Personal Income was up 0.7% in April, the latest reporting period,
and Personal Spending was up 0.6%. The
PCE deflator (inflation) was 2.4%
year over year while the core PCE deflator was 1.6%. Stocks like that news and have reversed to the
and Hong Kong were higher by better tan 1% and Europe
is mixed to higher. Treasuries were also a few bps better in the early going
while oil is up 31 pennies.
Morgan Stanley had nice things to
day about JPM and FITB *****
The WSJ had an article yesterday
about Tudor Investment taking a position
in SEBL. Last week it was disclosed
that Carl Icahn also had a position.
The WSJ also reported that Fidelity had exited its holdings in the stock.
Today the WSJ reports that Seibel has approved a staff retention
program so that if folks at Seibel are fired after a takeover they will receive
3 months or more in pay plus all options will immediately vest. That type of
action has the effect of making a takeover more expensive. But it happens to be
one we agree with since the folks who work for these outfits will be
disadvantaged enough by a takeover and will probably be fired. That‘s because the
driving force in software company takeovers is to get the company, eliminate
overhead and bleed the existing contracts for the cash flow.
Tudor and Icahn are the two least
friendly to minority shareholders folks around. They will both happily sell
their shares at a better than the public gets price to realize a profit and
move on. They have both done so before although we don’t know whether those
tactics are legal anymore. With all the talk of a Seibel Takeover our first inclination is to move on to other areas
since the obvious rarely happens in this business. Or we may wind up with a
take under where Icahn and Tudor get higher prices and the rest of us are stuck
with a 10% premium which mean no premium until the deal closes. We’ll be thinking
about this today.
NBC is reporting that the FDA is investigating reports of blindness
associated with folks who take Viagra.
So far 26 cases have been reported. Pfizer
reports that over 25 million men have taken Viagra. That would place the
chances at 1 in a million. Enjoy.
In Catholic school in the 1950s we
were taught that masturbation caused blindness and all Baptists went to hell.
Now Baptists and Catholics are best friends and…
CNBC is reporting that Madagascar which is DreamWorks (DWA)summer
animation release is getting bad reviews and that may hit the share price
today and more so on Tuesday if box office is less than expected over the three
day weekend. If it does we may buy more. By the way we read Ebert’s review and he gave it 2 plus
stars but said young children will enjoy.
10:23am and it looks as if the Holiday
weekend has begun. The major measures are plus or minus small fractions and trading
is light. Breadth is flat and so are Treasuries. It is probably only going to
and in the contra
hour the major measures are now higher in very light trading. European market
ended mixed. We bought Schering Plough
for many larger accounts at $19.75. SGP
is like TWX for us; we trade it but don’t
like it when we don’t own some. Eventually it will be purchased by a larger
drug company but we also think that earnings may be improving and it has 15% or
more in it if the rally resumes.
The purchase of SGP pretty much completes our buying
program for the summer rally continuation that we expect. Most of our accounts
are very much invested in good quality big cap stocks. Now we just have to wait
for the markets to cooperate.
and crude oil gained
84 pennies to $51.85. In the afternoon there was news that Prince Faud of Saudi
Arabia is in the hospital gravely ill. We don’t
think CNN will be doing a death watch.
The markets ignored the illness
and at the bell the DJIA closed up 5
points at 10543. The S&P 500
gained 1 point to 1198 and the NAZZ rose
5 points to 2075. Breadth was 2/1 positive
on the NYSE and 5/4 positive on the NAZZ. Volume
was light and Treasuries closed a
Monday is the Memorial Day Holiday
observed and trading and we resume on Tuesday.
So let your weekend games begin.
27 May 2005 Daily Comment
A second look at 1st Quarter GDP
was announced as 3.5%. Personal consumption was up 3.6% and year over year and
the chain deflator (inflation) was a preliminary 3.2%. That would suggest a
3.5% discount rate or two more Fed raises.
First time claims for
unemployment for the latest week were up 1000 to 323,000.
was fractionally higher as is Europe this Thursday
morning. Oil is up 15 pennies at $51.13 and Treasuries are unchanged in yield
with the ten-year at 4.08%.
Given yesterday’s actions it is
obvious that the markets are in their first corrective move since the rally
began and now the question is how much and how far. With the Memorial Day
Holiday approaching, we would guess that this first reaction down will be
shallow with a bit of a rally next week. When the time frame reaches June the
gurus are suggesting a slow and tedious summer. We of the opinion that the
rally we resume in force. The only caveat is that external forces might
and the major
measures have been higher all morning with breadth better than 2/1 positive. Durable goods orders were up a better
than expected 1.9% for April.
We added a few more shares of BSX to accounts as it’s down $1 in an
up market. We think it is just an
institution selling and that when the seller quits the stock will pop back up.
Yesterday’s lowering of guidance ws not a major event and the shares being liquidated
are going into stronger hands.
and stocks remain
higher but have the push higher today has run into selling and that stalled
prices at higher levels. Volume on
the move higher was good and the S&P
500 is at 1196. Treasuries remain unchanged and crude oil continues to move
higher with it now at $51.40 up 42 pennies.
Recent rally days like this have ended well and so today will be a test
of how extended traders really think the markets are.
and the bulls held
the day with the major measures moving a bit higher in the last hour into the
close. Volume could have been better
but breadth was over 2/1 to the good.
Treasuries were basically unchanged.
Oil closed the day lower at $50.83
down 18 pennies.
The DJIA gained 80 points to 10537.
The S&P 500 was up 7 points to
1197 and the NAZZ rose 21 points to
ended higher with Germany
up over 1%.
And tomorrow is today and it is
the Friday before the three day holiday week-end so let the games begin.
26 May 2005 Daily Comment
Upon further reflection last
night we decided we didn’t want to fool around with Eyetech for the same reason that we didn’t want to own Elan earlier this year. We have enough
problems to deal with and the unknowns in this situation are not fathomable by
us. And so this morning we sold our shares for a scratch 20 pennies per share
profit which sure beats the $1 per share loss we were holding last night.
Overnight Hong Kong
and Japan were lower as is Europe in early Wednesday trading.
Short interest is now 5.7 billion shares and that is up 11% on the
NYSE and 12% on the NAZZ. The higher the short interest the more bullish the
CNBC is beating the Housing
Boom into the ground and until they tire of talking of that one issue and
move on to another we would guess that the housing boom is safe.
