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

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

30 May 2003

8:31am and we missed yesterday’s post because we were traveling. We actually wrote a post and forgot to send it in our rush to get on the road.

We’ll post that one on Monday since it had some cogent thoughts.

Before we left we decided to buy Microsoft at $24.60 in many accounts and Q at $4.90 in our aggressive accounts. We bought the MSFT because it is the only big cap stock that hasn’t moved. Qwest announced un-audited results yesterday and has arranged for $1 billion in borrowings so the problems are under control for the time we will own it.

We are in the Chicago office today. We don’t have our usual sources available and so we are going to keep today’s post short. The sell off yesterday was healthy since the failure at resistance for several days had required some resolution. The fact that we are rallying again this morning leads us to believe we are going higher. We will trade the rally but carefully and with a few names.

SGP is off this morning on a Massachusetts investigation but if the sell off continues we’ll buy it. That’s an old management problem. New management can settle.

This is our post for today. Next post will be Monday. The Model Portfolio is posted.

29 May 2003

Today is a travel day to Chicago. Next post tomorrow. The updated Model Portfolio is posted.

28 May 2003

8:13am and a client mentioned Steve Chapman's column in the Sunday Chicago Tribune where Chapman posited that by allowing dividends to be taxed at a lower rate, corporations are encouraged to pay dividends. Chapman further states that by paying dividends Corporate CEOs will be less inclined to do engage in skullduggery of the "Enron" type. And finally, that by paying dividends corporations will show that they are profitable.

We don't doubt that some corporations will begin paying dividends. That's especially true of those corporations with big insider ownership. That's because instead of paying taxes on salaries at the top 35% individual rate, executives will be able to take dividends at a 15% rate.

That's probably one huge reason that MSFT is paying a dividend for the first time ever. The 8cents per share per year dividend is not for the ordinary 100 share holder, its for Gates and Ballmer who own a billion shares and half a billion shares respectively. Gates will receive $90 million in dividend and Ballmer about $35 million.

If MSFT paid them that much money in salaries MSFT would have to pay a special penalty to the government for salaries exceeding $1million not tied to performance. And Gates and Ballmer would be taxed at the 35% rate. Now they will be taxed at the 15% rate

We also presume that accountants and tax lawyers are busy at work creating a special class convertible preferred dividend share for executives available only through the exercise of options so that company officers can receive a higher dividend rate than common shareholders but still have appreciation potential.

Regarding the cheating that occurred at Enron we don't think dividends will make any difference. And as for dividends encouraging profits, electric utilities have for years paid dividends when for IRS purposes they have shown a loss on their tax returns.

The facile answers that politicians give about eliminating double taxation of dividends are just that. Salaries are double taxed, FICA is triple taxed, and the sales tax can wind up being a triple or quadruple tax. And eliminating those double/triple taxes would benefit a heck of a lot more folks that the dividend tax. But since the bill is passed we will try and make a buck or two trading the increase in dividend stocks.

One final thought on dividends. Back in the old days when there was a difference between the tax rates on some dividend paying stocks and short term trading income, traders would buy the dividend paying stock a day or two before the x dividend day and then sell the stock for a loss on the ex-dividend day. The trader would get the dividend at the lower tax rate and take the loss at the higher tax rate.

We don't know whether the 20% difference in the new tax law will encourage this type of trade but given the need of Wall Street to make money we think it will return. We would expect EK to run up today into the ex-dividend day tomorrow and if it so we may say good-bye.

9:40am and the DJIA is back up 50 points after rising at the opening and then retreating to even before moving higher again.

10:20am and the DJIA is stuck at resistance as is the S&P 500. We are offering DUK at $19.30. We are also trying to sell our EK position at $31.90 and we are struck by the lack of volume in these stocks. EK has only traded 137,000 shares in blocks of 10,000 or more. We also are trying to sell our EMN holdings for a scratch profit and EMN has only traded 40,000 shares in blocks of 10,000 or more.

Breadth is positive but new highs are lagging.

10:55am and we sold DUK at $19.30 for a $1.50 two week profit. We sold the EMN a little better for a 35 cents per share gain. The DJIA is up 65 points and volume remains moderate. This afternoon should be interesting.

1:59pm and entering the final hour the DJIA has given up its gains and is up 5 points for the day. The European markets all closed 1% to 2% higher on the back of yesterday's Wall Street gain. We are having a tough time selling the EK and we are hoping for a rally this last hour to rescue us.

3:02pm and there was no late rally so we only sold EK in many of our larger trading accounts for a $1.60 per share profit. We still have EK in the Model Portfolio. Those still holding the shares including the Model will get the dividend since EK goes ex-dividend tomorrow.

The DJIA closed up 13 points at 8795. The S&P 500 finished up 2 points at 954 and the NASDAQ gained 7 points to end at 1563. All in all not a bad performance given yesterday's big jump.

And tomorrow is another day.

28 May 2003 - Morning Comment

7:31am and Durable Goods orders for April were down 2.4%, ex transportation down 1.2%. Now the word on CNBC from the Rickster is that we have to wait till next month to get real numbers after the war. Treasuries are weaker and stock futures are higher. Asia closed higher and Europe is up.

Stocks will open higher but not as strongly as they would have before this number. The S&P and DJIA are at resistance and so...

Up early, then it's anybody's guess.

So let the games begin.

27 May 2003

7:30am and Krugman is on a roll. His article in today's NYT describes the train wreck the Bushies are creating for the social security umbrella that has taken 60 years to construct.

With the economy remaining in the tank we suggested several weeks ago that Cuba might be the next country liberated by Washington. The reason we thought it might be Cuba is that the TV image of Bush riding in triumph up San Juan Hill in an SUV to deliver the victory speech would surely reprise the image of TR on his Cuban adventure a century plus five years ago. But over the weekend the chicken hawks, who never saw a war they didn't want someone else to fight, raised a cacophony of consternation over terrorists in Iran. Now we don't think the Bushies really want to invade Iran, but we did notice that Tommy Franks was quick to retire after declaring victory in Iraq, and for the Bush folks wringing their hands over Iran sure beats discussing the economy. If the economy stays in the doldrums, Karl Rove is going to have to figure out some foreign crisis where the Commander in Chief can strut his stuff.

8:46am and the DJIA opened down and is currently off 50 points. We are adding to our GM position to continue our dividend theme. We also are bidding on more DUK for aggressive accounts. We are hoping for a rally the next few days as May ends and if we get it we will be sellers.

9:06am and the downturn is now an upturn with the DJIA up 10 points. We missed the GM and the DUK but that's OK.

10:10am and the DJIA is up over 100 points. New home sales were better than expected and the dividend stocks are leading the stock markets higher. We are buying Eastman Chemical in our aggressive accounts for a dividend trade. EMN yields 5.6%. As a longer term investment we are buying Andrew Corp in larger accounts to get started. ANDW makes equipment for the telecom industry. ANDW is acquiring another company called Allen Corp (ALN) which makes wireless equipment for Andrew's stock and until the merger is completed in July ANDW shares will be under selling pressure because of an arbitrage situation where traders are buying ALN and shorting ANDW. Andrew is a well managed company where cash exceeds debt by a wide margin and the shares are priced at one times sales.

11:26am and the DJIA is up 140 points with the S&P 500 up 14 and the NASDAQ higher by 21. Breadth is 2/1 positive and up volume exceeds down volume by a bit more. New highs already exceed 320 and should make it over 400 today. The holiday rally is a few days late but we would guess it will run till month end. The only fly is that resistance is right around the corner.

12:58pm and the DJIA remains higher on good volume. Existing home sales were up 5% in the latest period and consumer confidence numbers are improving. We retain our bearish beliefs but we won't fight the tape. We need s good sharp bear market rally to suck more folks in. We are watching IBM. A close over $90 and then a move higher will tell that the DJIA may hit 9500 before the rally fades.

We sold a portion of our EK holdings in larger accounts today at $32.90 for a $2 gain. We still have a good chunk left in most accounts.

Tuesday has been the high day of each week for the past month.

2:17pm and after we wrote the last post about Tuesday being the high we decided to take some more money off the table. And so we sold GM at $32.50 for a $1.40 per share five day gain, AOL at $14.95 for a $1.50 to $2 per share gain, SGP for a 70 cents per share gain, and XLK for a 60 cents per share profit. That gets us back to owning EK, GPS and DUK in many larger accounts with a little ANDW and EMN in some aggressive accounts including EMN and ANDW in the Model Portfolio. And our cash position in the Model Portfolio is back over 90%.

3:02pm and at the close new highs were 401 on the NYSE. Volume could have been better. The DJIA closed on its high for the day up 180 points at 8780. The S&P 500 rose 19 points to close at 952 and The NASDAQ gained 45 points to end at 1555. The DJIA and S&P are right back at overhead resistance.

And tomorrow is another day.

27 May 2003 - Morning Comment

7:15am and in the Saturday May 24 New York Times, Paul Krugman had an excellent article on deflation, liquidity traps and a comparison of the Japan experience of the last ten years to the possibility of the U.S. or Western Europe experiencing a similar deflationary cycle followed by a liquidity trap. This talk is good old Money and Banking taught to us by Lev Dobrienski at Georgetown back in the 1960s. It was the only Economics course we enjoyed because Lev was a great teacher and the subject matter was interesting.

Steve Ballmer sold 39.3 million not 70 million shares of MSFT last Thursday after it was apparent that the Congress was going to reduce the capital gains tax to 15% and so the tax savings were about $47 million for Mr. Ballmer versus what he would have owed before the tax bill passed. We are sure he will go out and hire 1000 people with those tax savings.

Japan closed lower. Two earthquakes occurred there in the last two days but did little damage. Europe is also trading lower. The Euro continues to gain versus the dollar. U.S. stock futures are lower. So we go down early and then see what happens...

23 May 2003

7:19am and the CIA has launched a review to try and find out if the prewar projections on weapons of mass destruction and nuclear bomb programs and drones dropping bombs on America might have been a bit of overstatement. We suggest they save a lot of time and money and call Karl Rove and visit the Cheney Cave since they are the guys who thought up the terms WMD and Axis of Evil. In the Bush White House, as in many in the past, the appellations are created first, and whether or not the descriptions apply to anything real is not a concern.

