Bud's Poem Page

31 May 2006 Daily Comment

Thoughts

Hong Kong was closed overnight and Japan was down about 2.4%. Most European bourses are fractionally higher after yesterday’s sell off as we begin the trading day in the States. And U.S. futures are indicating a slightly higher opening.

Yesterday’s downer took some wind out of the sails of the bullish boys and girls and today is going to revolve around the Fed minutes at 1:15pm and end of month shenanigans plus lighter volume as vacation time has arrived.

Overnight Tiffany beat the earnings per share numbers but sales were lower than expected and same store sales in the U.S. were down 1% for the quarter while up 5% in the rest of the world.
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The Chicago Purchasing Managers Index was 61 versus an expected 56 and 57 last month.
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Oil prices sold off and stocks rallied after Condi said that the U.S. will join multilateral talks with Iran if Iran suspends enrichment activities.

The WSJ reported: The U.S. is prepared to hold direct talks with Iran on its nuclear program if Iran first agrees to stop disputed activities that the West fears could lead to nuclear weapons. "As soon as Iran fully and verifiably suspends its enrichment and reprocessing activities, the United States will come to the table," Secretary of State Condoleezza Rice said.

Well we think that is a non starter but we will hope.
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Two hours into the day’s session stocks are higher on the rebound and the drop in oil prices.
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Michael Dell has purchased 4 million shares of Dell in the past week at about $24. That is for looks not for gain since he owns tons of stock at zero cost.
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Stocks turned lower on the release of the Fed minutes. Bonds weakened with the two-year moving to 5.02% and the ten-year going to 5.11%. The short end of the curve has moved more than the long end. an interesting part of the minutes said: "Although the Committee discussed policy approaches ranging from leaving the stance of policy unchanged at this meeting to increasing the federal funds rate 50 basis points, all members believed that an additional 25 basis point firming of policy was appropriate today to keep inflation from rising and promote sustainable economic expansion."
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Europe closed over 1% higher today reversing yesterday’s losses and Mexico is down 1% while Brazil is up fractionally going into their close.

The half point increase talk that was mentioned in the Fed minutes spooked the Treasury markets and the curve flattened as the short end rose to the tune of a 5.04% close on the two-year and a 5.04% close on the five-year.

The metals sold off today with gold down $11.50 to $649 and silver and copper also lower.
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Stocks rallied in the last half hour and the DJIA closed up 70 points at 11163. The NAZZ was up 12 points at 2177 and the S&P 500 gained 10 points to 1270.

Breadth slipped a little towards the close but was close to 2/1 positive. New lows were about 200 and new highs approached 105. Volume was moderate.

With the slippage in the Treasuries, Friday’s employment report may be a markets mover. The hedgies and big boys and girls have tons of hedges on involving stocks and bonds and our guess is that not all the hedges are as sure as they should be.

And the Casino will be open for all the games of chance again tomorrow at 8:30am.
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30 May 2006 Daily Comment

Thoughts

Asia was off fractionally overnight and Europe is down about 1% across the board. Gold and Oil are higher with Oil over $72 dollars as the trading day begins.

Treasuries are a touch lighter.

GM is going to invest in Russia. It seems to us they would do better trying to sell cars in the U.S. Deutsch Bank lowered its rating on the shares of GM to a sell.

Google and Dell have made a deal with Google to be on all Dell computers and will be the start up page on new computers.
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Stocks opened lower and the DJIA is down 90 points at 9am.
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The Conference Board’s Consumer Confidence Index was 103 versus 109 last month. Wal-Mart says same store sales will be up 2.3% for May versus 2.4% estimated because of the high cost of gas.
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After and hour of trading all thirty Dow stocks are lower with GM and WMT both off over $1.
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We added shares of SYMC to more accounts today at $15.65.
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Three hours into the day Europe is down 2% as is Mexico and Brazil.

Michael Moskow, the President of the Chicago Federal Reserve, in a CNBC interview suggested that the Fed needs to error on the side of fighting inflation.
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Cisco broke $20 to the downside this noon hour. $20 has been resistance from late 2004 to March of this year. Resistance at $20 then became support and the support held several times in the last month but today’s break may bee significant.
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Crude Oil closed in NYC up 66 pennies at $72.03. Gold closed at $660.50 up $3.30. Treasuries were a tad weaker with the two-year at 4.97% and the ten-year at 5.08%.
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The dollar is being smacked down today.
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The minutes from the May Fed Meeting will be released tomorrow.
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This is one crazy market. At the bell the DJIA was down 181 points at 11097. The S&P 500 lost 20 points to end at 1260 and the NAZZ dropped 45 points to 2165.

Breadth was 3/1 negative and volume was light.

There were over 200 new lows and 85 new highs.

And the Casino is open again tomorrow as the Wheel of Fortune begins spinning again.
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26 May 2006 Daily Comment

Thoughts

Japan and Hong Kong were up over 1% overnight and Europe is higher across the board. Today should be volatile and probably to the upside since the trend yesterday was up with the major measures closing on their highs for the day for the first time in a few weeks. This move came on the backs of a successful test of 1250 support on the S&P 500. 1280 remains resistance.

There is another upgrade of GM this morning by Prudential and that will give the bulls heart.

Also Personal Income was up 0.5%, Personal Spending was up 0.6%. Year over year core PCE Deflator was up 2.1%. The monthly number was up 0.2%. All is well in La La Land.
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In several places today we’ve gurus talking about the fact that with GDP over 5% the last two quarter’s that the PCE Deflator can’t be as low at 2.9% without some magic massaging. But the numbers are what they are until they aren’t.
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Halfway through the trading day stocks are higher and the S&P 500 is testing the 1280 level. Breadth is 2/1 positive and new highs equal new lows in light trading. Treasuries close early today and this afternoon is going to be light trading. With the uptrend of the last two days we would expect a move to highs for the week.
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A few months ago we sold our position in SYMC and the stocks subsequently moved higher. SYMC is now backing down close to its two year low where it has bounced several times in the last six months and we are buying a relatively small position in SYMC in our large/aggressive accounts.
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Europe closed 1% to 2% higher across the board with Stockholm up 4% and Treasuries were firm with the two-year at 4.94% and the ten-year at 5.05%.