New home sales in April were up 0.2% to 1.3 million.
9:03am and in the early going the major measures are again lower
with crude oil up 3 pennies. Treasuries have a bid with the ten-year back down
to 4.02%. The selling is stocks is muted. We are reviewing accounts and adding
stocks as warranted. Boston Scientific
lowered earnings guidance and the shares are back under $30 and with the shares
priced at 15 times earnings we are initiating buys and adding more to accounts
that already own BSX.
12:13pm and volume is light, the major measures are lower and oil
is up a buck and one half because the oil inventory reports didn’t show as much
accumulation excess as expected. The boys and girls will play.
We sold Cabelas for a $1 per share profit and have been buying BSX and added back a few shares of BRCD where we oversold the other day.
Morgan Stanley raised TLAB to equal weight from under weight
and that passes as an upgrade in the lexicon of Wall Street.
The light volume on a down day
even with breadth negative 2/1 is a positive.
and the DJIA closed down 43 points at 10460.
The S&P 500 dropped 4 points to
1190 and the NAZZ lost 11 points to
end at 2050. Treasuries were a bit weaker with the ten-year ending at 4.07% and
the five-year at 3.81%. Oil finished
up 1.31 to $50.98. Breadth was a
little less than 2/1 negative at the bell. Volume
was light on today’s controlled give back.
And tomorrow is today so let the
25 May 2005 Daily Comment
The Treasury ten-year hit 4.01%
early Tuesday Morning and the five-year is at 3.77%. The Fed minutes for the
April Meeting are being released this morning and folks want to know whether
Fed members are more interested in inflation or the economy.
The tech guru we’ve been
following is calling for a pullback but sees higher prices after that. We still
have a few stocks on our buy list: TLAB,
AMAT, and re-entry into SGP and so we wouldn’t mind a down day
to get invested.
Our scenario is a bit different
than it has been and from other folks who warn that there can’t be a rally in
June and July. We see the markets as looking like 1987 when stocks rallied all
summer after a down spring and finally topped out in August. We think the
markets are set for that type of action.
The talk of real estate bubbles
is too pat and our understanding is that in some markets the bloom is already
off the rose. Our approach is that each city needs to be treated like an
individual stock and there are some cities that are still hot and there are
some that have cooled off. The plat house builders continue to churn out the no
down payment/adjustable rate mortgages and the less than wealthy continue to
buy their part of the American dream. They may not make money on the houses but
they will have a home to live in and we surmise that that is their main
objective. Surely the condo speculators are going to get hurt, the folks we
mentioned yesterday are a prime example of those risk takers, but there numbers
are probably less than five percent of the total buying public.
We have the portfolios in good
shape now and are going to tweak around the edges to finish our buying and then
let time work for us. Of course we will be doing a little anchovy trading in
our larger/aggressive accounts but even there we need to give stocks time to work
9:01am the major measures
are lower in early trading as profit taking and shorting are holding sway. But the
DJIA is only down 30 points and there
seem to be no lack of buyers at lower prices. INTC and AMAT among
large cap tech are higher. Breadth is 2/1 negative. Oil is higher at $49.40 up
We are buying TLAB under $8 for accounts and also
picking up some Eyetech Pharmaceutical for our aggressive accounts.
Existing home sales were up 5.7%
in April and prices were up 12% on a year over year basis.
10:20am and the NAZZ has turned positive. We are going to buy back a
smaller position in Schwab at $11.50. We sold shares at $11 several weeks ago
when the markets were heading south. We hoped to buy it back lower but now want
to have some dollars in SCH in case the pullback doesn’t occur in the shares.
FedSpeak comes at .
1:19pm and the instant general consensus from the release of the
Fed May 3, 2005 Meeting minutes is that the Fed will continue to raise short
term rates until they don’t. stocks moved both ways immediately after the
release but now are softer and down seems the easier path. This is one of those
times when shorting on downticks is going to get the markets going lower if the
markets get down over 50 points. While the minutes may induce a supposedly
needed correction (we like our stocks to go up every day) we see nothing in the
minutes to fear. The only thing we have to fear is greed, and we don’t have
enough profits to yet be greedy.
We bought Eyetech Pharmaceuticals at $13.80 in larger/aggressive accounts for
a trade. The shares are down 40% ($11) today on news that Genentech has a new drug for macular degeneration that is better in
trials than EYET already approved drug.At this price level the company has lost $1 billion in market value in
the last two weeks and is valued at $550 million with $220 million in cash and
a continuing financial relationship with Pfizer
in which PFE is obligated to absorb
costs and pay more dollars to EYET
when certain milestones are reached. This is a speculative buy and is only a
small percentage in larger accounts.
and the DJIA closed down 20 points at 10505.
The S&P 500 gained 1 point to 1194
and the NAZZ rose 5 points to 2061.
The Treasury ten-year ended at 4.03%
and the five-year at 3.78%. Oil was
up 51 pennies at $49.67.
And tomorrow is today so let the
24 May 2005 Daily Comment
This Monday morning it looks like
the markets are going to open higher. Overseas, Japan
was strong and Hong Kong was down while Europe
is up across the board. Treasuries are unchanged on the short end to a tad
higher in yield ten years and out. Oil is lower and U.S.
futures indicate an up opening.
There is a lot of talk about
software stocks with Sanford Bernstein putting
a $35 valuation on MSFT on a
break-up basses. That type of valuation is meaningless since MSFT is a stock
that isn’t going to break up.
Goldman Sachs upgraded the software
sector of which Seibel is our
Star Wars was big doing $135 million and that may be a positive for
Time Warner. There is talk that Apple may begin using INTC chips which would be a big plus for
INTC. IBM is going to open lower
because it currently supplies chips to AAPL.
CIBC cut its ratings on the semi-conductor and semi-conductor equipment
stocks of which AMAT is our representative.
Technically, the S&P 500 stopped
right at 1191 resistance on Thursday. That is either a positive or a negative
depending on the guru. Support is seen at 1180 and then 1174 and a push to the
upside through the 1191 level would set 1229 as the ultimate goal.