8:50am and Steve Ballmer, CEO of Microsoft today announced that he is the mystery big block seller of MSFT stock that we mentioned the other day. Before selling whatever he is selling he owned 470 million shares. The rumor is that he has a 70 million share block for sale. By waiting till now his tax rate on the sale will be 15% instead of over 20%. That's worth $84 million in tax savings today versus yesterday. Wonder how he will thank the Republicans?

CNBC is reporting that Citgroup Smith Barney is firing 8 analysts and dropping coverage on 117 stocks. That kind of action usually signifies that a bottom in a bear market may be forming.

The "old stockbroker" used to say that every time the capital gains tax is cut a rally is to be expected.

The DJIA is down 50 points and breadth is slightly negative. We may try trading the DIA or SPY today if the markets get down 100/10 points this morning.

10:02am and the Senate passed the tax cut bill 51 to 50 with Cheney casting the deciding vote. It's interesting that if the Repubs led by Newt Gingrich and Tom De Lay had passed their contract on America Balanced Budget Amendment back in 1995 they wouldn't have been able to pass either of the Bush tax cuts since they would have needed 67 votes in the Senate. Dems opposed the Balanced Budget Amendment and stopped it by one vote in the Senate. How times have changed.

10:33am and in keeping with our dividend strategy we are buying GM which yields 6% in larger accounts. We are also making a trading purchase of Gap Stores in many accounts. Their earnings were better than expected and the stock sold off on the news but we think the momentum players will come back to the stock when the rally resumes. We purchased GM at $32.90 and GPS at $16.76.

We bought 250 GM and 500 GPS for The Model Portfolio. We know we said earlier this morning that we weren't in the mood to be doing any buying but as any Republican will tell you sometimes conditions require a change of mind.

The DJIA is up 10 points and breadth has turned positive.

10:40am and The Spring 2003 Lemley Letter has been posted.

12:56pm and in our trading accounts we took a quick ride on Harley Davidson losing 35 cents per share in the process. We bought the stock down $2.50 for the day but when the shares zinged lower and we read that HDI is going to 0% financing to sell cycles we decided to jump off. Ouch!

1:04pm and the Department of Homeland Security has struck another blow for freedom by arresting a bunch of undocumented restaurant workers in Chicago. The lawns on the North Shore of Chicago are going to look pretty sorry if this keeps up.

1:41pm and we are selling the Alliant Energy at $20 that we bought the other day for a $1.10 gain. We didn't buy much because it is such a thin trader and we want to take a profit in one of the dividend movers.

2:08pm and entering the final hour of trading the DJIA is up 19 points. Breadth is 2/1 positive and new highs on the NYSE are at 330. New lows are back to 10. We think the rally should gain steam into the close.

3:02pm and the DJIA closed up 5 points at 8600. The S&P 500 was up 1 point finishing at 932 and the NASDAQ gained 2 points to close at 1502.

For the year the Model Portfolio is up 12.4% and is 85.8% cash. The DJIA is up 3.1%, the S&P 500 is up 6.1% and the NASDAQ is up 12.9%.

And tomorrow is another day.

23 May 2003 - Morning Comment

7:02am and after today the tax cut will be law and we'll see what happens. Our take on the tax cut is that what is being done is not good for the long term health of the U.S. economy. And we don't think the cut will do much for the economy in the short run. But we are only guessing and using acquired knowledge from past events to make our predictions.

And so to paraphrase our great leader and sage President, the great thing about the future is that it is the future and because it is the future, future events are unknowable and in the future. So we will let the future take care of itself for what will be, will be, although what will be is unknowable because it is in the future.

Japan was a bit higher overnight and Europe is slightly lower. U.S. futures are slightly lower and a down opening would help our scenario of an up close into the Monday holiday. Our dividend stocks had a nice day yesterday and we are content to stay invested on the edges with no big bets. For the year the Model Portfolio is up 12% and 85% cash.

And so let the games begin.

22 May 2003

8:45am and the parade of Congress folks on Mindless Media begin with all of them giving their take on the just passed tax cut plan. The proof will be in the pudding and a soggy unpleasant pudding it will be.

The DJIA is up 20 points in early trading with no great conviction. We read yesterday that there was a 50 million share block of Microsoft for sale and that was the reason for the softness in the share price. Since MSFT is a big part of many averages and indexes its failure to rally in the last few months has acted as a drag. Maybe if the block sells there will be a relief rally in the share price of MSFT.

Some gurus are dismissing the dividend tax reduction as a non event. We don't thinks so and we would expect the dividend stocks to give us a 10% rise in the next month. We think they become one of the few new games in town.

12:15pm and we had to go out for a while. The DJIA is up 70 points after being a bit higher earlier. Breadth is positive and volume is moderate. Dividend stocks are moving higher with the general market and we are just watching the action.

2:08pm and entering the final hour the DJIA is up 100 points. Breadth is 2/1 positive and new highs on the NYSE are over 250. New highs need to exceed 400 for the DJIA to break through the 8800 level next week. Let's see how the last hour goes.

3:02pm and the last hour of trading was uninspiring. The fade at the end was not positive. The DJIA closed 80 points higher at 8595. The S&P 500 was up 9 points at 932 and the NASDAQ tacked on 17 points to finish at 1508.

And tomorrow is another day.

22 May 2003 - Morning Comment

7:32am and jobless claims rose 7000 to 428000. That's a continuation of a bad trend. The new tax cut bill agreed to in conference between the House and Senate will increase the national debt from $6 trillion to $12 trillion over the next ten years if everything goes well. This tax package and debt increase is coming two short years after all the gurus in Washington were worrying about how to spend the $2 trillion surplus. So the national wealth will go from a $ 4 trillion deficit ten years our to three times that amount.

Can't anyone besides us SCREAM about how screwy this all is? Are we all living in a world where what the next generation, our children, have to deal with is of no importance? Remember, the $12 trillion deficit is if everything goes well. The entire value of all the stocks in the stock market is not $12 trillion. Worry!

The bulls as measured by various services continue to grow and bearish sentiment is shrinking which to contrarians like us is a sign to stay on the sidelines.

Asia was higher, Europe is also, and the U.S. stock futures are higher. So maybe the Memorial Day rally is upon us.

And so let the games begin.

21 May 2003

7:52am and Edgar Bronfman who ruined Seagram before being bailed out by Vivendi is now saying he wants to buy Vivendi. So an era of leveraged buyouts may be returning. In our mind, Bronfman belongs to the Steve Forbes' school of ne'er do well inheritors and both are good examples of why estate taxes aren't such a bad idea.

Bill Fleckenstein on his website provided the following on 5/19/2003:

"The WSJ publishes a weekly review of program trading

5/9/03 Program Trading Accounts For 41.4% of NYSE
5/2/03 Program Trading Accounts For 38% of NYSE
4/25/03 Program Trading Accounts For 36.5% of NYSE
4/11/03 Program Trading Accounts For 41.4% of NYSE
4/4/03 Program Trading Accounts For 37.3% of NYSE
4/1/03 Program Trading Continued To Set Frenzied Pace
3/28/03 Program Trading Accounts For 40.2% of NYSE

This is a huge amount of volume." Fleckenstein's questioner continues, "I know I'm not wrong concluding that this kind of volume creates its own momentum, up or down. Yet I never hear program trading talked about. Is it another of Wall Streets dirty little secrets?"

Fleckenstein responds "I think it's a bit of a non event - true program trading is in essence arbitrage between futures/cash/etfs, not directional."

8:48am and the DJIA is down 42 points. Duke Power is under $17 per share on a Goldman Sachs downgrade an Eastman Kodak is down $1 on Fitch lowering their bond rating to BBB. We own both these stocks and plan on buying more if they drop another 10%. We would like to buy more Alliant Energy in accounts but we are waiting for it to pull back a bit more. The SPDR Technology trust is back to $15.86 and so we are again becoming interested.

We think stock prices will be lower in the autumn, but between now and the middle of June we continue to believe that the DJIA may see 9500 or above. And that is enough of a trading move for us to want to try and catch a ride.

10:51am and we picked up a bit of EK at $28.83 and some DUK at $16.98 for a few accounts. We also began reestablishing a position in XLK in our larger trading accounts at $15.85. We bought 1000 shares for the Model Portfolio. As we have commented before that we use the SPDR Technology Trust to participate in the technology area. And since the NASDAQ is outperforming the DJIA and S&P 500 this year we think that out performance will continue when the stock markets resume the rally.

Chairman Greenspan suggested lowering long term bond rates would help fight deflation and so Treasuries resumed their rally to historically low yields. Our take is that the bubble in bonds just keeps getting bigger.

12:12pm and the DJIA is up 5 points. The DJIA rallied on the strength of the overturning of a large judgment against the tobacco companies in Florida. Breadth is positive as is up volume over down volume and new highs are respectable. A few gurus require more of a correction before the stock markets bounce higher but the approach of month end suggests to us that the rally is going to resume soon.

12:22pm and the new version of the tax package cuts the tax on dividends and capital gains to 15% through 2009. Wall Street is going to love that and the commercial real estate market should begin rising again in price. This is a reprise of the 1980s when the Reagan tax cuts led to the limited partnership real estate and oil scams. The 15% tax on dividends allows Wall Street to create the load products and mutual funds specializing in taking advantage of the dividend tax difference.

2:05pm and entering the final hour of trading the DJIA is slightly to the plus side. Volume is brisk and breadth is positive.

We are closing up early today because the electricians are back for one more afternoon of work.

And tomorrow is another day.

21 May 2003 - Morning Comment

6:46am and stock futures are lower as are the overseas stock markets. The stock market are backing down toward the lower end of the trading range of 8200 to 8800 on the DJIA. The raising of the terror alert coupled with the one cow in North America with mad cow disease were too much for the markets to overcome yesterday.

After the close Hewlett Compaq announced sales $300 million more than expected and the stock rallied a point higher after the close. Chairman Greenspan testifies today before Congress. Traders will be trying to discern any nugget of information on which to base trading decisions. For the last few weeks bad news was ignored but as we approach the end of May it seems that bad news is again bad news.