Oil ended at $71.37 up 5 pennies and Gold was up $1.10 at $652.10.
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The DJIA closed on its high for the day up 68 points at 11278. The S&P 500 gained 8 points to 1280 and the NAZZ was up 12 points at 2210.

Breadth was 2/1 positive on the NYSE and 3/2 positive on the NAZZ. Volume was holiday light.

New lows (137) beat new highs (127).

And the Casino is closed for the holiday week-end. The Wheel of Fortune will begin spinning again on Wall Street on Tuesday morning May 30.
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25 May 2006 Daily Comment

Thoughts

Yesterday’s close was a positive for the bulls and follow through today is needed for them to build momentum. Most of the technicians we follow suggest that their technical data indicate a rally should occur. The strength and duration of such a rally is-as always - the question.
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Hong Kong was down 0.8% and Japan 1.34% overnight while most European bourses are fractionally higher. Gold is up $6, Oil is back over $70 and Treasuries are flat. In the early morning going stock futures are indicating a slightly down opening.
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We’ve been watching the new lows and would be tempted to trade the SPY if there were a day with 700 plus new lows. The markets are only about half way there (375 lows yesterday) and traders seem anxious to move stocks higher- or at least write about moving stocks higher from the 1250 level on the S&P 500- so we may not get our chance this time around.

The pause by the Fed camp is getting louder and Friday the core personal consumption expenditures index is announced for the first Quarter. Since it gives less credence to housing rental as an indicator of inflation the gurus think it will be 0.2% which will be bullish for a pause. Greenspan used this measure-according the talking heads- as his bible on inflation.
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Preliminary First Quarter GDP is at 5.3% which represents a revision higher.  Core PCE was 2.0% year over year. Jobless claims dropped 40,000 to 329,000as the partial government shutdown in Puerto Rico ended. That shutdown caused and unusual jump in the numbers last week.
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Yahoo and EBay have teamed up in a multi –year pact on web searching/advertising etc. to take on Google. Both YHOO and EBAY are higher in early trading.
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At noon stocks remain higher having been up all day on 2/1 positive breadth. Gold is up $14, regaining half of yesterday’s loss and oil is over $70. Treasuries are unchanged.
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European bourses closed up about 1.5% across the board which was what they lost yesterday and were up the day before and half of what they lost on Monday so they are still down over 1% on the week.
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Treasuries are moving higher in yield lower in price after the five-year note sale at 4.945% was not well received.
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Oil closed in New York at $$71.35 up $1.49. Gold was up $11 at $648.

Treasuries ended weaker with the two-year ended at 4.96% while the ten-year finished at 5.07%.
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Brazil closed up 4% and Mexico was up 2.8%. These are wild times in trader land.
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The DJIA closed up 9 points at 11212 The S&P 500 gained 14 points at 1273and the NAZZ rose 630oints at 2199

Breadth was 3/1 positive and volume was brisk. New lows contracted to 145 and new highs were 85.

And tomorrow is the last day for the boys and girls to have their fun till Tuesday. The bulls will try to build on today’s good showing.
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24 May 2006 Daily Comment

Thoughts

As we turn on the machines we learn that Asia was positive overnight with Japan up 1% but most of Europe is over 1% lower (up about the same yesterday) and U.S. futures indicate a slightly down opening.

Investors Intelligence has Bulls dropping to 43% from 46% and Bears rising to 27% form 25%.

Gold is off $11 at $566 and Oil is off $1.90 at $69.86 and Treasuries are firmer with the two-year at 4.92%.
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The inability to rally yesterday is a negative for the bullish case but stocks may be building a base for a stronger push higher at week end. As we remember, Memorial Day week-end enjoys a positive market atmosphere as the beginning of the summer vacation season places folks in a more positive mood.

But with the Media Madness for hurricanes and bird flu and higher gasoline prices we would venture that many folks are having a difficult time feeling positive. And the stocks market action isn’t helping.
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April Durable Goods orders were down 4.8% and strip out transport 1.4%. Stocks and bonds are rallying on the negative news. Bonds Ok, stocks?
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Mother Merrill is recommending GM. Rally time.
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Copper is down 7% in early trading after being limit up yesterday. Jack be nimble Jill be quick when trading in the copper pit.
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ABN-AMRO and GE are buying $2 billion in non-performing loans from Italy’s Unicredito Bank. No price was given.
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Brazil and Mexico are down another 2% this morning.
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Vonage the internet phone company sold stocks to the public today (IPO) at $17. It is currently trading at $15.20 down $1.80.

Gold is down $25.

The troubling or difficult aspect of the current markets is that there is no pattern or seeming relationship in the price movements of the various trading instruments on more than a dally basis. For example some days Gold and Oil and Stocks and Treasuries all move in the same direction and on others some are up and some are down. That inconsistency makes trading very difficult. Traders like patterns that give indications of trends and there are none right now.
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Treasuries gave back their morning gains when new home sales came in at greater than expected. New home sales rose 4.9% when a decline was expected. But last months numbers were adjusted downward which was part of the reason for the surprise.
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The FTSE, which is the London Stock Exchange, lost 1.7% to close underwater for the first time this year.
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GE affirmed 2006 guidance and is trading lower under $34. The inability of GE to move higher when it is supposedly firing on all cylinders is one indication that the bulls have a way to go to amount an assault on higher levels.
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Breadth is now 2/1 negative at noon and the dollar is almost 1% higher versus the euro.
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In the last two hours the DJIA has been up 50 points and down 50 points and now is up 20 points. That is a 220 points move for nimble traders to try and catch. Oops it’s down 20 points so that is 260 points and counting.
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Today a U.S. judge approved a $6.6 billion civil settlement by three banks accused of helping the company manipulate earnings that helped lead to Enron’s bankruptcy. The settlements to be paid to former Enron shareholders include $2.4 billion from Canadian Imperial Bank of Commerce CM.TO, $2.2 billion from JP Morgan Chase JPM and $2 billion from Citigroup.
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Again today GM is leading the DJIA higher accounting for 16 points of gain with the average down 20 points. Now that Mother Merrill has joined the buy side on GM where are all the bankruptcy birds, media gurus and Jim Cramer who were laughing at Kirk Kerkorian, the octogenarian billionaire who took the huge position in GM shares?