Why should we worry? This one
paragraph from Monday’s WSJ might give a hint.
year ago, Ryan Epstein and his wife had whittled down the mortgage on their
four-bedroom colonial house in North Beach, Md., to $130,000. Then Mr. Epstein had a chat
with a mortgage broker. The
broker helped the Epsteins refinance their home, valued at about $300,000, to
take advantage of lower interest rates. He also encouraged the couple to take
out extra cash, a popular technique called a cash-out refinancing. The Epsteins
used that cash, $25,000, as the down payment to buy a rental property. That
purchase swiftly led to others. Today, Mr. Epstein says he has about $1.4
million of equity in nine dwellings -- and $2 million in mortgage debt. *****
AOL has EBITDA of over $2 billion on a yearly basis.
We spent the week-end considering
our Brocade position and decided it
is much too large for all accounts. BRCD
is a case where we made the mistake of thinking that we could make a position
right by buying stock as the price dropped in the hopes that a quick turn would
rescue the position.
When we were eliminating our low
priced speculative stocks in favor of big cap names we were myopic in relation
to BRCD. Today we corrected the tunnel
vision by selling about 75% of the holding in all accounts today for a
substantial loss. We are going to hold on to a fraction of the position because
we do believe that there is recovery potential but we will have reduced the position
in all accounts to a more manageable 1% to 3%.
Our accounts had a good week and
we think we will continue to participate in the rally. By reducing the Brocade position we reduce our speculative
With a portion of the BRCD money we are buying Seibel in some accounts that don’t own
it and will look to put the rest of the money to work in Applied Materials if it comes off a bit more in price. AMAT is in the doghouse but it is a big
cap tech stock with $10 billion in cash that will eventually show good returns
from these levels when the semi-conductor equipment replacement cycle kicks into
10:22am and the major measures opened higher and have been to the
plus side all morning. But the markets look tired and the gurus are saying that
stocks are over extended and need a pull back. We are agnostic.
Breadth is positive but oil is
now higher and trading volume is summer light. Treasuries are rallying with the
ten-year moving from 4.14% this morning to a current price of 4.07%.
and we sold our GPS for a scratch profit. We are buying
some TLAB for larger or aggressive
accounts at $8.15. The share price broke above $8 for the first time since last
November and if it can punch up thorough $8.20 it could move though $9 based on
Many accounts, including the
Model Portfolio, are still down about 5% for the year versus year end value.
But on an actual cost basis the Model Portfolio is down 2.4%. By that we mean
if we add realized losses for the year and unrealized gains and losses the
actual out of pocket losses for the year (as opposed to out of pocket losses plus
year end gains surrendered) are $13,000 on a value of $540,000. In fact many
accounts are down 2% or less on that measure.
That makes us feel a bit better
although we won’t feel really good until we are back above our year end value of
$570,000 in the Model Portfolio.
Limited has dropped $6 per share since November and about $3
recently as earnings for the second quarter disappointed and forward guidance
was lowered to $1.45 for the year. Express,
one of LTD’s many store brands has missed the market this year and is a real
drag on earnings. Leslie Wexner who created and still runs LTD always finds a way to correct problems. Moreover he has the Company
buying stock aggressively following a buy back last year for a big chunk of
stock. With a 2.6% yield we think the stock is a good fit for portfolios and we
bought shares in amounts equal to holdings of Boston Scientific. *****
3:02pm and there was some profit selling and bear shorting in the
last half hour plus adjustment “market on close” selling from Friday’s triple
witching expirations. Still the DJIA closed
up 52 points at 10525. The S&P 500
managed to close just above the 1191 mark closing up 5 points at 1194 and the NAZZ gained 9 points to 2055. Breadth was 2/1 positive on the NYSE at
the bell and 5/4 positive on the NAZZ and the Treasury ten-year closed at 4.07% and the five-year at 3.82%. Crude oil gained 51 pennies to $49.16. Volume
was OK for a Monday.
And tomorrow is today so let the
21-23 May 2005 Week-End Comment
And so Maytag will be taken private by an investment group that includes
some Goldman Sachs money at $14 per share. Well that is lower than where we
sold it the last time so we have no regrets as Edith Piaf might sing.
We never could get a handle on
MYG’s debt and we imaging these buyout folks
will keep it private for a few years and move all the manufacturing to Indonesia
or some such place. That is something a public company couldn’t do. Then there
will be a public offering of stock in the next bull market pricing the company
at thrice the take under value with all the debt thrown in. Ain’t capitalism great?
Current Maytag workers better get
their walking papers in order.
Jack Welch former CEO of GE
and all around icon of the economic media world was on CNBC last night and
remarked that he thinks health care is a national problem. That statement fits
in with our belief that major corporations have finally discovered that if there
were National Health Insurance corporate profit statements would look a lot
better. We would guess that Karl Rove and his minions will appropriate this winner
concept from the lackluster Dems and run on it in the next election.
Brocade announced in line earnings and the stock sold down in after
hours after running up 10% in the last two days. That 10% run up was from an
abysmally low price. Given current projections, the shares are priced at 10
times earnings with almost $2 per share in cash net of debt in the company and
a free cash flow of $100 million per year.
Gap Stores announced in line earnings and raise year guidance to
$1.44 and the share price moved higher in after hours trading although the
shares are trading back down this morning. This morning Prudential cut their
ratings on Abercrombie and American Eagle Outfitters. Both those
stocks are in the stratosphere trading like tech stocks of yore. That kind of
pricing occurs in markets where there is so much momentum money chasing too few
We are not in retail after our
two quick trades in TLB and TIF with only very small positions in GPS and CAB remaining. Our retail touch has not been the same since we lost
our partner Don Yarling to AIDS eleven years ago. We tend to trade quickly for
short profits since we don’t have the feel for retail that Don did.
UBS raised Symantec to buy. Oil is up 35 pennies in early trade. Europe
is trading slightly higher while Asia was quietly mixed
overnight. U.S. Futures are lower which is a good sign. Folks are recommending
3 year GMAC paper for the yield and that is a good sign for GM and Ford. GMAC
paper is currently rated junk by S&P.
We don’t buy junk bonds for yield
because over the years we have done better in equities and we know the risk we
are assuming. We only buy Treasuries for yield even though returns are less. We
buy stocks for risk. Also equities are
much more tradable than junk bonds which trade by appointment and are priced by
Time Warner is going to start paying a 5 pennies a quarter
dividend. We would rather they use the money to pay down debt.
and it is hard come/easy
go with Brocade. The shares are down 40 pennies today which brings them back to
the $4 level where they had fallen three days ago and at which price we said we
were going to add more after earnings. Earnings came last night and they were
as expected and so we are adding stock. Adams Harkness Brokers went from strong buy to
neutral on the shares. We are buying stock under $4.