We didn't do any trading yesterday and until the DJIA reaches the 8300 level we doubt that we will. Until then we will be watching.

Down early then a rally and then….

So let the games begin.

20 May 2003

7:56am and it is good to see that we are in good company in opposing the tax free dividend scheme of the White House and Republican Congress. Warren Buffet, whom investors and pundits love to quote on investment theory and love to ignore when he propounds his liberal ideas, has an opinion piece in The Washington Post today about "dividend voodoo". Now that's a catchy phrase, wonder where it came from? The website URL is http://www.washingtonpost.com/wp-dyn/articles/A13113-2003May19.html?nav=hptoc_eo

8:06am and for the first time in days, Treasury bond prices are lower. Stock futures continue to indicate a slightly higher opening but they are not strong enough to suggest that stocks will be up for long.

10:02am and the DJIA is up 40 points. Breadth is 2/1 positive and volume is brisk. We are watching.

MCI formerly WorldCom settled with the SEC by agreeing to give $500 million to shareholders. Which shareholders will receive the $500 million? And MCI also won the U.S. contract to provide mobile phone service to Iraq. We guess that must come as a real downer to all the Arthur Anderson employees who are still looking for jobs.

10:39am and the DJIA is turning negative, following the NASDAQ and S&P 500 down. Drug stocks remain under selling pressure. With the Bushies in the White House and the time involved in the state lawsuits of lower priced drugs for poor folks coupled with the money available for donations etc., we think the sell off in drug stocks is creating an opportunity. We just aren't in a buying mood today.

11:36am and a funny thing happened on the way to negative territory. Stocks refused to role over and are now back to positive with the DJIA up 40 points again. Home Depot has been leading the charge higher today by announcing better than expected earnings although same store ales were down about 2%. Drug stocks have stabilized and we are tempted by Bristol Myers. It has a nice yield but we are worried that Imclone Systems is a scam and if that is the case there is one more shoe to drop before BMY is out of the woods and is just a lousy drug company with no drug pipeline.

12:46am and mad cow disease in Canada is riling the restaurant stocks. Well, Martha Stewart will be glad since Mindless Media should pick up this story and run with it. We just saw that CNBC is going to have Steve Forbes on to dispute Warren Buffet's contention that rich folks don't need tax free dividend. That's Steve "I inherited all my money and blew a big chunk on a stupid run for the presidency" Forbes. And he is now saying that Buffet feels guilty about the money he's made. That's a laugh. Buffet relishes the money he made because he made it himself.

2:09pm and the DJIA is down 60 points. There is indecision in stocks but no panic. Breadth is negative and down volume exceeds up volume 2/1.

We were reading the WSJ today and came across a comment that illustrates our point that mutual finds are happy when they beat their benchmark even if the fund is down 17%. From the WSJ: "The fund is up 1.68% in the year to date, putting it behind its benchmark, the Russell Midcap Growth Index, which is up 12.5% so far this year, as well as behind the broader Standard & Poor's 500-stock index, which has gained more than 7%. Last year, the fund lost 17.6%, beating the Russell index, which lost 27.41%, and the S&P 500, which fell 22.1%. For the 10 years ended March 31, the fund has had an annual gain averaging 7.38% compared with the Russell index's return of 6.61% a year."

2:49pm and Alert! Alert! The terror alert has been raised from yellow to orange. Tubby and Pooper have been placed on perimeter alert on our farm in keeping with past procedures.

The alert change has coincided with a nice rally in stocks. We don't think the two are related but stranger events have moved markets.

When the U.S. astronauts returned to earth in the Russian space vehicle several weeks ago their vehicle missed its landing spot by 300 miles. None of the Russian space folks were upset since being off by a few hundred miles is not unusual. That means that if the Russians shoot a missile at Chicago it will land here in Soldiers Grove.

3:02pm and with the late rally the DJIA down 1 point at 8492. The S&P 500 was unchanged at 920 which is important support, and the NASDAQ finished off 1 point at 1491.

And tomorrow is another day.

20 May 2003 - Morning Comment

6:47am and the sell off in the U.S. markets did not continue overseas in the over night trading. Asia was mixed and Europe is up a bit. U.S. futures are also indicating a higher opening. For rally purposes we would suggest that a lower opening followed by a rally would be better to draw folks in but since we don't have much money on the table we are more observers than participants.

Our Model dropped less than 0.1% yesterday while the major indexes and averages lost up to 3%. And so we are glad we learned from the spike and sell off two weeks ago to not be caught by in the same trap last week.

We need to be at our desk every day to catch the ebb and flow of the stock trading and we cannot understand how any money managers who have responsibility for other folks' money are not at their desks. The updated Model Portfolio is posted

Today on Manic Media we have the return of Martha Stewart, Peterson's mistress, and Homespun Charles Grassley offering dividend tax relief to all the poor retired folks in Iowa who receive dividends from the local electric utilities. That's quite a combination of stories and we need another cup of coffee to digest them. By the way most utilities don't pay federal taxes.

So today, up early and then lower and then…

And let the games begin.

19 May 2003 - Afternoon Comment

With the markets tanking today we are adding this material to today's post.

The dollar plunge today versus the euro as a result of comments by Treasury Secretary Snow is reminiscent of Treasury Secretary Baker's comments in 1987. Support was broken today.

12:07pm and we still have electricity. It would have been better if the electricity had gone off early this morning since we dropped a few dollars on our trading strategy of buying the SPY and/or DIA down 10points/100points.

We traded SPY for our aggressive accounts and lost 80 cents per unit and we also sold our MAY trade of Friday for a 45 cents per share loss.

Breadth is 2.5/1 negative, down volume is swamping up volume and new highs are anemic. The only positive is the relatively low volume but even that is picking up. The S&P 500 and the NASDAQ have broken support and so we stopped ourselves out of our SPY and DIA trades. We are picking up some more Alliant Energy on the sell off at $18.66. We purchased 500 shares for the Model Portfolio. We also bought a position in Schering Plough. Schering Plough is down with all the drug stocks because of a preliminary ruling in Maine concerning buying drugs at lower prices for seniors and the poor. Also the general market malaise is not helping. But Schering has a new CEO and we think it's now worth a try since all the bad news specific to the company is hopefully out. News applying to the drug industry may continue to affect the price but SGP is on a low whereas other drug stocks are on yearly highs. We bought it at $17.80 including 500 shares for the Model Portfolio.

2:05pm and we have been in and out working on the electricity. With the sell off today we are glad to have built up the cash position we did. It's a lot easier selling on the rise than on the drop.

3:02pm and the DJIA closed down 186 points at 8494. The S&P 500 lost 24 points to end at 920 and the NASDAQ plunged 45 points to finish at 1492.

And tomorrow is another day.

19 May 2003 - Morning and All Day Comment

7:01am and we have a cloudy day to go with our cloudy market outlook. In the early going the stock futures are lower continuing the mini-pullback of the last four trading days. Bulls are suggesting that the pause and pullback are good because they relieve an overbought condition. We don't have any great insights.

The stock markets are having trouble piercing resistance to the upside, yet the markets aren't interested in giving up their recent gains. Two terrorist bombings at the end of last week didn't upset the apple cart and that is a good measure of the underlying strength.

We have chosen to move to a large cash holding because that has become our practice in May. We are trading a few stocks as ideas present, but we would rather error on missing the last push higher than give up our hard earned gains of this year. We are not convinced that a new bull market has begun and continue to view the run up as a rally in a bear market.

We are having the our socialist electric co-op redo our electric lines today, weather permitting, and our check in their hands, and so we will have no electricity or phone service or satellite TV for the day. Should we come through the blackout period which will begin about 9am CDT we will be back at the controls tomorrow morning. We ourselves will be busy bossing the operation which will are sure will add much to the quick resolution of the transfer.

So let the games begin and remember that tomorrow is another day.

16 May 2003

7:44am and the dividend package passed by the Senate may not survive the Conference Committee, but there is going to be dividend relief. We would like to see it capped at $10,000 per year but don't think that will happen. And so we would guess that high dividend stocks will move higher in anticipation of the dividend relief tax package. Artificially moving markets with temporary panaceas may make politicians feel good but the dividend package will do nothing to get the economy moving.

We know the real plan of all these tax give backs is to prevent future legislators from increasing spending. But what the myopic politicians are doing is removing the options that future legislators will have to address unknowable future events. And that is sad for our children and grandchildren.

We are 97.5% cash and up 12% for the year in the Model Portfolio. We have moved to the sidelines because we are nervous about the markets. If you review returns over the years you will see that a 12% return is about average. But for the last four and one half years the Model Portfolio is up 110% while the S&P 500 is unchanged. So the major market measures have a long way to go to catch up to us.

And we don't have any confidence that the economy will be turning higher six months from now. In fact in our crystal ball we see a SARS scare with the beginning of the fall flu season and a ramp up in threats to invade Cuba to get back on a war footing for the 2004 election season.

But we do have the summer to enjoy.

8:51am and the University of Michigan Consumer Sentiment survey for May was 93.2 versus 86.0 for April. So all is well in America and the stock markets should rally on this news that consumers are feeling better. The only problem is that Treasuries continue their manic rally of the last few weeks and that rally is predicting that a rate cut is needed to get the economy going. That will be the thirteenth rate cut to get the economy going. We wonder if we will need thirteen tax cuts also.

The DJIA opened lower and popped up 30 points before beginning to settle back down. It is now up 10 points.

9:13am and the "Street" is most probably in the process of having their lawyers and accountants prepare Four Year Dividend Trusts to sell to investors. Those Trusts will be created to own high dividend paying stocks. Investors will be encouraged to buy the Trusts which will contain ten to twenty stocks with relatively secure dividends. For the privilege of buying the Trusts the Brokerage firms will probably have a load charge of 2%. Right now the firms are buying the stocks in their trading portfolios with the idea that they will sell the shares to each others Trusts when the final tax bill passes. Actually these trusts won't be such a bad deal but by the time they are packaged and sold the yields will be down to 3% with the rise in the prices of the dividend stocks safely tucked into the profit column of the various brokerages. Ah, wondrous Wall Street has many ways of relieving widows and orphans of their money. And the Congress always pays Wall Street for its contributions by creating wondrously complicated tax laws.