We still think we are too old (Kerkorian has billions) to play that game and GM is not the leadership the markets need to move higher. If GM is going to make it so will Ford but it is not getting any play.
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With an hour and one half left in the trading day, Gold is down $36 and Oil is off $2. Several of the websites we read are suggesting that there is fund liquidation occurring. Mexico and Brazil remain off 2% and European bourses gave back all of yesterday’s gain at their close.
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There are 1000 stocks exempt from the downtick rule for short selling in a pilot program created by the SEC in 2004 and scheduled to run through August 6, 2007. The list of stocks in the program can be found at http://www.sec.gov/.
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Gold ended down $36.20 at $637.50. Oil ended down $1.56 at $70.20. Treasuries were unchanged after being up and down all day with the two-year at 4.93% and the ten-year at 5.03%. The ten-year traded under 5% right after the Durable Goods order info was released at 7:30am.
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A rally in last half hour finally arrived but almost fizzled by the bell. The DJIA was up 20 points at 11120. Thank you General Motors. The S&P 500 gained 2 points to 1258 and the NAZZ rose 10 points to 2170. That’s what constitutes a rally in this current market. Maybe the bulls can add to it tomorrow.

Breadth was 2/1 negative on the NYSE and 5/4 negative on the NAZZ and there were 375 new lows and 65 new highs.

Volume was brisk.

And there are two more days left at the Casino before the three day week-end.
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23 May 2006 Daily Comment

Thoughts

The markets are looking to rally this morning. Enough is enough and the big boys and girls want stocks higher and so it will be for a while at least. Japan was down 1% and Hong Kong up fractionally and Europe is higher by half of yesterday’s losses. Our gurus are looking for a few days rally while we are enjoying the nice weather.

Oil is back over $70 and gold is up $4. It seems that if oil can stay over $70 the stock markets can rally and when it moves lower the markets sell off. That is a counterintuitive.

Treasuries are weaker on the better stock news.
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Toll Brothers, the high end home builder, exceeded lowered expectations but warned going forward. Nonetheless on what may be a dead cat bounce the shares are up on the day.
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The hedge fund boys and girls are back in force and commodities are moving higher with copper up 4%, Silver up 3% and oil 2% higher. Gold won’t be far behind. As a result many of the commodity stocks are going to open 10% higher. The Casino will be running at maximum capacity today.
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An hour into the session all the major measures are higher and breadth is over 3/1 positive. The bulls could use a good close today to carry into the end of the week and forestall some long week-end jitters on the part of traders.
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Copper closed limit up and Gold is up $16 at $673. Oil is also up $2.04 at $72 as it looks as if some commodity shorts were caught in the Casino’s wringer machine.

On the rise in commodity prices Treasuries are weaker on the short end as the curve flattens. The two-year ended at 4.96% as did the five-year and the ten-year finished at 5.06%.
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In the last hour most of the major stock measures surrendered their gains for the day to move into negative territory. At the bell the DJIA was down 24 points at 11100. The S&P 500 lost 5 points to 1257 and the NAZZ dropped 12 points to 2160.

Breadth ended the day barely to the good and new lows (170+) outpaced new highs (83+).

Volume was lighter than it has been. The bulls have their work cut out for them the rest of the week.

It was not a good day for the bullish case but tomorrow is another day. And the Casino will be open for business and we’ll be here.
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22 May 2006 Daily Comment

Thoughts

It is not given to human beings, happily for them or otherwise life would be intolerable, to foresee or predict to any extent the unfolding course of events.” These words were spoken by Winston Churchill in his tribute to Neville Chamberlain in the House of Commons November 12, 1940.

We read those words over the week-end at the same time as we were digesting the saddening news of the death of a four year old girl in Lincoln Park in Chicago who was killed by a hit and run driver. While not on the same scale of tragedy on the same day the great race horse Barbaro fractured his leg and may be euthanized. Iran and the U.S. move closer to some kind of confrontation. And finally the market bulls spent the last week absorbing a lot of punishment and are facing new uncertainties going forward.

Churchill goes on to say, in one phase men seem to have been right, in another they seem to have been wrong. Then again, a few years later, when the perspective of time has lengthened, all stands in a different setting. There is a new proportion; there is a new scale of values. History with its flickering lamp stumbles along the trail of the past, trying to reconstruct its scenes, to revive its echoes, and kindle with pale gleams the passions of former days.”
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As Monday begins we see that Hong Kong was down 3% or 500 points, Japan lost 1.8% and India was the scene of a real donnybrook as at one point its main stock market was down 10% and trading was halted for while. That market closed down 1111 points at 9826.

Gold is off $12 in early trading at $645 and Oil is also lower by almost $1 at $67.63. Treasuries are firm to better in response to the negative action in stocks overnight. But more folks are indicating that the Fed needs to continue raising rates and if that is the case then the temporary plateau in Treasury yields will give way to lower prices and higher yields when the stock markets settle for a few days.

Europe is going along with the other bourses with France down over 1% and the other countries showing sizable losses.

U.S. futures are indicating a lower open.
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The support level of 1255-57 held for the S&P 500 on Friday. In fact is bounced off that number after an early session sell down to that level. It looks to test that level again this morning and then there may be a rally of longer than a day. The S&P 500 was down for seven straight sessions before Friday’s bounce.
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Our take is that this action is the beginning of a move lower for the major stock measures. We don’t think it will happen at one, and though there will be rallies our inclination is to avoid trying to trade them. We do want to own some AT&T along with the Verizon we own in many accounts since both stocks are yielding a comfortable 5% plus.