The major measures are all lower
and breadth is 2/1 negative which is a good way to start the day after four strong
up days. Treasuries are unchanged and oil is down 2 pennies at $46.90.
and we sold Lucent at $2.88 for a wash to a small
profit or loss. We are placing a portion of the proceeds in one last purchase
of Brocade at $3.96. We only want one low priced speculation in
the portfolio and we think BRCD has more upside than LU.
The major measures remain lower
but we think today may do exactly the same as yesterday in that there will be a
rally in the last hour. The last time we predicted such an occurrence the DJIA
dropped 150 points but the markets are at a different point this time.
closed fractionally higher on the day.
3:02pm and breadth inched back towards positive into the close but couldn’t
quite make it to the plus side and went out 5/4 negative as did down over up
volume on both the NYSE and NAZZ.
At the bell the DJIA was down 20 points at 10472. The
S&P 500 lost 2 points to 1189 and the NAZZ gained 4 points to 2046.
Treasuries closed unchanged and
oil was down 12 pennies at $46.80
is the Saturday so enjoy. And let the games begin again on Monday.
20 May 2005 Daily Comment
Four more days like yesterday and
our accounts will be back to even for the year. We don’t expect that to happen
in the next four days but then we wouldn’t be disturbed if it did.
The best part of yesterday was
the volume and that will be an important key going forward. The bulls need
light volume on the inevitable profit taking and heavy volume in the buying to
bring the big boys and girls to the table.
There is some talk this morning
that the Fed is not totally happy with the housing boom but we don’t know whether
that is Fed-speak or bear talk. Whatever, we will enjoy the rally for what it
is and react to events going forward.
was up 2% and Hong Kong gained 0.5%. Europe
is higher in early trading and oil is up 18 pennies at $47.48. We continue to
think that no sustainable rally will occur until oil breaks below the $40 level.
Jobless claims for the week
ending 5/14 were 321,000 down 20,000. The ten-year is at 4.09% and stock
futures are a bit higher. The dollar is rebounding from profit taking
11:43am and stocks opened mixed out of the gate with profit taking
and buying holding prices level. Breadth is now positive and volume is
moderate. Today and tomorrow are expiration days so the trend may be muddied by
the exigencies of the moment.
From a bulls eye view a last hour
rally on big volume after a day of churning would cement yesterday’s move and
bring in some folks worried about missing the ride.
Crude oil is down 25 pennies at
$47 and the ten-year has inched back up to a 4.10% yield.
and in the middle of
contra hour the NYSE volume doesn’t exceed 1 billion shares. The bulls can’t
ask for better action with the DJIA down only 8 points and the NAZZ and S&P
500 higher on the day. Breadth is positive and up volume exceeds down volume
5/4 on the NYSE and 2/1 on the NAZZ.
Crude Oil closed down 33 pennies
at $46.92. Treasuries moved up in yield with the ten-year at 4.11%, the
five-year at 3.84% and the two-year at 3.62%. One more Fed raise and we are
going to place our extra bond money and cash in the two year.
Doesn’t Jack Welch have anything else to do but appear on CNBC?
and volume on the
last hour rally was better than the rest of the day but not great. But the DJIA closed up 28 points at 10493. The S&P 500 gained 5 points to end at
1190 and the NAZZ rose 12 points to
Breadth was almost 2/1 positive
on the NYSE and up versus down volume was 2/1 on both the NYSE and NAZZ.
And tomorrow is today and it is
triple witching and also Friday, the last trading day of the week. So let the
19 May 2005 Daily Comment
This Wednesday morning we get CPI and the news that at 79 Alan Greenspan is still young enough
for the Bushies and they would like him to stick around for a while more. It is
interesting that the fate of the world’s economies hang on a soon to be
octogenarian- not that there’s anything wrong with that.
was higher, Hong Kong lower and Europe
is up. Oil is back above $49 and gold is somnolent.
Tuesday night Hewlett Packard’s report was either positive
or negative depending on the analyst while there was near unanimity that Applied Materials was negative.
CPI in April was up 0.5%. Ex food and energy, CPI was unchanged. Inflation
has disappeared as the Treasury working its magic with the numbers. The year
over year move in CPI was 2.2%.
Talbot’s had good numbers and we have our remaining shares in to
sell at $30.50. Treasuries have firmed nicely on the inflation data.
9:02am and stocks opened higher on the positive CPI data. Breadth
is 3/1 positive and volume is active. Talbot’s
traders have decided that sales margins were not good and the shares are off a
few pennies. We will still try to sell today.
The major measures are again
approaching former support which is now resistance.
CNBC reports that sources close to Fed Chairman Alan Greenspan say
that he will stick to the January 15 resignation date. Wonder who that source
11:06am and the DJIA is up over 100 points. Breadth is strong and
volume is picking up. We are beginning to sell our Fifth Third at $44.55 which is a nice profit for many smaller
accounts plus a dividend and a break-even with the dividend for many larger
accounts. We own NCC and JPM and we will concentrate on them.
FITB is more expensive than either and is also more volatile and since it is
OTC more difficult to sell. And so we want to begin to sell it on a strong day
like today when the bid is there.
We are also buying Applied Materials on the sell off in
the stock today. AMAT has gillion dollars in cash and is down because orders
for the next quarter were below expectations. But the tech gurus we follow are
recommending semi-conductor manufacturers and since AMAT supplies the equipment
to make semi conductors to those manufacturers our guess is that orders will
pick up in the second half. And also, if the markets rally AMAT won’t be left
behind because it a major tech stock.
Crude oil is ended the day down $1.72 at $47.25. On Wednesday government
data showed that crude oil inventories are at their highest level in six years
and gasoline inventories are also higher then expected.
and in the contra
hour the major measures remain strongly higher with breadth 3/1 positive and up
volume 4/1 over down volume. The last hour today will be the tell. Strong
markets all day have usually remained strong this year and if that is the case
then traders will finally have an up day with good volume. Going with the last
two up days the trend may be turning for the bulls.
We are buying Symantec in accounts that own DreamWorks. SYMC are the computer
security folks with $4 per share in cash and no debt and the stock is down from
$32 in December 2004 to $21.