The DJIA is down 65 points.

10:52am and today is an option expiration day so events may be skewed. We are buying Duke Power in many accounts at $17.80. Duke has a 6% yield from a reduced dividend and while it still is being investigated over phony trading, and also has a nuclear reactor problem we think it will be a prime pick for the Dividend Trusts. We also doubled our EK holdings on the same theory since it yields 5.9%. We are trading SPY at $94.40 in our aggressive trading accounts.

11:45am and the DJIA is inching back to even on the day. We are hoping for a decent 50 points to the upside on the DJIA this afternoon to sell our trading positions.

1:52pm and we got our rally to the plus side and were able to sell the SPY for a net 75cents per unit profit at $95.17. We are buying back the May Dept Stores we sold earlier this week in our aggressive trading accounts at $20.75 because it has a 4.5% yield and also trying to buy some Alliant Energy with a 5.3% yield in our aggressive accounts at $18.80. It is a thin trader and so we are not buying it around because we would have trouble selling it in too much size. We are buying these stocks to trade on the run up to the passage of dividend relief, not to own for the dividend.

Going into the final hour of trading the DJIA is down 10 points and since we made a nice profit on our trades today we are going to relax.

2:49m and fifteen days after managing an offering of $1 Billion in Unum Provident securities, Goldman Sachs raised its rating on the company to outperform from in line. Some things never change.

3:02pm and the DJIA closed down 30 points at 8682. The S&P 500 lost 2 points ending at 944 and the NASDAQ gave up 12 points to finish at 1538.

For the year the DJIA is up 4.2%, the S&P 500 is up 7.5% and the NASDAQ is up 15.5%.

The Model Portfolio is up 12% and is 94% cash since we purchased 500 share of DUK and 250 shares of EK today for the dividend play.

And tomorrow is another day.

16 May 2003 - Morning Comment

7:19am and in 10 minutes we will get the CPI and Housing Start numbers that will be the wheel spinners for today. The Senate passed the goofy tax bill last night and now it goes to Committee where the House folks can join the process to really confuse the tax code. In good republican style, we have been on the phone to our erudite accountant to figure how our corporation can take advantage of the latest gift to the unneedy, including us, by our Republican friends in Congress.

Bullish sentiment in the marketplace is growing and according to the gurus investors now need to run out and buy dividend paying stocks to earn the income that bonds don't pay. That may be the catalyst that moves stock through upside resistance levels on the DJIA and S&P 500. We may add to the EK for a play on that stock's big dividend but for the most part we are resting and looking for trading opportunities for our aggressive accounts.

7:32am and the CPI for April was down 0.3%. The Core CPI was unchanged. Can anyone say deflation and interest rate cut? Housing Starts were lower than expected at 1.63 million. March Housing starts were revised to up 6.6% from up 8.3%. We still think existing home sales are the important indicator of how the housing markets are going.

There is little change occurring in the Treasuries and stock futures on this news. Europe is higher, Asia was lower.

And let the games begin.

15 May 2003

7:35am and the Producer Price Index was down 1.9%, with the core rate down 0.9%. Continuing claims for unemployment were down for the third week in a row.

With that news the best of all worlds scenario has taken over the stock futures. Traders now see no inflation, slow but steady growth, and hopefully pricing power. And so stock futures are higher and Treasuries are rallying and the emperor has clothes, or does he?

"Shoot to Kill"

We had wanted to avoid politics for a while but the "Shoot to Kill" orders of the new U.S. administrator in Iraq raise serious questions in our mind. As readers are aware we were against the Iraq War. Luckily the war went as planned and it seems that the loss of life on both sides was minimized.

The U.S. Armed Forces are now occupying a country that they conquered. That country had no attacked them or the U.S. That is a crucial difference between the occupation of Iraq and the occupation of Japan and Germany after WWII.

Our Soldiers were sent to liberate the people from a tyrannical regime. We must restore order. But certainly we must restore order as we would in the U.S. and not as was done in Iraq before we arrived or in China or Congo or all the other countries where dictators rule. Bob Herbert in The New York Times has an opinion piece on this subject that we suggest reading.

9:22am and we have been busy setting up an appointment for our brand new car which last night hit a deer, or did the deer hit us? Anyway the plastic grill was demolished and now we have joined our favorite son-in-law (Dave) in the how much damage can hitting a deer do to the family car contest. We have taken the lead by a wide margin. Dave told me he asked Volvo why the airbags didn't deploy when he hit the deer. The airbags didn't deploy when we hit the deer either. Volvo's answer was that the airbags knew it was a deer. Now that is one smart car.

The stock markets opened higher and the DJIA was up about 70 points at its best. We sold some AOL in our trading accounts that had oversized positions. We also sold the SPDR Utilities at a net $20.35 for a 40cents per share gain. Since that was a large holding in many accounts the 2% two week return is our aggressive way of earning a bit of return on our cash holdings. With cash yielding less than 1% on an annual basis we have been trying to take advantage of the XLU to add short term income without much risk.

We read a description of the bond market on www.realmony.com last night in Bill Fleckenstein's column that he attributed to Paul Isaac who attributed it to Jim Grant: "The Treasury Bond market has now become 'the return free, risk market'". That's as good a description as we have seen of the manic buying occurring in Treasuries. Unless a depression is around the corner only traders should be buying Treasuries at these levels. We should say only very nimble brave traders should be buying Treasuries at these levels.

10:17am and there was a report on CNBC about a WSJ story today on Fidelity and its internal controls being awry. We are going to go read it since Fidelity is the big bad monster we have always disliked. Their emphasis on performance which they obtained by cornering stocks was the precursor of the Janus Funds explosion in assets on hyped performances in the bubble years followed by the collapse of the Janus fund share prices when Janus found there was no greater fool left to which to sell the garbage it had run to ridiculous prices.

On www.realmoney.com Jim Cramer is hoping for an interim Fed rate cut to ignite more mortgage refinancing and thus get more borrowed money in the pockets of consumers. This type of borrowing encouragement by the Fed is dumb and counterproductive. We presume Cramer wants the interim cut so that the failing stock rally can be recharged. It is nuts for the Fed and the White House to be looking to the stock markets to lead a recovery from a collapse caused in part by unreasonable stock market expectations.

10:33am and just a question, but why is it OK for Cubans to come to the U.S. but not Haitians? Both countries oppress their citizens. Can W. form a coalition of the willing to liberate these two countries? Stay tuned, for Cuba at least.

10:40am and the WSJ story on Fidelity wasn't much.

We have been reading about the Texas Dems who skipped town so there wouldn't be a quorum in the legislature. Good for them. They are learning how to play hard ball and emulate Repubs. For those who don't know the Repubs did the same thing for the same reason back in 1971. And doesn't it make one wonder when U.S.House Majority Leader is always refereed to as Tom Delay, (R) from Sugar Land.

11:26am and we sold SLE at $17.50 for a 35cents per share loss in many accounts but a $1 or less profit in some. Since we have been selling all our other stocks we are following the maxim of selling losers when selling winners if you don't like the market action. That gets us down to two relatively small holdings in AOL and EK. With our sales today The Model Portfolio is 97% cash and up 12% for the year.

11:35am and if we understand what we are hearing the Senate is going to pass a tax cut bill that eliminates taxes on 50% of dividends this year and then there will be no tax for three years and then the dividend tax will return in 2007 just as Bush leaves office. Can anyone say banana republic and we don't mean the store? Can anyone say tax simplification? We thought that Republicans were for simplifying the tax code.

This dividend tax cut if passed will save Bill Gates $100 million over the four years. The dividend tax cut being passed by the Senate that will reduce taxes on dividends by 50% the first year and then eliminate them the next three years will save Bill Gates $100 million in taxes. It should be labeled the BILL GATES GIVEAWAY.


  • Bill Gates owns 1.1 billion shares of MSFT.
  • Dividend rate is 8 cents per share.
  • That is $88 million per year to Gates
  • First year 50% is excluded equals $44 million X 35% tax rate is $15.4 million tax savings.
  • Next 3 years is $88 million X 35% is $30.4 million a year.
Total four year total amounts to a BILL GATES GIVEAWAY of $106.6 MILLION.

By comparison it probably won't be worth more than $1 million to Dick Cheney who will cast the tie breaking vote in favor of the cut. If you can't do for yourself…

12:54am and the DJIA is back to its high for the day up 61 points. Breadth is positive and new highs are at 214 on the NYSE. We are still looking for the plus 400 new highs for the day, maybe tomorrow. We are happily 95% cash.

1:42pm and it's on the tape that Reuben Mark, the CEO of Colgate and a director of AOL bought 504,000 shares of AOL recently. That's a big chunk of stock and is probably the reason for the rise today.

Europe closed higher today. Breadth is positive and new highs are at 242 on the NYSE.

2:40pm and we are leaving a bit early today. As we depart the DJIA is up 57 points at 8706. The S&P 500 is up 6 points at 945 and the NASDAQ is 14 points higher at 1548.

And tomorrow is another day.

15 May 2003 - Morning Comment

6:55am and we wish a happy 90th birthday to our mother Odella. We are who we are because of you.

We read in the news where China has the ultimate solution to the SARS epidemic. The Chinese have stated that they will kill anyone with SARS who knowingly spreads the virus by breaking quarantine. That's an inscrutable solution for an inscrutable country and we hope John Ashcroft doesn't hear about it.

The Nikkei was down 1.5% overnight and the rest of Asia was mixed or celebrating a Buddhist holiday. Europe is also mixed to higher.

Stock futures are slightly lower. We have raised a good deal of cash and we are down to four stocks in our portfolio. We may add to the Eastman Kodak in a sell off and also we may reenter SGP if it weakens a bit. But we are foreswearing the chap tech stocks for the summer. The updated Model Portfolio is posted.

The Model Portfolio is up 11.8% for the year while the DJIA is up 3.4%, the S&P 500 is up 6.8, and the NASDAQ has gained 14.9%. Given what these averages and indexes have done over the past five years versus the Model Portfolio we are content to let them play catch up to us, if they can.