Other than those two issues we are in a watch and watch mood.
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Yes Virginia, there is a Santa Claus and he is the chairman of the compensation committee of United Health, Juniper Networks and many other companies soon to be exposed who allowed executives to be granted options to buy company stock at the low share price of the year. It seems there are now more than ten companies with many more suspected that the WSJ and other sleuths have found who priced options for the executives by back dating them to the low prices of the year granted. According to the talking heads on CNBC this action is not illegal. It may be immoral but since everyone seems to be doing it, it probably is not unethical. The backdating of options to the lowest price of the year is a symptom of the absolute greed and distain many managements have for the folks who supposedly own the companies for which they work. But that is not new news.
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Short interest in the NYSE rose 3% in April which is a contrary bullish sign since it suggests that at some point those who sold short will have to repurchase the stocks. But with all the deals such as the BLS/T and Lucent/Alcatel mergers much of the short interest may be arbitrage related with only the delivery the acquired stock needed to close out the short position. We couldn’t find those numbers.
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Henry Dickson, chief U.S. investment strategist at Lehman Brothers, said on Monday he continued to believe that equities remain the asset class of choice in the current environment. "We currently recommend an overweight position in health care and financials and an underweight position in consumer staples," he said in a research note.
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The company DreamWorks had respectable attendance figures for its new cartoon Over the Hedge at $37.2 million.
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Shares Yahoo rose 1.6 percent before the bell after a Barron's newspaper report said the stock was poised for a rebound.
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The New York Stock Exchange, which is now a publicly traded company, has caught the merger mania and is now going to buy Euronext, a European Exchange for $10 billion. Initially this morning NYX moved higher but it is now trading lower and the takeover is probably the reason the shares have been sliding since popping up after the sale of shares two weeks ago. And doesn’t that sale of shares two weeks ago skirt the “tell all’ requirements of a secondary offering. Could it be that the sacrosanct NYSE is paying the same games as all the other companies listed on it.
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"We cannot define at this time whether a cyclical bear market (a decline of 20% or more) is at hand or whether a well-deserved correction (a decline of 10% to 20%) may be in place," wrote Louise Yamada, founder of Louise Yamada Technical Research Advisors.
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India's main stock-market index finished last week down 13.3% from its May high- and dropped another 11% today, Brazil's was down 10.1% and Singapore's was down 6.2%. Silver futures have plunged 17%, zinc 14% and copper 9.7%. Gold, which historically has been a refuge in times of trouble but which lately has been a magnet for speculators, was off 8.8%.

The NASDAQ index has fallen 6.4% since May 8. The DJIA is down 4.3% since May 10, when the index hit a six-year high. The two week decline of 4.5% in the S&P 500 is the worst two-week decline since January 2003 according to Edward Yardeni.
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Two hours into the trading day and breadth is 3/1 negative. The S&P 500 is though 1257 on the downside and the DJIA is off 78 points. Treasuries are rallying.
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Two gurus we read are looking for a 1250 touch then a bounce to 1285 to relieve an oversold condition before resuming a down leg. But, and there always is one, one of the gurus says that if the S&P 500 goes through 1245 on the downside all bets are off and a vacuum may exist. That won’t be fun for the bulls.
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Europe is down big-time with all the bourses off over 2% or more and Norway down 4%.
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With a couple of hours left in the trading day the major measures remain lower but above their lows of the day. Breadths is still 3/1 negative and down volume exceeds up volume by a 5/1 margin. The bulls had better rescue the day or we think that Asia and Europe will reprise today’s bit down action.
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Over 21% of both oil and gas production remains offline in the Gulf of Mexico since Katrina. That is helping keep prices higher but we are sure there is no conspiracy involved.
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The bull market in stuff certainly isn’t dead as an auction of Joe DiMaggio’s memorabilia brought in $4.1 million over the week-end.
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Near the close of NYSE trading Oil had rebounded to up $0.60 at $69.23. Gold also reversed but was lower on the day at $655.20 down over $2.

Treasuries were firm at the close with the two-year at 4.94% and the ten-year at 5.03%.
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Brazil was down 3.8% on the day with Mexico over 4% lower.
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The bulls (or maybe bears covering) rallied the DJIA back to plus 30 points with fifteen minutes left in the trading day but couldn’t close it on the plus side. The DJIA closed down 20 at 11160. The S&P 500 lost 4 points to end at 1263 and the NAZZ dropped 20 points to 2175.

Breadth improved but was still 2/1 negative at the bell and new lows exceeded 325 while new highs were 75.

Volume was brisk.

Our guess is that a washout today would have been better for the bulls but time will tell. And there are four more days at the Casino before the holiday week-end. We’ll be here.
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19 May 2006 Daily Comment

Thoughts

We go away for a few days and the Casino runs wild. Now that we are back maybe folks will calm a bit.

The big news this morning is the oracle, former Fed Chairman Greenspan, said last night that the Housing Boom is over but there is no evidence that prices are going to collapse.

Stocks have opened higher this morning as they did yesterday morning. We’ll see what the afternoon brings.

Several retailers announced better earnings and are higher while Dell announced in line numbers last night after the close and dropped the bombshell that it is going to begin using AMD chips in the fall. On that news Dell and AMD rose in price and Intel plunged in after hours trading yesterday but INTC has stabilized this morning at lower prices around $18.

The markets are going to have to test the downside today and then we’ll see if the bulls can mount a rally into the week-end.

With higher margin requirements and the big boys and girls yelling get me out Gold is down $24 today and oil is off $1.20 at $68.25.

Treasuries are firm. We thought it interesting that the markets sold off on Wednesday because of the CPI number suggested inflation and the Fed’ need to continue to raise rates. Then as stocks moved lower Treasuries rallied on a flight to quality. But if the Fed is going to raise rates Treasuries have to drop in price and rise in yield at some point.

We keep reading that inflation is a lagging indicator and so the gurus who are bullish are saying that what was reported Wednesday is history and the outlook for the future is lower inflation.

Our take is that a large component of the CPI is housing (17%) which is accounted for by measuring the change in rental costs. All during the housing boom there was no inflation on the rental front cause demand was for houses not rental units and so that part of the CPI underreported the inflation in housing costs. Now since house prices are going down we presume (tongue in cheek) the BLS will change the housing component from rental to house prices to take advantage of the drop in prices to lower the CPI.

There is inflation, it is getting worse, and the markets are recognizing and anticipating that. In fact inflation with a contracting economy may be just around the corner. Ah the dreaded word stagflation may soon again be bandied about by the talking heads.

In panic situations reality sometimes takes a back seat. This is not a crash. The major measures are within 5% of their five year highs. Markets never crash off the top. Crashes in the stock market occur after the major measures drop 15% or more inflicting severe pain and financial loss to folks who are long momentum stocks on margin and wrongly positioned hedgers. Then a crash may occur but we are a long way from that scenario.

Gold and silver and commodities and foreign markets have been the playground of the momentum folks and the newbies and now the newbies are learning that markets are two way streets and that usually stocks as trading vehicles go down faster than they rise.