We sold our trading positions in TIF and TLB.
and the DJIA closed up 130 points at 10460. The
S&P 500 rose 12 points to 1185
and the NAZZ racked on 25 points to
2030. Breadth remained 3/1 positive at the close and up volume exceeded down
volume 4/1. Overall volume was the best it has been in a while. All in all today
was a win for the bulls. The
Treasuries gained today with the ten-year ending at 4.07% and the
five-year at 3.76%.
And tomorrow is today so let the
18 May 2005 Daily Comment
We neglected to mention in
yesterday’s post that we sold our Talbot’s
holdings in many accounts at $28.65 for a 10% to 15% profit in a tough
market. Raising the value of the portfolios in this type of market is a matter
of taking small quick gains when offered and holding on to some core positions.
We are going to add some Tiffany
to larger accounts today and review individual accounts throughout the next few
weeks to add individual stocks where warranted.
The Producer Price Index (PPI)
was up 0.6% with the core index (ex food and energy) up 0.3%. Year over year
prices were up 2.6%. Housing Starts were 2.04 million units up 11% in April. Permits
were up 5% and average housing prices up 25% in south year over year. The
dollar is higher and Treasuries and stock futures are weaker.
Hong Kong was down 200 points and Japan
also took it on the chin overnight with the Nikkei making new 2005 lows. Europe
CNBC is talking about an Oracle
take over of Seibel rumor and the shares are higher this morning. Of
course, it’s Tuesday. We may trade out again. CNBC says an Oracle bid might be at
$14 and an investment buyout at $11. We have always used the $12 number.
CNBC is also talking about an AOL
spin-off. AOL does $1 billion in cash flow per month and Faber of CNBC used
a $20 billion valuation number on AOL which is what we have been using as that
number represents one half the valuation of Yahoo. Remember AOL collects its
cash flow by debiting credit cards like clockwork every month. Yahoo does it
with selling advertising that no one looks at.
9:24am and stocks opened higher but now are slipping into negative
territory. There just wasn’t enough volume yesterday to get the big boys ad
girls interested. Breadth is negative. Treasuries are unchanged after being a
few bps higher in yield immediately after the PPI numbers and Housing Starts
numbers were released. Oil is off 16 pennies at $48.40.
11:10am and Seibel is
back in the minus column and TWX is
up a bit. The major measures remain in negative territory but it won’t take
much to push them into positive ground. Breadth has improved from 2/1 negative
to 5/4 negative on the NYSE but the NAZZ remains 2/1 down. Treasuries are better
by a few bps and oil is lower.
We bought a few shares of GPS and Cabellas is our larger trading accounts and in our speculative
accounts we are taking a renewed position in Cincinnati Bell at $3.65 on a Goldman upgrade.
and entering the
contra hour the major measures remain lower. We added to the BMY and VZ in some accounts for the dividend yield and to put some more
money to work. It is our thought that the Fed may stop raising rates in a few
meetings and that good quality stocks with 3.5% to 4% yields are going to be
the first purchases by institutions as they celebrate that occurrence.
Reuter’s reports that a fund
controlled by billionaire investor George Soros traded actively in the first
quarter of 2005 a regulatory filing showed on Monday. In the first quarter the
fund bought 957,500 shares in Brocade.
They must be reading our stuff.
Soros has the same loss in it we do although 900,000 shares is candy money to
Crude oil closed at $49.97 up 36
closed mixed. The major measures rallied in the last hour and one half after
the Treasury released a report that did not accuse the Chinese of manipulating
their currency which everyone knows they are doing but no one want to say they
are doing but Treasury is warning them that they should stop.
The DJIA closed up 77 points at 10330. The S&P 500 rose 8 points to 1173 and the NAZZ gained 10 points to 2004. Breadth was positive and Treasuries
closed unchanged for the day. Volume was moderate.
And tomorrow is today so let the
17 May 2005 Daily Comment
We took our grandson to a White
Sox game Saturday night and spending an evening with his dad and him was the
highlight of our week.
The cloudy market is making life
miserable but we continue to look for the sliver lining. Most of our stocks are
holding their own and resisting the sell off.
Brocade is an exception. The daily 3% fluctuations are enticing and
disturbing. Monday the shares were lower because the company announced more
details of an earnings restatement/SEC/Justice Dept investigation of not
accounting in earnings reports for option grants. The company first announced
this in January and has additional adjustments to prior year earnings. The earnings
restatement will lower earnings for the last four years but have no negative cash
effect. We are waiting for sales and earnings which come on Wednesday to add
more shares to accounts where we haven’t already bought additional shares under
We get e-mails:
What are we looking for with this company
that we are adding so many shares?
Our hope is that is goes up eventually
Our second reply:
It is a 5% on cost position in your accounts. It is one of the two
speculative stocks we own. It has $2 per share in cash and its yearly low is
$3.95 after which it went to $8 before returning to $4. We obviously bought too
high initially at $6 since it went lower and we have been averaging down. It
earns money and is in an area-storage-that
is growing. It is volatile and can go up as quickly as it came down. We think
it is worth the risk as part of an overall portfolio the rest of which is much
higher quality and less volatile stocks with eight of 16 being good dividend paying
One final thought:
In your account think of it as 850 shares with a cost of $51 now
selling at $41. That is down 20% but may help the perspective. And do the same
with your Lucent position. *****
Talbot’s reports earnings on Wednesday. We may sell ahead of earnings
if the price rises above $29. We expect earnings to be better than but the market the last week has been rewarding better than with a ten minute pop and
then a return to the closing price. On Friday Tiffany opened at $31 up $1.50
Thursday close and finished the day down 25 pennies.
9:51am and the major measures are higher. Oil is down 82 pennies a
$47.85 and the Treasury ten-year is at 4.11%. Breadth is positive and the DJIA
is up 60 points.
and stocks remain
higher and breadth is good but volume is too light.
1:04pm and Reuters is reporting that Smith Barney's chief U.S. equity strategist Tobias M Levkovich is
saying that the pessimism dogging
U.S. equities is "overdone"
and the stage is set for renewed strength in the markets. It also reports that analysts at Merrill Lynch think there
could be "worthwhile late spring,
These guys must be reading our
Overseas both Asia and Europe closed
lower on Monday.