We see a summer doldrums developing and while we still think the DJIA and S&P have the potential to break through upside resistance and rally another 5% to 10%, we also think they will give back those rally gains this summer.

We have survived the last five years by not being greedy and choosing our spots and so as the saying goes it is May and we are going away with our money.

Today stocks should open lower and then we expect a rally and then …

So let the games begin.

14 May 2003

7:31am and Retail sales in April were down 0.1% in April and ex auto retail sales were down 0.9%. That's 1% less than expected. Stock futures are giving up their gains as Treasuries rally to ridiculous levels.

7:59am and gasoline price drops were one half of the decline in retail sales. That's the good part of the bad news.

11:35am and we had to take the garbage to the dump and do other assorted chores this morning. The stock markets opened slightly higher but quickly moved lower and have been lower all day.

Treasuries are strong and something is going to have to give. Either Treasuries are going to collapse or the stock rally is going to fizzle. Treasury yields suggest a Fed rate cut and a slowing economy. But the actions of the stock markets suggest a recovering economy in six months. Now both scenarios could be correct in that the next Fed rate cut which will be lucky number 13 may be the one that does the trick and gets the economy moving. And after the rate cut Treasuries may sell off because bond traders perceive a recovering economy. But until that happens we have a true divergence of opinion between stock and bond traders with big money riding on the outcome.

We sold our Safeway holding for a $1 to $1.75 per share profit. We also sold our trading position in T for a 50 cents per share profit and our trading position in SNE for a 75 cents per share profit. We have Bank One in to sell at $37.90.

12:16pm and breadth is even. Volume is moderate and new highs are over 150 on both the NYSE and the NASDAQ. The market seems to be marking time deciding on its next move.

1:11pm and the five-year Treasury is back down to a 2.5% yield. The rally in Treasuries has been ascribed to traders speculating that the Fed will be buying long paper to flatten the yield curve but $300 billion in yearly deficits as far as the eye can see should inject a note of caution to those trading the rally. We presume some hedge funds are caught the wrong way, but the bond market has become as irrational as the stock market in the late 1990s

1:49pm and oil is supposed to be going down in price. Instead oil closed over $29 a barrel on the NYMEX today. Entering the final hour the DJIA is down 65 points and the stock markets don't seem to want to resume the rally today. Treasuries closed on their highs with the long bond up 2 points.

We sold our OATS trade for a 60 cents per share one week profit.

2:20pm and on the theory that a $1.15 per share gain in the pocket on a stock bought at $5.80 is worth more than hoping in a dicey market trying to break through resistance we sold the rest of our Tellab holdings. Our average price received on the whole position was $7.03. While we were in the selling mood we also liquidated our remaining ONE at $37.60 for a $1.50 per share profit. In the process of selling we have reduced our exposure to stocks to below 15% in the Model Portfolio

3:02pm and the DJIA closed down 31 points at 8647. The S&P 500 lost 3 points to end at 940 and the NASDAQ was down 5 points at 1534.

And tomorrow is another day.

14 May 2003 - Morning Comment

7:14am and stocks are going to open higher after yesterday's mini pullback. Bad news is no news, good news is good news, and no news is good news in the stock markets after the 15% rally off the bottom in March.

Asia was mixed overnight and Europe is higher. We are going to sell the rest of the Bank One this morning and we may let the Safeway go in our endeavor to raise hay in May.

April retail sales are forecast up 0.3% and the actual number will come at 7:30am. That is the number of the day on which to spin the wheel. Earnings announcements are slowing and pre-announcement season is a month off, and so the markets are in a sweet spot to move higher. We are keeping a few stocks in case the markets break thru resistance on the upside. If they do a quick 5% to 10% move is a possibility. We will try to trade that with DIA or SPY rather than individual stocks - if we do anything.

And so for today up early and then climbing higher.

And let the games begin.

13 May 2003

We missed posting the morning comment because the computer guru was engaged elsewhere this morning.

Morning Comment which is now an afternoon comment.

7:28am and we are late because it is time for the horses to get their lyme disease booster shot. Now that they are tucked safely in the horse palace munching hay we have time for less important events like the stock markets.

Unfortunately many Americans and foreigners were killed in Saudi Arabia this morning in a series of seemingly coordinated attacks. As a result stock futures are lower, although we think they would be lower anyway. That stock futures aren't crashing is a testament to the strength of the bull and the change in psychology in the U.S. since the war. CNBC has made very little mention of the attack and we don't think that is by accident. We believe the media has decided to be feel good for a while. Moreover, events overseas even when they involve Americans usually have no effect on mainland happenings.

With the run that stocks have experienced, this morning's pullback is normal. How the bulls and bears react to the pullback will set the tone for the assault on resistance at 8800 on the DJIA and 950 on the S&P 500. Asia was lower overnight and Europe is mixed.

And let the games begin.

Daily Comment

7:56am and US Air has emerged from bankruptcy and so now it is time to start piling on debt and lease obligations by ordering new planes. Now we are told the old planes aren't safe and require too much maintenance. By the by, the airlines are now beginning to shop out the maintenance to bypass the unions.

Treasuries are undergoing a little profit taking. Stock futures are improving but are still lower. The trade deficit was about $43 billion for April. We really don't know what effect that has on near term market movement. 20 years ago when traders didn't have a lot of daily numbers on which to spin the wheel, the monthly trade number could move markets for a week or two. Now traders' attention span on any one number is about five minutes.

8:04am and there is a stock called Avanex that is involved in optical telephony. It is being paid to take some operations from Corning and Alcatel and on the news the stock doubled in price last night. JDSU is in optical telephony so it will be interesting to see how that news affects JDSU.

9:21am and the stock markets opened lower and have been off slightly since then. Breadth is negative and down volume exceeds up volume. But there is buying and we think we'll be higher and testing resistance within the hour. We added some shares of SGP at $18 to our trading accounts that already own it. SGP announced in line earnings this morning and a long conference call is occurring at this time. We aren't listening, just watching the share price to tell us what is happening. A bid seems to have come into the stock in the last fifteen minutes which is why we added to our position.

10:55am and the markets continue to meander at lower levels. We are trying to sell at $4.25 the SUNW that we purchased yesterday at $3.89. We also have some Tellabs to sell at $7.25.

Last night we were visualizing Tellabs at $20 and SUNW at $10 when we realized we were falling into last Tuesday's trap of becoming long term investors in what we continue to believe is a tradable rally in a bear market setting.

The bombings in Saudi Arabia and SARS recurring in the U.S. during the fall flu season are two potential market movers that the markets are currently choosing to ignore.

We said the other day that terrorist attacks are much more likely overseas than here. But a series of them will eventually reach the psyche of Americans and resurrect the possibility of terrorist attacks in the U.S.

Alan Abelson made the point in his Monday column in Barron's that there is the possibility of SARS recurring this autumn flu season in the U.S. The effect on the economy could be withering because regular flu symptoms and SARS symptoms are not that different. The flooding of emergency rooms and doctors offices in a media induced panic is a distinct probability.

Since future terrorist attacks are unknowable and the flu season is six months away, the stock markets are blissfully ignoring these potential negatives. We are getting into our sell in May and go away frame of mind. The Model Portfolio is up 12% and that's a good first five months' work. And so we hope to use the rally this week to head to the sidelines with more of our money.

With the running of the cheap tech stocks today we are selling our entire SUNW position at $4.25 for a nice 35 cents to $1 short term profit. We are also selling our entire JDSU holding for a scratch to a 30 cents per share profit. We were a little overenthusiastic last Tuesday when we purchased the large JDSU holding and we are using today's low priced tech buying interest to extricate ourselves from a very large holding that was several hundred thousand dollars underwater last Friday. When trading, we can only sell when others want to buy. We also are going to try and sell our TLAB holdings but the demand for the stock does not equal our supply so it may take a bull run this afternoon or later this week in the overall market to allow us to sell all of our holding. We are hoping to sell above $7.20 per share which would give us a nice 25% plus $1.25 cents per share profit on a very large position.

11:48am and IBM is at $89.85 and looks like it wants to inch through the $90 barrier. The DJIA is trying to move to the plus side but the move is being met by selling. There is plenty of time left in the day for the rally to resume and if it does it should get interesting.

12:02pm and Wild Oats announced in line earnings and so our trading buy in front of earnings worked. In this case we felt the 15% sell off in OATS on the day we purchased it was a result of a competitor Whole Foods announcing less that expected but still excellent earnings and that didn't make sense to us.

SGP has recovered to unchanged for the day and so we presume the conference call was received at least neutrally by analysts and other listeners.

1:09pm and there just was a quick 50 point sell off in the DJIA. We presume it was a program or two. We have Bank One in to sell at $38 which would be a nice $2 per share profit over a couple of weeks.

1:54pm and the hour of testing has arrived. The DJIA is down 60 points. Rally attempts today have been met by selling. SGP is now up 35 cents per share and we may take our trading money in this stock and go home if we get a bit more of a push in the final hour.

2:22pm and we traded or of out SGP position at $18.70 for trading accounts. Where we doubled up today we made a few pennies and where we didn't we lost 20 cents per share.

We also sold one half our Tellabs holdings in most accounts at $ 7.11 for a very nice locked in gain. And we sold Bank One at $37.90 in our smaller accounts and a partial amount in our larger accounts.

3:02pm and at the close the DJIA was down 48 points at 8679. The S&P 500 lost 3 points to end at 942 and the NASDAQ dropped 2 points to finish at 1539.

And tomorrow is another day.

12 May 2003

8:39am and the markets are opening lower in moderate trading. Treasuries are stronger again today. Oil is higher and the dollar is weakening again. We are going to buy back Sun Micro as a play on the strength in the NASDAQ tech area. We have been trading around a core position in that stock in many accounts and since we have raised a goodly amount of cash we are willing to take a speculative trading position at the beginning of the week

9:58am and the DJIA is inching higher in moderate trading. Breadth is positive and the early morning dip was bought which must be upsetting to the bears shorting this up move for the past few months. We bought the SUNW at $3.88 and picked up a bit more EK at $30.04 for some of our larger accounts.