And since the new SEC rules allow shorting on downticks we think that may be causing some of the downside pressure. We feel that the elimination of the up tick rule on short sales is the great unknown in the correction.
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1257 is the two hundred day moving average on the S&P 500 and the next logical support area.
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Three plus hours into the session the major stock measures have snapped higher after the S&P 500 touched its 200 day moving average and stocks are now to the plus side with good buying coming in. Or maybe it is a lack of selling that is creating a vacuum sucking stocks up. Breadth is now positive. Time will tell.
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Gold closed down $23.40 at $657 and Oil ended at $68.53 off 92 pennies. Treasuries were firm on the long end while the short end rose in yield with the two-year at 4.95% and the ten-year at 5.06%. That ten-year yield makes no sense to us.
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At the bell the DJIA was up 16 points at 11145. The S&P 500 gained 6 points to 1267 and the NAZZ rose 15 points to 2195.

Volume was brisk with the expiration traffic and Breadth was flat. New highs were 70 and new lows were about 300.

And the Casino is closed for portfolio repairs for the week-end but the players will be back on Monday for another spin at the Wheel of Dwindling Fortunes.
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16 May 2006 Daily Comment

Thoughts

We are traveling tomorrow and Thursday and so the next post will be Friday May 19.

Thoughts

Asia was lower with Japan down 2% while Europe is mixed at mid-day. Oil is up a few pennies and Gold is $1.40 higher.

Wal-Mart met expectations and Home Depot disappointed. U.S. futures are slightly lower before the official opening in NYC.
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We get e-emails:

Bud: My questions are not made to influence your treatment of my account. However, in regard to MSFT, I was surprised that you sold it. In your 4 May 2006 Daily Comment, the last sentence of your response to my e-mail to you concerning MSFT stated "We really never have been fans of Gates but at these prices and lower we think the stock is worth acquiring and adding to ". Instead MSFT was sold. I was confused by this action. John

We respond:

The action of the tech stocks in the rally after May 4 and then in the decline last week suggests that if there is a more severe correction MSFT will move lower. A catalyst to move higher doesn't seem present and buybacks are supporting the stock.

We would like to again own Intel and MSFT sometime this year for next year but as with Intel, after we bought it and then sold, now doesn't seem to be the time. We may be wrong but our philosophy now is just to survive a downturn that we see coming.

The when of the downturn is the problem although it is closer than it was. Bud
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Japan’s Consumer Confidence Index topped 50 for the first time since June 1990. Over 50 signifies confidence in the economy.
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Margin requirements for Gold, Copper and Silver were raised on the NYMEX yesterday for the second time this month.
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PPI ( Producer Price index) was up 0.9%, Core PPI (ex all  the important stuff) was up 0.1%.  The PPI year over year was up 4% while the core number was up 1.5%.At the earliest stage of production, core crude goods minus food and energy rose 4.7% in April, and they have increased at a roughly 25% pace over the past six months, an acceleration from the year-over-year gain of 16.1%.
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Housing starts were down 7.1% and building permits were down 5.4%.
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CPI comes tomorrow not Thursday as we stated yesterday.
*****

Industrial Production was up 0.8% and Capacity Utilization came in at 81.2%. Those are big numbers and not kind to Treasuries although Treasuries are holding slight gains for the day. Mild core PPI and weak housing starts are trumping strong PPI, Industrial Production and Capacity Utilization numbers, for now at least. Bernanke speaks tonight to hedge fund folks and that talk may affect action tonight and tomorrow.

An hour into trading the major measures are mixed, oil is lower breadth is positive and trading is moderate.
*****

The UAW which represents 24,000 workers at Delphi Automotive voted to strike if negotiations go nowhere. The UAW is living in a different era. We are union through and though but the writing is on the wall. Union leadership became as fat and satisfied as the leadership of the auto companies. Unfortunately the union workers will pay the  price while auto company leadership will continue earning their fat salaries and gain options at low prices because of their mismanagement.
*****

NYMEX crude oil gained 9 pennies to close at $69.50 after trading as high at $70.70. Gold ended the day session at $692.90 up $7.90.
*****

Treasuries rallied with the two-year ending at 4.94% and the ten-year at 5.10%.
*****

The DJIA closed down 15 points at 11415. The S&P 500 lost 3 points to 1292 and the NAZZ dropped 11 points to 2227.

Breadth was positive all day and volume was active.

New highs exceeded 120 while new lows were over 215.

The Casino is open for the rest of  the week but we’ll be traveling till Friday.  We think the big boys and girls can get by without us. The next post will be Friday afternoon.
*****

 

15 May 2006 Daily Comment

Thoughts

We wish a happy 93rd birthday to our mother.
*****

Asia was down overnight with Hong Kong the worse for wear down over 2%. Gold is down $24 this morning and Oil is back to $70 as commodity prices take it on the chin. Europe is lower by 1% plus in most countries and U.S. futures are indicating a down but not severely down opening. With the sell off of Thursday and Friday a rally sometime today would be in order although it will probably be sold and then the real trend for the week may emerge.
*****

There were 320 new lows on Friday versus 100 new highs. We haven’t seen new lows beating new highs for a while and the absolute number of new lows versus new highs was impressive.
*****

The Observer of London is reporting that VZ is to acquire Vodaphone’s stake in VZ Wireless for $48 billion plus $8 billion in assumed debt. The announcement supposedly will come at the end of May.
*****

Ernst & Young has withdrawn its estimate that Chinese Banks have over $900 billion in bad loans. Upon further review and maybe because they wish to continue doing business in China Ernst & Young now say that their estimating process was flawed.
*****

We are selling the two year Treasuries we bought two weeks ago for a quarter point loss. With the interest we earned during the period we are basically breaking even (losing 15 days interest in the process) on the transaction. When we traded out of the 4 3/8 in February we managed to save a 0.6% further loss since those notes are now trading under $99. We think the notes we just sold will trade under $99 sometime before the Fed begins to ease and we don’t want to be staying on that large a loss when we want the money for stock investment purposes. We don’t mind giving up 15 days interest to break even we don’t want to have to give up 3 months interest or more interest to do the same We have jumped the gun twice now and so we will be more wary before the next attempt to lock in a yield.

We and others misinterpreted Bernanke’s Congressional testimony of a few weeks ago and then the convoluted statement from the Fed meeting last week further muddied the waters and we would rather retreat to the safety of cash soon to be yielding over 4% to reconsider our options.