Crude oil rebounded at session end to finish down 2 pennies at
Seibel is doing its usual Monday swoon after no takeover emerged in
the weekend news. By the way we don’t like Icahn owning the stock. Over the years
Icahn has not done much for shareholders besides himself. He is not as bad luck
for other shareholders as Perelman or Murdoch but he is close.
It is rich that Perelman is going
to be made almost whole on his Sunbeam fiasco
while all the ordinary shareholders lost their shirts and pants.
and the see saw
stock market continued today. The DJIA
closed up 112 points at 10254. The S&P
500 gained 11 points to end at 1166 and the NAZZ was up 18 points to 1993. Treasuries closed flat. Breadth was
2/1 positive but volume ws light. Until stocks rally on big volume traders are
not going to turn bullish.
And today is tomorrow so let the
14-16 May 2005 Weekend Post
Happy 92nd birthday to the mother who made this all possible.
We have been thinking about all
the negative news that is supposedly preventing the markets from moving higher.
The stories do remind us of other periods of stock market instability when
short term noise was drowning out the longer term melody.
Back in the late 1970s Hunt gold/silver
era every tick in the price of gold or rumor about margin calls and rules
changes was met by volatile moves up and down in stocks. The Hunts had to sell
their oil stocks including Texaco (which by the way no longer exists in name)
and that caused a sell off in all stocks owned or rumored to be owned by the
Hunts. The stock markets suffered then and survived and moved higher.
The Penn Square Bank collapse in
the early 1980s was related to all the shenanigans in oil and caused the
collapse of many Texas banks and
Continental Bank in Chicago. The
stock market suffered then and survived and moved higher.
1987 brought us the Crash
courtesy of portfolio insurance that didn’t work and the collapse of the United
Airlines buyout in 1989 produced several days of real autumn panic. The stocks
markets suffered then and survived and moved higher
In 1990 the events leading up to
the Gulf War created calamitous selling and real anguish. The stock markets
suffered then and survived and moved higher
In 1998 the markets experienced the
Long Term Capital debacle and 2000 to 2003 saw the disintegration of the internet
bubble with its attendant terrible financial losses. The stock markets suffered
then and survived and moved higher
So the present “hedge funds are going
to ruin the world of investing” cacophony from media sources should really be
taken with several large grains of salt.
Yes there are problems. And yes
we haven’t always managed to avoid the turmoil in our managed accounts. But we
have survived and prospered by owning good stocks at opportune times and by
being willing to go to the sidelines when we determined conditions warranted such
action. Right now we think being in will be more profitable than being out.
A drop in the price of oil is a positive
as is the strength in the dollar even if hedge funds lose money. A couple off
hedge funds going out of business is a small price to pay for lower oil prices.
The realization that under water tech companies are starting to earn money and
old faithfulls are reporting very good earnings will eventually leaven the doom
pervading the daily business gloom. Market turmoil creates sustainable bottoms.
Hank Greenberg’s underpants are
not a cause of worry for most investors. There have always been charlatans in
the CEO suite, probably in the same percentage that exists in the public at
large. But the economy marches on changing and adapting to new trends and needs
and so will the markets when they eventually hurdle the wall of worry.
End of sermon.
9:02am and a savvy client just called and said it feels like a
crash. Our reply was that maybe it is the cold drugs we are on but we think the
current situation is a buying opportunity. And so that is how markets are made.
Buyers and sellers, fear and greed, all come together in the great American
In our readings we learn that the
hedge funds being hurt were long the inflation trade which means that they
owned oil were short the dollar and are losing their shirts and shorts right
now. Maybe Hank Greenberg who got his shorts back from his office at AIG can
Stocks started higher ad the NAZZ
remains up 8 points on Dell’s good news, but the DJIA has slipped into negative
territory as the major banks and brokers continue to be abandoned as all the
‘smart traders’ believe that Goldman and
Merrill didn’t learn anything from
the “Long Term Capital fiasco”. We’ll
these guys and gals make a lot of bucks to learn from their mistakes and we
think the last war is being fought when there is no war.
Treasuries are strong with the
ten-year at 4.12% versus 4.28% a week ago. The dollar is $1.24 to the euro when
the low was in the $1.34 range. The drop in Treasury prices is one reason we
are stressing dividend paying stocks.
10:22am and the major measures all moved into positive territory as
oil turned lower and the strength in Dell
which is up $2 gave life to tech stocks. We are adding Newell to accounts at $21.50 with the Albertson’s money from yesterday.
Newell Rubbermaid has been restructuring for years but CEO Joe Galli
who came from GE a couple of years ago seems to have a handle on things now.
NWL is now quitting products with low margins and stressing high margin stuff.
Thus sales may not grow at the old rates but the bottom line is more important
and that is what Gallo is stressing.
and oil is at a
three month low under $48 and the major measures are mixed. Breadth is negative
on the NYSE and 5/4 positive on the NAZZ as techs continue to gain. We are
heading off to Chicago to see a few
clients and also celebrate a birthday and take our grandson and his dad to a
White Sox game on Saturday night.
We think the markets can take
care of themselves for this afternoon without us. Since our prediction of
yesterday was so off the mark we are going to be making one today. Our hope is
that stocks close higher.
And tomorrow is today and it is Saturday
so relax, Monday will be here soon enough.
13 May 2005 Daily Comment
On April 28 Mother Merrill
downgraded Brocade from buy to sell.
The share price was at $5.10. On May 6 Mother Merrill upgraded Brocade to neutral
from sell based on valuation. We would guess that Merrill actually told clients
of the downgrade earlier in the month of April around the 15th when the share
price fell off a cliff and that the public announcement was not until the 4/28
Whatever, we do think the upgrade
is significant ahead of earnings coming on the 18th of May. We may be adding
more shares to accounts on any more weakness.
Retail sales were announced today
as up 1.5%, ex autos up 1/1%. That caused Treasuries to rise a few bps in yield
and stock futures moved grudgingly to positive territory. Jobless claims rose
4,000 to 340,000. Asia was mixed overnight and Europe
is higher. Oil is again under $50 as Thursday’s trading is set to begin.
Wal-Mart’s earnings were a penny shy of estimates while Target’s earnings were 2 pennies
better. Overall retail sales were higher. Maybe Wal-Mart has reached the point
of diminishing returns through expansion.