11:07am and the DJIA is up 100 points in active trading. New highs need to expand on today's rally. Breadth is 2/1 positive and up volume exceeds down volume by 4/1. We are watching with amazement.

12:04pm and the volume of trading has slowed. The DJIA is on its high for the day and the last hour will be interesting. We have been watching IBM and if it closes over $90 today and opens strongly tomorrow it will have broken out of its $65 to $88 trading range of the past year. That will be bullish for the rally. We are now at 230 new highs on the NYSE, 400 new highs for the day would be bullish.

1:29pm and the stocks keep trudging higher. We're at 250 highs on the NYSE and only 179 on the NASDAQ. Volume is moderate. Europe closed mixed with London higher and the Continent mostly lower. Oil is higher because Iraq says it will produce only 1 million barrels a day rather than the 3 million a day pre war. The last hour today will set the tone for the week.

2:20pm and we bought Sony back in our trading accounts at $25.16. We are over our disgust with our lousy decision making and have purchased only in our aggressive trading accounts. The DJIA is on its high at 8743. Treasuries closed higher in price and lower in yield on the day. Bond traders and stock traders are looking at the same numbers and seeing different results, or maybe they are both expecting the perfect economic scenario.

3:02pm and stocks retreated a bit in the last few minutes and so didn't take out the resistance they needed to. New highs only reached 275 on the NYSE. The DJIA closed up 120 points at 8727. The S&P 500 gained 11 points to end at 945 and the NASDAQ was up 21 points at 1540.

And tomorrow is another day.

12 May 2003 - Morning Comment

7:02am and after a rainy windy spring Sunday it's nice to see the sun again. The Model Portfolio finished the week at $510,600 up 10.9% for the year. It is 24% stocks and 76% cash. For the year the DJIA is up 3.2%, the S&P 500 is up 5.1% and the NASDAQ has gained 13.8%.

We sold Honeywell at $24, Intel at $19.25, and SBC at $23.40 on Friday. All sales realized scratch profits. We have become concerned about the strength of the rally and so we decided to take more money off the table. We have two tech stocks left which can give us some bang for our buck if the NASDAQ continues to charge higher.

We just don't see the recovery that the stock markets rise is predicting and plan on selling the rest of our stock when the misguided tax plan passes or earlier. We continue to believe we are in a trading bear market and that dreams of recovery in the economy are just that.

Europe is lower this morning and the stock futures are mixed. We are agnostic as to today's market action.

9 May 2003

6:40am and we are heading for Chicago later this morning to visit some long time friends tonight and then celebrate our mother's 90th birthday tomorrow with family. We'll be back home by nightfall tomorrow because we worry about turning into a pumpkin if we stay away too long.

The Model Portfolio is posted as of last night and it is up 10.3% for the year, versus 1.8% for the DJIA, 4.6% for the S&P 500 and 11.5% for the NASDAQ. The NASDAQ has been the leader all year and as long as we are in a bear market we think it will continue to lead. And that is why we have been trading the lower priced tech stocks and the SPDR technology Trust.

There are Biotech stocks in the NASDAQ and they have had impact on performance this year but we have never been able to get our arms around stocks that trade at thirty times earnings even in bad times. We have been lucky trading BGEN a few times in the past year, but even with it we always leave the party too soon. But as our partner Don used to say if you leave the party early you won't usually have a headache the next day.

The stock markets are at a juncture where they either have to break through what is strong overhead resistance or retrace part of the rally. Stocks have tried to pierce the resistance a couple of times and not made it. If they do pop through there will be a sharp rally higher and that is why we are staying somewhat invested. We have surrendered most of our gains of the week and as we said yesterday less celebrating more selling was called for.

We must admit that we were caught up in the euphoria of the rise and were tempted to over look our plan to take trading profits. We decided to anticipate the return of the bull and so missed a small profit opportunity.

We think the stocks we own don't expose us to more than ordinary risk if a sell off returns in earnest and the stocks we hold should allow us to participate on the upside as we did earlier this week. We have reduced exposure to the stock markets with the Model Portfolio 35% stocks and thus 65% cash.

Enjoy the weekend. Katie and Kelle are having a biking entourage arrive tonight and plan on riding 60 miles tomorrow while we are enjoying a nice luncheon in Chicago. That may be why we are maintaining our dignified but portly profile while they are pictures of fitness.

And tomorrow we celebrate Odella's birthday.

8 May 2003

6:53am and Steve Forbes is the guest expert on CNBC this morning. Given the fact that his only claim to expertise is that he inherited a fortune and blew a big chunk of it running for President where he received 4 or 5 votes is there any reason to listen to him on any subject? Sorry, we aren't usually so unkind but there is a limit to folks we think the media should inflict on us as experts and Steve Forbes, Larry Kudlow and Al Haig are three that raise the dander with us. Phew, now that that is out of our system on to other subjects.

8:02am and department store sales are coming in below plan for April. Specialty retailers did a bit better especially The GAP whose same store sales were up 22%. That's off a terrible last year but traders eyes only look to the last 10 minutes. We are not currently interested in any retailers except our MAY trading position.

Initial unemployment claims were 428,000 down 25,000 from last week and less than expected but still a big number.

9:30am and the markets sold off strongly in the first hour although the DJIA never was down 100 points. Now the DJIA is up 13 points. We are continuing to sell into the sell off and the rally to raise cash. We sold some SLE at $17.40 to reduce positions. We sold our entire HPQ holding for a $1 plus per share gain. We sold our trading positions in MAY and Motorola for a scratch loss on both. We are going to sell the PCS holding for a scratch profit if it inches a bit higher and we are hoping to let Honeywell go. We are selling PCS because we still have two cheap tech stocks in JDSU and TLAB and with the markets acting dicey we want to continue raising cash. And in the small accounts where we are selling PCS we are doing so at a slight profit.

10:49am and we sold the PCS at $3.79 for a scratch in most large accounts. The DJIA is down 20 points and breadth is negative on moderate volume. Stocks are doing well to hold their own and there are buyers out there. The last hour today will be important.

12:01pm and we are edging out of our ION trading position at $18.79. We are making about 60 cents per share. We hope to eliminate our Intel trade by the end of the day. For now the DJIA is down 70 points and we are hoping for a rally to sell the INTC.

It is not fun to give up our profits of the last few days, but the reality is that on Tuesday when we were patting ourselves on the back for being so smart and adding to holdings we should have been selling. But spilled milk is spilled and the market sagged and we are still doing well for the year.

1:19pm and Wild Oats (OATS) is down 16% today on news that Whole Foods earnings were less than expected. We are buying stock in our trading accounts at an average $9.25 per share with part of the money raised from the break even selling of INTC at $19.27. No food chains are doing well but OATS is three years into its turnaround and we don't think results to be announced on May 13 will be too untoward. If they are we will be buying more stock at $7. We've been here before with this stock which is why only our aggressive accounts are getting it now.

The DJIA is down 69 points and volume is moderate. Breadth is 5/3 negative Although down volume exceeds up volume by over 2/1. New highs on the NYSE are 150 and there are 4 new lows. Those are good statistics in the second day of a correction.

3:02pm and we didn't sell the Intel. The DJIA closed down 70 points at 8490. The S&P 500 lost 9 points to end at 920 and the NASDAQ dropped 17 points finishing at 1489. Easy come, easy go.

And tomorrow is another day.

8 May 2003 - Morning Comment

6:43am and stock futures are lower. Asia was mixed overnight and Europe is mostly lower following the U. S. stock markets down from yesterday. Most technicians find the stock markets severely overbought and bullish consensus is reaching a high and so a correction is to be expected. Stocks can work off an overbought condition by going sideways for a while. It isn't necessary for stocks to go down 10% to work the condition off. In bear markets they go down, in bull markets they move sideways and in some markets stocks just keep moving higher and get more overbought.

With the contained sell off of yesterday, today and tomorrow may set the short term trend. We raised a bit of cash yesterday. We like what we own for now but we are open to changing our position at any time.

7 May 2003

8:44am and the stock markets are lower in moderate trading. The sell off is muted which suggests there are still unsatisfied buyers out there.

We find it interesting that VP Cheney announced that he will be on the presidential ticket in 2004. Is this the first time in history that a president or his press secretary has not made the announcement?

8:57am and it turns out Mitch Daniels may have had another reason for resigning so quickly from the office of Budget Director. The Indianapolis Star is reporting today- timing is everything in politics-that he and other directors of IPALCO, and Indiana utility company are being investigated for selling over $70 million worth of stock right before some bad news that caused the stock to drop in price was released. Oh no, that can't be true.

Here is the web connection to the story:

On that same note it turns out that Halliburton gets to run the oil wells too on the no bid contract given to them. Too bad Clinton isn't back in office because we'd have a whole bunch of Congressional investigations going and the cable cons would be drooling and running special reports all day long.

9:42am and we sold BP at $39.85 and we are placing the proceeds in AOL. We know, we said we weren't going to trade AOL anymore but the Turner sale has removed overhang and created interest. We are about making money, and flexibility is a necessity. We also repurchased the SPDR Utility Trust (XLU) at $19.95 for those accounts owning the SPDR Energy Trust (XLE). We are paying higher than where we sold but we think there is a point or two to the upside in the XLU. And remember the XLU has a dividend yield of over 4.5% with a payment at the end of next month.

10:02am and the number of bulls in the surveys are growing and that is causing worry. Wholesale sales rose 1% and inventories rose 0.5% in April. The DJIA is back in positive territory up 10 points. The NASDAQ is still down 7 points and the S&P 500 is off 1 point.

12:50pm and the DJIA is back in negative territory. We sold the SPDR Energy at $22.88 for a 50 cents one week profit and we sold XLK for a 60 cents to 80 cents per share profit. We use the SPDR series as a way to take large positions and trade for market moves. We only made about 2% on the XLE but we made 5% on the XLK. We sold the XLE and the XLK so that we have cash to buy individual stocks if there is a pullback in the next few days. We also are using some of the XLK money to trade into an equal number of shares of JDSU at $3.42. We think there is more upside and the same downside for a lot less money.