The sell off in stocks on Thursday and Friday was not expected by us and we need to regroup and reconsider our options. We do know we don’t want to watch our principal erode by 1% invested in bonds. That could happen with a move to 5.25% on the Fed Funds rate at the next meeting. Since the Fed is intimating that at most it will pause before moving lower/ or higher on rates we want to return to cash. The cash is being held in reserve for what we expect to be a sell off in the stock markets into the fall when we want to place the money to work. We were too cute wanting to catch a panic profit from the Treasuries on a collapse in stock prices.
*****

1280 is the line in the sand on the S&P 500. We don’t expect it to reach that level before a rally attempt.
*****

1292.95 is the twenty day moving average on the S&P 500 and early morning trading is below that level.
*****

Chief Investment Officers at a Citigroup conference in Florida are not disturbed by the Thursday/Friday sell off according to CNBC. Of course not, they can always reprice their own options and increase their own salaries.
*****

We are seeing reports that some traders were looking for a Black Monday today similar to the Monday Crash back in 1987. Obviously whoever is looking for that scenario to unfold wasn’t around back then. The 1987 Crash occurred after the major market measures had already dropped 20% plus in the preceding month and was the culmination of a process not the beginning of a process. With the major measures only 2% off there five and six year highs there is a long way to go before a crash type set up will be in the markets. Stocks never crash off the top.
*****

Time Warner had a lousy release of a $160 million cost picture, Poseidon, which took in only $20 million at the box office. Oops. With the markets in unforgiving mood we decided to take our scratch profit in many accounts and re-visit TWX again in friendlier times.
*****

We are going to take our licks on MSFT and sell in many accounts for $1 plus loss with the idea of revisiting the stock or the XLK (which is a tech stock Exchange Traded Fund (ETF) with a large 11% MSFT exposure) at some time in the future. The Vista operating system is next year’s story. We had expected a rally in this period in May and as May moves on with the rally having difficulty we would rather have the cash than the commitment.

We also eliminated our holding in the PowerShares Drug company ETF for a 25 penny loss in many accounts. There again we may revisit at a future date and hopefully lower price.
*****

Japan was a net seller of Treasuries in both January and March. In March Japan sold $18.2 billion and in January Japan sold $16.6 billion. Since Japan has been the largest foreign holder of Treasuries and remains so these sales are significant.

Also the weakness in the dollar versus other foreign currencies while Treasury prices drop hurts foreign owners of Treasuries two ways and will eventually make Treasuries difficult to hold for foreigners if the double whammy continues.
*****

The Templeton Russia And Eastern European fund is down 20% in value in the last three days. TRF is still up 200% in the last year so shed tears only for recent buyers. And it is still priced at 10% more than underlying net asset value.
*****

At noon Oil is down $2.24 at $69.60 and Gold is off $33. the major measures are mixed with the DJIA up 11 points and the NAZZ is down 7 points. b volume is moderate and breadth is negative.
*****

Oil ended on its low at $69.41 down $2.63. Gold was off $26 to $685.

Treasuries were firmer with the two-year at 4.98% and the ten-year at 5.15%.
*****

The DJIA closed up 48 points at 11428. The S&P 500 was up 3 points at 1294 and the NAZZ lost 6 points to 2238.

Breadth was almost 2/1 negative and volume was active.

New lows exceeded new highs 320 to 100.

This is an expiration week and PPI comes tomorrow with CPI on Thursday. The Casino will be open for business again in the morning.
*****

 

12 May 2006 Extra Special Comment

The Faculty and Graduating Class
of the
University of Wisconsin - Madison
announce that
Christine Keller Lemley
is a canidate for the degree of
Doctor of Philosophy
in
Curriculum and Instruction
at the
Commencement Exercises
Friday afternoon, May twelfth
Two Thousand Six
five-thirty o'clock
Kohl Center


*****

 

10 May 2006 Daily Comment

Thoughts

This is the last post till Monday. We will be attending the graduation of Christine Lemley who receives her Ph.D. in Education on Friday at the University of Wisconsin, Madison.
*****

Japan was down over 1% overnight and Hong Kong was fractionally lower as the rest of Asian markets were mixed. Europe is also mixed.

Cisco had great revenue but disappointing earnings and was cautious going forward and that has tech stocks in a funk this morning. Gold is $703 and oil is pennies lower while U.S. futures indicate a mixed opening. Of course the big event is the 1:15pn Fed announcement at that will probably determine the course of the day’s action.
*****

Investors’ Intelligence has Bulls rising 1% to 44% and Bears dropping 1% to 26%.
*****

Just like in the U.S. there is no inflation in China. China’s economic planning agency reported that CPI rose at a 1.2% rate in the first quarter.
*****

The Congress has reached consensus on another $70 billion in tax cuts that will be paid for by our grandchildren. How brave our representatives in Washington are to pass another tax cut in the face of record budget deficits as far as computers can calculate.
*****

Helene Meisler at www.realmoney.com says it best about the current market environment. “Sometimes a rally is just a rally.”
*****

Oil inventories were 750,000 barrels more than expected and gasoline inventories were 1.5 million barrels more than expected. That is about the 50th week in a row that the inventory numbers have been more than expected. But gas remains at all time highs due to selective refinery outages that no one in government wants to investigate. In five years the governments will discover the collusion as they have five years later with the Enron et al electric shortage of 2001.
*****

We are adding Verizon at $32.50 to more accounts. It was about this time last year that we began buying the shares at $34 down to $29 and then sold the position early this year when we decided to go to cash. The stock then moved to over $35 and has now come back in. there are two reasons, one is that VZ wants to buy Vodaphone’s stake in VZ Wireless. The companies are dickering about the price. The immediate cause of the drop is that Time Warner has intimated that it wants to bid for wireless licenses with other cable companies to compete with AT&T and VZ. That reality is a long way off.

With a 5% yield and the MCI arbitrage over, we are now comfortable holding the stock for its eventual rise in price down the road. We are stressing comfort stocks and have most of our money in cash and bonds and will stay that way.
*****

Goldman Sachs begins coverage of Hansen Natural Beverages with an outperform rating. The share price in the last 12 months has gone from $38 to $178 and now they tell us about it. They see $230 or $4.5 billion as fair value. Revenues are about $600 million and Budweiser is going to begin distribution.

