYSE stocks and 2/1 in NAZZ stocks.
*****

 

March 2, 2011

Model Portfolio Value As of 2 March 2011

$ 604,591


Thoughts

CNBC has Warren Buffet as guest this morning and he is not worried. All our clients who are 80 and have $10 billion in assets are not worried either.
*****

Oil is $100 in the early trade, Gold is $1433 and Asian and Europeans markets were and are lower overnight. U.S. futures are flat as the trading day begins.
*****

Investors’ Intelligence has 50% Bulls; 20% Bears; and 30% Correction in their latest poll.
*****

(Yahoo/Finance) The latest ADP Employment Change said that in February private payrolls increased by 217,000, which is much greater than what had been widely expected. The better-than-expected reading supports expectations for a strong nonfarm payrolls report this coming Friday.
*****

Educational Race to the bottom:
http://crooksandliars.com/jon-perr/republicans-push-national-race-to-the-bottom
*****

We added Fifth Third and Motorola Mobility to accounts. We have been trading Fifth Third for the past few years. Motorola (MMI) is down 20% from its 12 month high and off today probably because of the introduction in the Apple iPad2 this afternoon. Also this article and the downgrade didn’t help:
(http://blogs.barrons.com/techtraderdaily/2011/03/02/motorola-detwiler-sees-xoom-struggling/?mod=yahoobarrons )

Analysts at Detwiler Fenton this morning write that Motorola Mobility’s (MMI) “Xoom” tablet, which went on sales last week at Verizon Communications’s (VZ) Verizon Wireless, may be having a rough first go of it.

The tablet computer debuted last week to fairly favorable reviews from, among others, The New York Times’s David Pogue, with The Wall Street Journal’s Walt Mossberg calling it the first real competitor to Apple’s (AAPL) iPad.

“After almost one week on the market, it appears that the sell through of Motorola’s Xoom has been extremely light,” reports the firm, without specifying sources for the information. Detwiler attributes the apparent lackluster results to, “its high price, lack of consumer applications and the anticipation for today’s expected Apple (AAPL) iPad 2 announcement,” which is expected to be this afternoon.

Reports out of Asia, moreover, that the Xoom might be coming out of factories at a rate of 700,000 to 800,000 units this quarter are “outrageous,” Detwiler asserts, given the shortfall in this first week.

Moreover, Best Buy (BBY) having the exclusive to retail the thing, combined with its high price, appears to have been a mistake on Motorola’s part:

We believe that total channel sell-in for Q1 will only amount to 150K-200K units, depending on how aggressive Verizon (VZ) gets with inventory stocking. It appears that BBY is sitting on enough inventory to get the retailer through the end of Q1 without problem at this point. Note that VZ and Best Buy (BBY) have a 60 day exclusive on the product in the US a major marketing mistake by MMI in our opinion. While MMI launched the Xoom at $799 at retail (or $599 subsidized with 2-year contract at VZ), retail contacts believe an unsubsidized price point of $649 and subsidized price point of $499 is about the price ceiling for such a product. However we don’t expect to see such a price point anytime soon unless MMI is willing to sacrifice margins and/or VZ ramps up subsidy support.

Detwiler expects Best Buy will “rethink” the pricing of the device to try and boost sales.

No wonder, then, that The Journal’s Ben Worthen today writes of looming talk of a tablet price war.