2:26pm and we sold our trading position in Sun Micro for $3.80, a 20 cents per share profit. We have a large amount of JDSU in our trading accounts and we don't want to overdo our exposure in cheap tech stocks.

The DJIA remains lower on the day, but the bulls are taking heart from the shallowness of the downturn especially in the face of the huge rally in Treasuries on deflation fears. As we said this morning there can't be a rally in both Treasuries and stocks for too long at these levels because the rally in each is for countervailing reasons.

3:02pm and the DJIA closed down 27 points at 8561. The S&P 500 lost 5 points to end at 929 and the NASDAQ dropped 16 points to close at 1506.

And tomorrow is another day.

7 May 2003 - Morning Comment

7:18am and overseas stock markets are lower as Treasury bonds are higher. U.S. stocks can't continue to rally if Treasuries continue yesterday's rally. That's because the Treasury rally is predicated on the Fed's statement yesterday that they have adopted a bias toward easing since the economy continues to exhibit weakness. And the stock markets are rallying on the idea that the economy has begun recovering. What to do? What to do?

On another subject a valued reader took issue with our use of the word ALWAYS when referring to Democrats and their choosing of principle over expediency. We apologize. Sometimes Democrats just chose to be stupid.

The Model Portfolio is at it's high for the year up 11.7% and it is also 50% invested in the stock market. We are going out on a bit of a limb but we are trying to play the May rally and think the risk/reward ratio justifies our position. We'll soon know if we are correct.

This morning the markets will move lower and then we will find our the strength of conviction of the new bulls.

6 May 2003

7:21am and the Fed meets today with not much expected to occur on the interest rate front. Cisco's earnings come after the close and analysts are looking for 14 cents per share.

We are pretty fully invested but the risk is justified at this time. Only a terrorist attack is going to derail this rally and the odds on an attack are not great. Remember it was six years between terrorist attacks in the U.S. and they were preceded by attacks overseas.

In order for the rally to turn into a new bull market there is going to have to be a lot more work. The S&P 500 needs to get through 950, move to 1100 come back down and test 950 and then move up through 1100. That will take time and so we wouldn't spend the profits just yet.

The real question is whether traders are fighting the last war and as we learned in Iraq, time can change the situation more than we imagine. The stock markets have been in a downtrend for almost four years and at some point this year they seem bound to turn up. Even only a strong bear market rally can retrace 50% of a down move and who is to say that this isn't that rally. 50% up on the S&P from its high to low is a move to 1160 and over 10000 on the DJIA.

Also the analysts and talking heads are pushing stocks higher with the same kind of blather talk of the bubble days. For downtrodden bull traders and investors that talk is manna. So we are going to try and stay at the party a bit longer this month since we think if we are wrong, the strength of this last bear or early bull rally will save us.

All the buy projections are being made on the come by which we mean there is no real economic data supporting the buy recommendations, only the hope that the "era of good feeling" engendered by the war will carry over into the economy. And since psychology is the only improving event in the U.S. right now the analysts have to hang their hats on it. And that may be all these broken down stocks need to tack on an additional 10% to 20%.

Since we didn't give anything back the last five years another 5% to 10% to the upside would satisfy our greed just fine.

One final political comment, isn't it interesting how many of the conservative antigovernment out of office politicians and gurus wind up earning(?) their livelihoods by becoming talking heads representing 501c3 tax free foundations supported by donations of which the American Taxpayer picks up 50% of the cost.

And on another political note, Bush and Rove have the Democrats backed into a corner. We are referring to Bush/Rove's tax proposal. They actually don't want the $750 billion tax cut because if it did pass they would have to take responsibility for the economy. At $550 billion they assume a little responsibility but still have the out that it wasn't what they wanted. At $350 billion the onus is all on the Dems. If the tax package doesn't work it was the Dems fault, if it does work Bush/Rove get the credit. As bad policy as it is, the Dems should give the $750 billion to the Bushies and let them stew in their own pot. Of course they won't because Dems always chose principle over winning elections and having the real power to govern.

8:07am and Ted Turner has sold a big chunk of his position in AOL. The stock markets are taking that as a positive for the overall markets and while AOL is ticking lower by 10 cents on the news we bet it is up on the day. While it does remove overhang in the stock it surely is not a vote of confidence. But we are in a period when almost all news is good news.

9:28am and we just returned to our offices after being smoked out for the last hour. The birds have built a nest in the top of the chimney for the wood stove that heats our office. Since we have already had five fall down the chimney and wind up in the wood stove (we saved four of them) we decided to light a very strong fire by stuffing the wood box entirely with kindling wood and burn the nest up. Unfortunately we failed to realize that it would take about ten minutes for the fire to get hot enough to reach up the chimney and burn up the nest. (We don't think there were any babies in the nest.) And so for ten minutes smoke poured out of the cracks in the old wood stove and filled the office with smoke. We had to open all the windows and abandon ship.

Now we know you are wondering why we just didn't get a ladder and climb on the roof and remove the nest. Well, as you can surmise from our misadventure with burning the birds nest, Katie Kelle and Lisa long ago forbade us to own or use any ladder higher than two feet. We are also prohibited from using any power tools and are allowed only a hammer and an occasional screw driver, and then only in the barn or garage never in a room where our handiwork might be seen. This proscription arises from an event many years ago involving a falling bird house and our head, but then that is a story for another time.

9:36am and the DJIA is up 30 points. Breadth is 2/1 positive and new highs versus new lows remain strong but not as numerous as needed for the rally to continue. Volume is moderate.

10:26am and the airlines are higher as loan guarantees, pension deferment and outright grants help the airlines survive. All the anti government conservatives swallow their principles when they finally realize that the economy can't recover and Bush won't be reelected unless job losses from bankruptcies stop. And besides, AMR is a Texas company. UAL had the misfortune to be located in a Democrat controlled city and state, as did USAIR. We remember back in the 1980s when all the Texas banks were going broke, the only major one that survived was the one in which Jim Baker, Reagan's all purpose political guru, had his fortune tied up. It was taken over by Chase Manhattan Bank. Funny how those things happen.

11:08am and Ionics has dropped $1.25 on its just released earring's report which is no different from the warning given a few months ago that caused it to drop then. We are buying back in our trading accounts at a higher price $18.07 than we sold a few weeks ago but off from yesterday's close.

11:29am and breadth is 2/1 positive, up volume exceeds down volume 3/1 and new highs are approaching 160 on the NYSE. We need 350 today to keep the rally going. The DJIA is up 70 points and the NASDAQ is up 18 points. We are getting eager to take some profits but….

11:43am and Budget Director Mitch Daniels is leaving the White House. Guess the numbers just didn't add up. Actually the given reason is that he is going to run for Governor of Indiana.

12:58pm and as the Fed announcement approaches at 1:15pm CNBC and the talking heads are becoming much more animated. We are having a good day in the stock market but we are beginning to get nervous. The S&P 500 is at its January 2003 high of 937 and it will be good if we can take out that number after the Fed announcement. The tech gurus are calling for a pullback and we won't be surprised. But we still think we go higher.

1:19pm and the Fed left interest rates unchanged and said there is a chance of economic weakness continuing. The stock market has weakened on that report and Treasuries are up in price down in yield. We would guess that the initial reaction will reverse by days end.

1:37pm and Europe close higher across the board. The DJIA is now up 100 points and the S&P 500 is through the 938 bugaboo. We don't have the sound on but all the folks on CNBC seem to be smiling. Maybe they are hoping their viewer ship will increase as the stock markets go higher.

2:06pm and entering the final hour profit taking is the name of the game. The DJIA is up only 22 points now and the S&P 500 failed at 937. So who wins the last hour battle? We are betting the bulls do. We are buying AOL in our trading accounts at $13.24.

3:02pm and we'll call it for the bulls. "Buy'em now boys 'fore they go lower", as the old stockbroker used to yell while running to the order desk with a handful of buy tickets when he was feeling bullish. The DJIA closed up 55 points at 8585. The S&P 500 rose 7 points to end at 934 and the NASDAQ gained 19 points to finish at 1523.

And tomorrow is another day.

6 May 2003 - Morning Comment

7:08am and stock futures are higher as the speculative juices are beginning to flow. The folks on CNBC have a new lilt in their voices and the psychology of the traders is bullish. The shorts are on the run right now. For how long is anyone's guess. We still consider this a rally in a bear market and are planning on acting accordingly. 950 on the S&P remains an important point but we are interested in how we get there. Europe is up, crude oil is down and the Nikkei was up 2% and the rest of Asia was better also.

So higher today early, then we don't know.

5 May 2003

8:32am and we neglected to mention that we purchased SUNW in aggressive trading accounts at $3.50 on Friday. We had sold it lower but still for a scratch profit a week ago when the markets were dicey, but on Friday it looked like speculative juices were beginning to flow and so we thought we would take a flyer in larger amounts in a few accounts.

Treasury yields are higher and prices lower and the stock markets are opening mixed. The stock markets need to make more new highs if the rally is to continue without some correction. Most gurus seem to be expecting a correction.

10:26am and we are adding a few shares of HON to some accounts at $23.80. We also repurchased SGP at $18.92 in only our trading accounts. And we are buying JDSU at $3.22 in the same trading accounts we purchased SUNW on Friday. We are a bit more aggressive given the action of the past few days but we aren't inclined to raise our bets too much. The Model Portfolio is 50% invested which as much as we care to be.

11:21am and JC Penney reports that May sales are ahead of forecast. We are five days into May. That's really focusing on the short term. Speaking of the long term, which we weren't, we noticed and advertisement for Bessemer Trust which requires $10 million in liquid assets before they will talk with you. The ad said that when Bessemer Trust focuses on the next quarter, they are focusing on the next quarter of a century. Now that is an investment philosophy that could leave you very broke before you knew how well it worked. But it does allow Bessemer Trust to have a record that probably exceeds the mean of various indexes. And we won't live long enough to find out how they do.

The DJIA remains 35 points lower. We sold our small holding in CVX for a $2 per share profit and invested the proceeds in the SPDR Energy Trust.