Snapple anyone?
*****

The Fed went to 5% and said more raises may be needed but then again they may not be.

Treasuries are lower in price and higher in yield on the news and stocks are mixed.
*****

Americans have $9 trillion in mortgage debt and $800 billion in credit card debt.
*****

According to CNBC Stafford student loan rates are going to go from 4.7% to 6.8%. That’s nuts.
*****

Demand for gasoline is weak but the price of gasoline jumped 2% because Valero is having problems at a refinery. Spin the wheel of fortune folks.
*****

Gold ended at $705.70 and Oil was $72.19 up $1.42. The big boys and girls are having fun today.
*****

Treasuries gave ground grudgingly with the two-year ending at 4.99% and the ten-year to 5.12%. The price of the two-year suggests that at least some traders think the Fed is close to pausing.
*****

According to USA Today for the first time in history the penny and the nickel cost more to produce than they are worth. The penny costs 1.23cents and the nickel 5.76 cents. But all those $20 and $100 bills the Fed prints make up for the loss.
*****

The DJIA closed down 2 pints at 11638. The S&P 500 dropped 3 points to 1322 and the NAZZ was off 18 points at 2320.

Breadth was negative and volume was light. New highs continued to contract to 400 and new lows expanded to 150.

And there are two more trading days at the Casino this week. We will be missing in action for the next two days but will be back and ready to spin the wheel and pull the handles on Monday May 15.
*****

 

9 May 2006 Daily Comment

Thoughts

Asia was lower overnight and Europe is mixed. After yesterday’s pause Dell’s earnings report last night was a disaster. There is only one more major Tech report and that is Cisco tonight.

The Fed decides on interest rates tomorrow (not today as we incorrectly wrote last night) raising the Fed funds target to 5% and issuing a statement that will be dissected ten ways to Sunday. And the statement will determine how the markets react at least for the day.

Ahead of the Fed, Gold is up $4, Oil is up a few pennies and Treasuries are flat to weaker on the long end.
*****

Deutsch Bank went from sell to hold on GM and the shares are up over $1 in the early morning trading. Dell is $2 lower.
*****

For the first time since going public, Dell is selling at a price that is less than sales and at a market multiple. The company has a market cap less cash on hand of under $50 billion and sales of about $55 billion. With $10 bill in cash on hand and no debt it is becoming interesting. But it still has one more bad quarter in the cards and so we are watching.
*****

UBS chain store sales for the week ended May 6 were (0.4%) versus up 0.7% the week before. We don’t’ think the Fed cares.
*****

Gold is now up $20 at $700 at 11:45am so the folks who bought gold 25 years ago and held on to it are now even. The DJIA is higher with GM helping that average and so the folks who bought the DJIA six years ago and held on to it are now even. The S&P 500 and NAZZ are lower. Breadth is negative but volume is light. Treasuries are higher in yield lower in price with the two-year at 4.98% and the ten-year at 5.13%. Is inversion in the cards?
*****

Europe closed higher.
*****

Gold ended at $701.50 up $21.50. Oil closed up $.92 at $70.65. Treasuries finished a bit weaker on the day awaiting tomorrow’s Fed meeting. The Treasury three-year came at auction at 4.995%. That’s the highest rate since January of 2001.
*****

The DJIA closed up 55 points at 11635 courtesy of GM. The S&P 500 was unchanged at 1325 and the NAZZ lost 5 points to 2440 in sympathy with the Dell sell off.

Breadth was flat on the NYSE and negative on the NAZZ. Volume was moderate and new highs contracted to 430 from over 500 while new lows were stationary at about 100.

And for sure tomorrow is the day the Fed meets and issues its 1:15pm announcement. We’ll be at the Casino ready to spin the wheel of fortune.
*****

 

8 May 2006 Daily Comment

Thoughts

With the S&P 500 in new high territory and well above the 1308 resistance which is now support the markets should move higher this week. Our guru continues to expect a turn this month and since inmost measures are on a high his guess is that the turn will come towards the end of May and be lower. Of course he also has the caveat that if it doesn’t come in May the turn may not come till August. There always have to be caveats.
*****

Overnight Shanghai was up 3.9%, Hong Kong was up 1.7% and Japan was up 0.8%. Europe is mixed and Gold is down $3.50 with Oil under $70 at $69.48 down 71 pennies.
*****

Takeover Monday is upon us. Wachovia is buying Golden West Financial for $25 billion. Rio Tinto may buy Alcoa and there are about three other billion plus acquisitions. Plus Buffet says he has a $15 billion buy in mind but is not sure of which one.
*****

Teck Cominco Ltd., a mining company, is offering $16 billion for Inco. Jim Cramer on www.realmoney.com says these buyouts are indicative how cheap stocks still are in this bull market.

Well, stocks were one third or less today’s price four years ago and no one was making buy out offers. In fact in 2003 Inco was priced at $3 billion.

Our take is that these buyouts are indicative of the megalomania of company presidents, the plethora of investment bankers trying to make a buck, and fee based money looking for things to buy or else it ahs to be returned to hedge fund investors. This game of musical chairs only occurs in bull markets and never in bear markets. We read of Buffet bemoaning the fact that his companies have $40 billion in cash and are reminded of Ford and GM in the 1990s who had had to do something with their oodles of cash. And so they went out and bought foreign car companies that have drained profits and prevented the forward looking planning that would have saved them from their current imbroglio.

This type of action is always the same when bull markets become frothy.
*****

Aetna has popped back up to $39 plus and we are going to eliminate the holding with a much smaller loss in our larger accounts than we had last week and a nice profit in some of our smaller accounts. The shares traded as low as $35.50 after we purchased them at $39.60 and we want off the roller coaster.
*****

CNBC, the financial cable station, is running a piece on organic farming and how Wal-Mart is getting into the business. We said before and will say again, Wal-Mart and Organic Farming are wrong for each other. So called organic milk production from 2000 cow dairy herds that live on concrete their short lives is not what organic farming is about. Organic farming is not only a business it is a philosophy and now that philosophy is being co-opted by big business. And that is too bad.
*****

We are buying Time Warner at $17.12 for most of the accounts that own MSFT. We think the company may move if the bull market run continues. TWX reported an upside earnings surprises this quarter and may finally have its house in order.
*****

We get e-emails

Bud;

I am beginning to see more articles from gloom and doomers and Chicken Littles about how the meteoric rise in commodities prices and the concomitant fall in the dollar is a harbinger of Weimar type hyperinflation which will lead to the fall of the overall economy (and soon). Don’t believe that, but it did give rise to a question as to how to re-allocate investments should we transition to such a scenario. In that case, how do you save yourself!??
*****

We respond:

Such stories always arise in bull markets as the folks who missed out try to reclaim ground by predicting what they hope will happen. We ourselves are in the Chicken Little camp and we usually are. We just ignore the hype from both sides (bulls and bears) and go along as we always have trying to make profitable trades and when we are negative on where the markets will be four months from now we hold most of our assets in interest bearing cash or as in the present case two-year Treasuries. We have been in the business since 1965 and there periodically have been threats of hyperinflation. It never occurs. Why we don’t know. We are a lot more worried about the loss of principal right now than we are about our dollars becoming worthless.