Motorola shares today are down 53 cents, or $1.80, at $28.97.
*****

(http://www.zerohedge.com/ )One of the most critical questions that has to be asked in light of yesterday's revelation that among the banks providing banking and asset management services for Libya were Goldman Sachs, JP Morgan and Citigroup, is just how did Libya get an exemption for anti-money laundering provisions both in Europe and the US. Oddly enough, this future mainstream debate arises not in the US, where any form of critical thinking appears to be immediately curbed by SEC Rule 201 (for all those calling for a hike in the SEC's budget, we suggest the following contrarian thought experiment: let's cut its budget to zero and see how long before anyone notices) , but out of the UK, where a reader writes in to the FT (oddly enough, partially owned by the Libyan Investment Authority) with the following very simple question: "It seems to me entirely implausible that Col Gaddafi could have earned billions of dollars through legal means. And yet if the AML procedures, to which we are all subjected, have not been applied rigorously to the likes of Col Gaddafi and his family, one is forced to ask what purpose they really serve." Or what purpose any regulation serves in general when fraud results in surging stock prices, and companies that adhere to the rules are promptly wiped out in this bizarro capitalist world. Read more at http://www.zerohedge.com/article/libyas-bankers-exposed-goldman-jp-morgan-and-citi .
*****

European bourse closed lower as Oil closed above $101 and Gold gained to $1434.
*****

Forgot to mention that yesterday was the first day of the month and if the buying the day ahead of first day of the month strategy been followed most of the gains of January’s first day and February’s first day would have evaporated in the downdraft.
*****

The major market measures closed slightly higher in light trading and positive breadth.
*****

 

March 1, 2011

Model Portfolio Value As of 1 March 2011

$ 605,461


Thoughts

(http://ftalphaville.ft.com/blog/2011/03/01/501536/saudi-contagion-shivers/  The Saudi stock market (who knew?) was down 6.6 per cent overnight — its lowest since September 2009 — on ongoing rumors that Saudi Arabia is sending tanks to Bahrain to support its ruling regime. The story originated on Press TV — a television network owned by Iran, the Saudi kingdom’s great rival, so caveat emptor. Others voices in the market though contend the tanks may be in the region due to a joint military exercise.
*****

Asian markets were mostly higher overnight as are European markets at midday. Gold is $1420 and Oil is back up to a $97 handle.
*****

China now owns/holds $1.16 trillion in U.S. debt. We should sell them the Grand Canyon for $2 Trillion.
*****

(WSJ) General Motors Co. Chairman and Chief Executive Daniel Akerson said the U.S. auto industry isn't yet prepared to respond to a major surge in gas prices, though car makers are in a better position than when prices spiked in 2008. "I don't think the industry learned a lot of lessons from 2008—they will this time around," Mr. Akerson said Tuesday on the sidelines of the Geneva motor show. "It would not be a good thing to see $5-a-gallon gas right now.
*****

(Yahoo/Finance) The ISM Manufacturing Index for February came in at 61.4, which is not only better than the 60.5 that had been expected, on average, among economists polled by Briefing.com, but also the highest reading since 2004. Construction spending for January fell 0.7%, which is a bit steeper than the 0.6% decline that had been broadly anticipated.
*****

In case you were holding your breath:
A spokesman for Newt Gingrich tells ABC News that the former Speaker of the House will announce this week whether he intends to form a presidential exploratory committee. 
*****

(AP) -- General Motors on Tuesday said its sales rose 46 percent from February 2010. Two of its four brands, Buick and Cadillac, reported gains of at least 70 percent, while its largest brand, Chevrolet, had a 43 percent increase.

Ford says its U.S. sales rose 10 percent in February, led by strong sales of the new Ford Explorer (big profit). Explorer sales were double what they were last February. Ford says it has only a two weeks' supply of the SUVs on hand. A two-month supply is more typical. Ford Motor Co. said it saw more individual buyers choosing subcompact and compact cars as gas prices rose. But pickup sales also rose 14 percent as small businesses replaced their aging fleets. The Lincoln luxury brand continues to struggle, with sales down 11 percent. Ford has two fewer brands than it had last year. The company stopped producing its Mercury brand last month and sold no Mercurys in February. It sold its Volvo brand last summer.
*****

Gold closed at a new high of $1431 and Oil ended at $99.69. European bourses closed lower.
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The major market measures were lower out of the gate and trended lower all day finishing down 1.5% and more. Breadth was 3/1 negative and volume light.
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