12:57pm and breadth is 5/3 positive and new highs are expanding even as the market averages are mixed. The DJIA is down 25 points. Volume is moderate.

1:39pm and we added SBC at $23.55 to accounts for which we purchased it a week ago. The DJIA remains down 36 points but we expect it to close up for the day. European markets closed higher for the day with France and England up over 1% and Amsterdam up 2%. Many Asian markets were closed for holiday again last night. New highs on the NYSE now exceed 230, over 650 on the NASDAQ. That's good for the bulls.

3:02pm and the DJIA closed down 53 points at 8528. The S&P 500 lost 4 points to end at 926 and the NASDAQ gained 1 point to finish at 1503.

And tomorrow is another day.

5 May 2003 - Morning Comment

7:04am and the stock futures are indicating a continuation of Friday's rally. Over the week end Warren Buffet cautioned that he only expected a 6% to 7% annual return from stocks in the coming years and that most stocks were overpriced. Warren makes good copy and we can't argue with his very long term track record. We also think that most stocks are overpriced but then stocks can be overpriced for a long time and the 1990s offer a good example.

We finished Friday on our high for the year in our Model Portfolio. Not all clients have gained as much as the Model and a few have gained more. We manage accounts on an individual basis. Happily all clients have positive returns for the year and most are ahead of the DJIA and S&P 500.

We believe that the rally will continue for a few more weeks. When the S&P 500 gets to 950 there will be a reckoning and then we will have a better idea of how far the rally can go. This is a rally in a bear market and so we are not going to get too greedy, we hope.

For today we suggest up early, a pullback and then flat into the close.

The updated Model Portfolio is posted.

2 May 2003

9:21am and the DJIA is up 23 points after opening a little lower. Breadth is good and volume is moderate. We are in a holding pattern. We have been more bullish lately and we think today the DJIA will make it above 8521 on a closing basis. Factory orders were up 2.2% in March and that is a positive.

We've picked up more shares of SWY at $17.85 and we tried to buy Chevron Texaco but we only managed to purchase a few shares at $64.10 before it got away from us. We are going to buy some May Department stores again that we traded a few weeks ago. It has a good dividend yield exceeding 4% and we would like to own a bit of retail.

10:09am and the DJIA is up 100 points at 8554. We've been trying to buy stocks but there are no offers so we are retreating to the sidelines. Happily we have been able to acquire a good chunk of various companies in the last week.

11:13am and in the face of this morning's bad economic news the fact that the DJIA has made a higher high will be bullish if it can hold that high for the day. The DJIA remains over 100 points higher in more active trading. Breadth is 2.5/1 positive but we need more new highs. Currently there are only 115 new highs on the NYSE and 300 or more by the end of the day would be a much more convincing amount for the bull case.

12:03pm and the DJIA is backing off. It's at 8538 and if it cracks 8521 the DJIA could easily be down 100 points in a flash.

12:29pm and we have finished our buying for the week with a purchase of Intel in our trading accounts at $19 and May Dept stores in trading accounts at $21.45. We also bought SPDR Energy Trust (XLE) in an amount equal to yesterday's purchase in the same accounts as yesterday. We paid $22.60 for the shares. We also bought Motorola at $8 per share as a pure speculation in small amounts in trading accounts only.

We are going to be out most of the afternoon while the horses get their trims but we'll be back for the close. It should be interesting. Bush is talking and the DJIA is rallying. Before the war when Bush talked the markets would usually tank. That's a change and symptomatic of the better tone and why we have increased our exposure to stocks.

3:02pm and the DJIA closed up 128 points at 8582 well through the 8521 bugaboo. The S&P 500 rose 14 points to end at 930 and the NASDAQ gained 30 points to break the 1500 barrier closing at 1502.

For the year the Model Portfolio is up 10.4%. The DJIA is up 2.9%, the S&P 500 has gained 5.7% and the NASDAQ is up 12.5%.

And tomorrow is another day.

2 May 2003 - Morning Comment

7:25am and we are getting a late start today because we had to round up the horses for the monthly visit from the farrier. The jobs data to be released in a few minutes will determine early morning trading. Analysts are looking for a 50,000 drop and unemployment rising to 5.9%

Asia was mixed overnight as is Europe. U.S. futures ahead of the data are lower.

7:32am and non-farm payrolls were down 48,000 but manufacturing dropped 95,000 jobs and the unemployment rate rose to 6%. For the last three months over 500,000 jobs have been lost. Average hourly earning rose 0.1% to $15.11.

The commentators are ascribing the job loss to the war time economy. Who's kidding whom? Whatever, stock futures want to trade higher and that shows the bullish nature of the current rally.

We have no idea what stocks will do today.

1 May 2003

7:24am and the WSJ this morning reports that 500,000 financial service jobs are going to move overseas in the next five years. That projection fits in with the news that many of the call in "fix it" numbers for computer companies and others are directed to India and countries with educated populations and much lower wages. And so we ask what and where are the 1.7 million jobs to be created by the $500 billion tax cut which works out to a cost of over $400,000 per job created.

Why not have a lottery like the draft and give $400,000 tax free to 1.7 million folks and see what they do with the money? Now that would be a real eye opener and media circus.

On another cheery note Salon Online Magazine reports that over half the 32,000 pension plans in this country are under funded by $400 billion. The Pension Guaranty board has a $5.2 billion deficit and growing.

7:32am and jobless claims dropped 14,000 in the last reporting period. Productivity in the first quarter rose 1.6% which could be ascribed to folks losing their jobs. Rising productivity due to job elimination is a negative not a positive.

9:06am and the DJIA is down 100 points. We have a bid in for some DIA at $83.75 for a day trade in keeping with our buying the DJIA when it is down over 100 points. We are also bidding on Safeway at $16.80. SWY met reduced expectations but lowered guidance for this quarter. They still expect to earn $2.10 to $2.20 next year so that prices them at 8 times earnings.

11:32am and the SWY conference call must have gone well because the stock has continued to move higher. We managed to buy some for our trading accounts at $17.05 and will wait to see if the stock comes back down for our other accounts. We also added XLK at $15.55 to smaller accounts and to a few larger accounts.

The DJIA is stuck at down 80 points and breadth is negative. We bought the DIA at $83.75 for a day trade in our trading accounts.

12:14pm and the DJIA is still lower. There is no catalyst to move stocks higher and there are some economic reports due tomorrow which have traders nervous.

1:16pm and for some reason the markets rallied with the DJIA down only 15 points now and we sold our DIA at $84.70 for a net 86 cents per share profit. Another website is reporting that the Globex automatic execution system for S&P futures is down and that may have something to do with the pop in the S&P and DJIA.

One of the reasons we have gone back into the SPDR Technology Trust is that Cisco, Intel, Microsoft and IBM represent a big chunk of the index. And that allows us to buy all four stocks without having to pick one or two. The top ten holdings of the XLK are:

Top 10 Holdings as of 12/31/02
  1. Microsoft Corp - 18.50%
  2. International Business Mach - 8.77%
  3. Verizon Communications - 7.10%
  4. Intel Corp - 6.90%
  5. Cisco - 6.34%
  1. Dell Computer - 4.65%
  2. SBC Communications Inc - 4.59%
  3. Oracle Corp - 3.89%
  4. Hewlett Packard Co - 3.56%
  5. Bellsouth Corp - 3.24%
Total of top ten 67.54%.

We are also for the first time buying the SPDR Energy Trust. The top holdings of that trust are:

Top 10 Holdings as of 12/31/02
  1. Exxon Mobil Corp - 23.22%
  2. Chevron Texaco - 15.52%
  3. ConocoPhillips - 7.76%
  4. Schlumberger Ltd - 4.75%
  5. Anadarko Pete Corp - 3.69%
  1. Baker Hughes Inc - 3.52%
  2. Occidental Pete Corp - 3.34%
  3. Halliburton Co - 3.29%
  4. Burlington Res Inc - 3.03%
  5. Apache Corp - 2.80%
Total of all ten 70.90%.

For starters we purchased the XLE in our larger and trading account at $22.30.

1:55pm and entering the final hour of trading the DJIA is back to down only 10 points for the day. So the question of the day is whether we are going to attempt to get through the 8521 level. We touched it in the last hour yesterday and then sold off.

2:45pm and listed below are our Derby picks for this year. We have no great insights this year as we did last year. Odds quoted are Thursday morning's line. Past performance is no indication of future performance and all bets are being legally placed at Churchill Downs as is only proper.

$ 20 XXX on Buddy Gil 8-1 for obvious reasons.
$ 10 XXX on Peace Rules 8-1 as my cousin the race track aficionado's pick and because we like the name and sentiment
$   5 XXX on Ten Most Wanted 6-1 because Pat Day is up.

3:02PM and the DJIA never made it back to positive territory. The DJIA closed down 27 points at 8454. The S&P closed down 1 point at 916 and the disparity with the DJIA may have something to do with the fact that the Globex never re-opened. The NASDAQ gained 8 points to finish at 1472.

And tomorrow is another day.

1 May 2003 - Morning Comment

6:56am and Happy May Day to the workers of the world. The stock futures are indicating a lower opening. Japan was slightly higher overnight and so that dead cat bounce may be wearing thin. Britain is lower and Germany is on holiday.

The updated Model Portfolio is posted. We are 33% invested and so 67% cash. We are awaiting Safeway's earnings report this morning to decide whether to revisit that stock. But we are happy with our market exposure at this juncture and we also are comfortable with the stocks we hold.

For the year the Model Portfolio is up 9.4%, while the DJIA is up 1.7%, the S&P 500 has gained 4.2%, and the NASDAQ is 9.6% higher.

We continue to expect a better than average push higher from these levels although most of the gurus are expecting a correction first. We think the markets will push higher first and then correct making the hold versus sell decision mush more difficult.

The Bush folks are going to concentrate on selling the tax package as the wonder cure and all the phony projections will have a positive effect on the stock markets because after four down years the big mutual fund guys and gals want to believe that things are getting better. For many of them this four year period represents half their adult working life and "it just can't go on forever."

Today we would guess lower early and then the third day in a row where the market attempts to take out the 8520 level on the DJIA. Maybe the third time will be the charm.

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