In early trading stocks moved
higher only to be met by mild selling. The dollar is strong today and at a six
month high and at 9:53am the DJIA is
down 11 points. Breadth is negative but the NAZZ is higher. We get the feeling
the markets want to move higher.
Ford Motor has stopped selling its commercial paper. Ford does that
when news is pending that will affect the paper’s quality.
At oil dips under $49.
Tiffany’s earnings come on Friday and we are buying a few shares in
large accounts before the announcement. Traders are not expecting any great
news and with the current tenor of the markets we think bad news will be
neutral and good news will be great. We are not making a big bet on this and
are prepared to add stock at lower prices should a very negative report occur.
Schwab has run from $10 to $11 in the last two weeks. Four of the
last five runs to this level from lower in the last six months have ended at
$11. Part of the current move up is related to the E*Trade offer of over $6 billion for Ameritrade which necessitates a higher price for Schwab. We have mentioned
that we think Schwab is a takeover candidate by a major bank. But the jump on
the Ameritrade bid allows us to get
out of Schwab with a profit albeit a small one and raise a bit of cash. We do
not own stocks for takeovers since anyone’s guess is as good as ours and all
stocks are takeover candidates, well almost all stocks.
This is our second profitable
trade in Schwab and we hope to have more. We sold in most accounts.
Ford Motor’s debt was downgraded by Moody’s but not to junk status and that is a slight positive for
Ford and the markets. The non junk status means that there won’t be any forced
selling of Ford paper by institutions that can’t own les than investment
It never fails that when we
mention good feelings about stocks as we did above at the start of the trading
day that the markets decide to go the other way. At in the
contra hour the DJIA is down 100 points. Crude oil is off $1.75 at $48.75 but
that isn’t helping. It seems that the hedge fund folks who were short GM and long
GM bonds and lost a ton of money were also short the dollar which is making new
six month highs. At least that is the story for todays down move. Be that as it
may we continue to have good feelings and this will pass and the sun will
shine. We hope.
With the contrariness of the
markets we decided to sell our Albertson’s for a small profit to have a bit
more cash for holding or buying Tiffany
if it gets slammed tomorrow. ABS has
been a good anchovy for us.
and the DJIA closed down 110 points at 10190.
The S&P 500 dropped 12 points to
1160 and the NAZZ lost 8 points to 1962. The Treasury ten-year ended at 4.17%
with the five year at 3.86%. Breadth was over 2/1 negative at the bell.
Rumors that helped stocks lower
were hedge fund trouble with oil and oil stocks, Goldman Sachs bond desk in trouble
and any other you care to name. We would add shorting on downticks to the list
as a help to push prices lower. Oil ended down $1.91 at $48.54.
Do you really think there were
hedge funds short GM, long GM bonds, short the dollar and long oil and oil
stocks? We hope their condos were paid up.
And tomorrow is today and it is
Friday the 13th so be careful and let the games begin.
12 May 2005 Daily Comment
The trade deficit announced on
Wednesday was less than expected. There continues to be talk of hedge fund
troubles and some brouhaha about China’s
currency that we don’t and don’t want to understand.
There is a lot of fluff and hype
in today’s media and half the problem with investing is to separate the few
kernels of wheat from the volumes of chaff that are blown to us on the media
winds each day.
For the umpteenth week in a row
crude oil inventories were higher than expected
9:44am and stocks opened slowly out of the box. EK popped higher on news that its CEO
is leaving by the end of June to be replaced by the current President and COO. Chief
Executive Dan Carp will step down in June and be succeeded by Kodak's
president, Antonio Perez, 59. We used the
$1.25 jump in price today to sell the shares at $26.66 for a small profit or
loss in accounts since we hadn’t liked the price action of EK acted after we
purchased. EK is going to fight HPQ in the printer business as a survival
strategy and we would rather have the funds available to invest elsewhere. We had
to own the stock to know we didn’t want to own it.
We are picking up some shares in DreamWorks’s Animation at $31.15 with
the proceeds of EK for accounts that can stand the risk. DWA are the folks (Katzenberg,
Spielberg et al) who make the Shrek movies. Sales of Shrek DVDs disappointed
(only 35 million instead of 40 million) and the company forecast earnings for
the year of $1 to $1.25 when analysts had been expecting $1.88. The shares are
at a new low since going public down over $5.35 today and $7 for the week. We
think a part of the selling is from short sellers who have been emboldened the
last few days and this is one stock with which they are playing with fire.
That’s because 75% of the shares are closely held and so there are only about 25
million trading. DWA is priced at
about half PIXR because it doesn’t
have a public track record yet. It is interesting as a trade or hold depending
on how the share price acts over the next few days. By that we mean that if the
share price moves up $4 over the next week we will gladly pocket the profit. If
the share price holds at these levels we will too and we are willing to buy
lower since our initial position is not burdensome.
A small plane forced the
evacuation of the Capitol and White House and that news led to a 50 point drop
in the DJIA. It was too quick and the markets too thin to do any buying. At
the DJIA is down but inching higher and the NAZZ and S&P 500 are trying to
do the same. Breadth is slightly negative and oil is down $1.62 at $50.45.
Treasuries are firmer.
and the DJIA closed up 20 points at 10301. The S&P 500 gained 5 points to 1170 and
the NAZZ rose 8 points to 1970.
Breadth was positive at the bell and Treasuries were unchanged.
And tomorrow is today so let the
11 May 2005 Daily Comment
Yesterday was a good day for
accounts with Lucent and the banks adding value. We are pretty fully invested
and will be spending the days reviewing individual accounts to see if there are
any additions we can make.
Our belief continues that the
rally will lead us to new highs before a sell off in late summer. That is the
usual pattern and it even worked at year end last year we just weren’t quick
enough on the trigger.
The “sell in May and go away mantra” will become louder as the month
progresses, especially in the bear camp. We think that our holding period is going
to last longer than May.
In the big caps we are looking
for a plus 10% move, in the smaller stocks a plus 25% move. If those moves
occur soon we are going to take our money to the bank.
But we are not even close now and
so our strategy is to wait and watch.
A&P is going to close all
their grocery stores in the Midwest. That should be a
help to Albertson’s which has a large presence with its Jewell/Osco stores.
In early trading the major
measures have given back all of yesterday’s gains. Crude oil is up another 77 pennies
to $52.80 and bonds are firmer ahead of the first leg of the week’s refunding
11:42am and stocks are stuck at lower levels in moderate trading. Breadth
is 2/1 negative and there seems to be no buying interest.
We added to our BRCD holdings. Earnings come next week
but as long as the markets are benign we think the stock will hold up. Mother Merrill went from sell to
neutral on the stock on Friday but she did the same thing on VECO ahead of earnings and that didn’t
help. At this level though, Brocade is
selling for the cash in the company.
and towards the end
of the contra hour the DJIA has just bounced a bit after being down 120 points.
There are rumors of hedge fund troubles affecting the major banks and also
today is ‘softness in the economic numbers’ day. Those rumors have helped
Treasuries to rally into the refunding. Oil closed 4 pennies higher at $52.07.
The markets are in a sell mood
this final hour and since we added to our position in BRCD today we are going to sell our Netflix and Symbol Tech positions
in accounts that own them for an overall positive scratch. We wouldn’t be
adding to them at lower prices and we want the money to deploy elsewhere if the
and the DJIA closed
down 107 points at 10278. The S&P 500 lost 13 points to end at 1165 and the
NAZZ dropped 17 points to 1962. Breadth was over 2/1 negative at the bell.
Volume was heavier on the sell off than it was yesterday on the lift.
We should have stayed on vacation.
And tomorrow is today so let the
10 May 2005 Daily Comment
It was a busy last week while we
were gone but the result was an increase for our portfolios and a cold for us; so
much for vacations.
Early in the week GM jumped 20% in price on news that
octogenarian Kirk Kerkorian was going to tender for a bunch of GM shares at $32
to add to his ownership and bring his total holdings of GM to 9%. Mr. K made
his reputation buying Chrysler and
being the catalyst for its sales to Daimler Benz. Maybe he can convince Toyota
to buy GM.
There were a few comments in the
press about his age. That is interesting since the media rarely comments on
A short day after Kerkorian’s bid;
S&P lowered its ratings on GM and FORD debt to junk status. Moody’s and Fitch have not yet gone along with this downgrade. For about half
a day CNBC talking heads mentioned bankruptcy incessantly because talking
heads love a good fright story and then suddenly the talk of bankruptcy
was gone. Could it be that the honchos at GE
received a call from their counterparts and shared board members at Ford and GM about auto advertising on NBC? *****
The Treasury announced it is
considering bringing back the thirty-year bond. Some gurus took
that as a sign that the Treasury is making a call on higher interest rates. We
have wondered for the past few years why the Treasury hadn’t reinstituted the thirty-year.
The answer is that the low interest rates made short term paper more fiscally
attractive for the Treasury to issue to keep the current deficit down. But the
failure to issue thirty-year bonds when they could have been sold in the high
3% range will have a great long term cost to taxpayers.
The Fed raised rates by 25 bps
and called inflation controlled and the stock markets decided they liked that
news and stocks rallied. Then on Friday a very good jobs report of over 250,000
added to a total plus 100,000 revisions to the previous two months reports
caused the stock markets to open higher. But the markets couldn’t stand
prosperity and gave back most of the gains by closing.
Our portfolios were up about 1%
for the week and we will take that since if they rise 1% a week for the next
year we’ll all be very rich.
Of course they won’t do that but
we remain satisfied that the stocks we now hold are attractive at present
levels and will participate in any market move higher while withstandpart of any down move.
This week Cisco and Dell report
earnings. Most of the earnings reports are out of the way except the major retailers
beginning this week.
9:02am and stocks opened higher and then began giving back the gains
as traders decided to take a few of last week’s profits and bears began to short
the stocks they covered last Thursday and Friday. Breadth is flat and
Treasuries are a tad higher in yield. Oil is up 34 pennies.
E*Trade made an offer for Ameritrade
to merge and Schwab is moving higher
on the news. Consolidation of the two on-line brokers could lead to a reduction
in advertising costs and the price war on commissions plus folks switching to
Schwab now that its commission rates for active traders are competitive.
Lucent is higher on a Barron’s article over the weekend
that talks about LU paying down $2
billion in debt and a possible takeover.We are taking with some grains of salt but like it trading at $3.
the DJIA is up 32 points but having
trouble moving higher.
We are buying Symbol Technologies in some aggressive
accounts and we are also reestablishing our SEBL position from last week.
Symbol Technologies (SBL) is in the bar code business. They make bar code scanners, radio frequency identification (RFID)
technology and handheld computers for automated supply-chain management. The fancy way of describing the business is
to say that SBL is involved in designing, developing, manufacturing and
servicing products and systems used in end-to-end enterprise mobility
solutions. The products and solutions capture, move and manage information in
real time. The products include advanced data capture products, mobile
computing platforms, wireless infrastructure, radio frequency identification
(RFID) infrastructure and tags, and mobility software and services, and are
sold as both integrated solutions and individual devices. It operates in two
reportable business segments: the design, development, manufacture and
marketing of advanced data capture, mobile computing, wireless infrastructure,
RFID and mobility software products and systems (Product Segment), and the
servicing of, customer support for and professional services related to these
products and systems (Services Segment). On September 9, 2004, it acquired Matrics, Inc. (Matrics).
The shares of SBL are at their low for the year and although
the stock sold lower to $8 in the October 2002 debacle it is as back to the
price at which it broke out in1998. The company is priced at about 1.3 times
sales. It shares are off because of quarterly earnings that disappointed and a
warning going forward. The company now expects sales and earnings to grow in
the 10% range instead of the 15% range previously expected. With the shares down
from their twelve month high of $18.50 made in February 2005 the price drop has
offset that disappointment.
and crude oil has
spike higher and is at $52.05 up $1.08. The bears are also doing their best to
keep stocks from rising at the contra hour ends with the DJIA up 12 points and
the NAZZ up 5 points.
Sara Lee is off a little today on
an analyst downgrade but with a 3.7% yield and a turnaround/divestment story
coming this year we like the stocks and are adding a few more shares to accounts.
and stocks closed
higher on the day as dip oil. Treasuries eased a bit. At the bell the DJIA was up 39 points at 10385. The S&P 500 rose 8 points to finish at 1179
and the NAZZ gained 12 points to 1979.
Breadth was 2/1 positive on the NYSE and flat slightly so on the NAZZ. The ten-year went out at 4.28% while the two-year was 3.74% and the five-year 3.98%. Oil was up $1.07 at
And tomorrow is today so let the
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