And if you really want to worry read this from the San Francisco Chronicle:

A third of Americans could become ill and overburdened hospitals might have to set up clinics in hotels and other public buildings to handle the sickened masses if a flu pandemic hits the United States.

Schools and churches might close. Air travel would be limited to emergencies only. Parents could temporarily lose their day care.

If the avian flu turns into a global epidemic, it could disable the U.S. economy, resulting in a loss of $600 billion of national income.

These scenarios, which at least one public health expert said aren't even the worst case, are part of a detailed, 234-page report released Wednesday by the Bush administration.

"This plan goes much deeper in identifying more specifically what needs to happen in a pandemic, in just about every area you could think of, from human health to animal health to infrastructure," said Jeff Levi, executive director of Trust for America's Health, a Washington, D.C., advocacy group that follows government disaster prepare plans. "I think it is a further demonstration of how serious the government is taking a potential pandemic. It's an unprecedented level of detail in terms of its planning and performance."

The report cites avian flu, the dreaded H5N1 strain that is carried by birds and has infected 205 people worldwide, as a potential source for the next pandemic, although it has yet to mutate into a form that can be spread from person to person. The report warns that even if the avian flu never becomes a global health threat, "another novel influenza virus will emerge ... and threaten an unsuspecting human population."

Based on records from the last major pandemic, in 1918, the report projects that a modern flu pandemic could infect 30 percent of the global population -- and up to 40 percent of children in schools -- and kill up to 2 percent of those sickened. In the United States, that would mean up to 2 million deaths.

The report calls for stockpiling enough antiviral medication to treat 75 million people in the United States, and for developing a vaccine to immunize 20 million. Creating and distributing those treatments would fall to the federal government -- but most of the burden of health care and containment would fall to state and local governments, which are hastily coming up with their own plans to survive a pandemic.

"This isn't Hurricane Katrina, where it's just in Louisiana, or the Northridge earthquake, where it's just in Los Angeles. It's everywhere at the same time," said George Rutherford, director of the Institute for Global Health in San Francisco. "The federal government won't have the resources to treat everybody."

Health experts said Wednesday that hospitals are likely to have the toughest time keeping up. Every hospital would run out of beds -- possibly in just a couple of weeks. Teaching the public how to care for the sick at home would be crucial, they said.

At Stanford University Medical Center, emergency planners said they could use dorms on the university campus -- where classes would likely be canceled and students sent home -- or nearby hotels as clinics for flu patients.

"Initially, you determine how you can surge within your own institution by increasing patient capacity and decreasing your patient load. And then you look beyond your four walls to developing influenza care facilities," said Eric Weiss, chair of the hospital's disaster preparedness committee. "We'd need to triage people and those who didn't need hospital beds would be cared for at home."

Amy Nichols, director of infection control and hospital epidemiology at UCSF Medical Center, said the hospital has already contacted sources to make sure emergency supplies are packed and ready to be trucked from warehouses in a major outbreak. But with hospital staffs sickened by the flu and a shortage of beds, she, like Weiss, said it will be up to communities to take care of their own.

"I know in many areas the neighborhoods are developing plans for getting organized, so there's a system of identifying who has ill people in their homes," Nichols said.

State public health officials hope to have a detailed strategy for handling a flu epidemic by summer, when it might need further revisions based on the new federal plan, said Mark Horton, chief deputy director of the state Department of Health Services

The health services department has requested funds to buy 270,000 doses of antiviral medication, but with the federal report insisting that communities need enough doses to treat 25 percent of the population, Horton said that number will have to be revised. And he said it would be at least a year before even 270,000 were available.

In the Bay Area, hospitals and public health agencies have been working for months or years on community response plans to a flu epidemic. San Francisco, for instance, hopes to have a complete pandemic flu plan by the end of the year, said Mary Ellen Carroll with the Department of Public Health.

The federal plan released Wednesday suggested that businesses look for ways to keep employees away from each other -- letting people work from home, for example, or creating staggered shifts. People will be encouraged to wear masks, and to voluntarily quarantine themselves if someone in their household is sick.

In a worst-case scenario, Rutherford said, a pandemic would mimic any other natural disaster, only with a protracted time of suffering and recovery.

"Stores might be closed. Gas stations might be closed. If everyone's sick, who will restock the ATM machines with cash? You might not be able to buy stuff like you can now," Rutherford said.

Even borrowing necessary supplies from neighbors might not be an option, he said. Who's going to open their door in the middle of a deadly epidemic?

"If bird flu crosses over to humans, there will be a lot of people sick," Rutherford said. "As the public health measures start to ratchet up, events will be canceled and services closed, and people are going to start staying in their houses. Nothing like that has ever really happened before.
*****

According to CNBC, only nine of the DJIA 30 are higher than they were at the last record high six years ago.
*****

Gold closed down $4.40 at $679.90. Oil ended at $69.77 down 42 pennies.
*****

Treasuries were lower in price higher in yield as traders positioned themselves for tomorrow’s Fed announcement at 1:15pm. The two-year closed at 4.97% and the ten-year was 5.12%.
*****

The DJIA closed up 6 points at 11584. The S&P 500 lost 2 points to 1325 and the NAZZ rose 3 points to 2345.

Breadth was positive on the NYSE and negative on the NAZZ. Volume was light and there were over 500 new highs and about 100 new lows.

And tomorrow is the big day of the week at the Casino as the Fed decides to let us know whether a pause refreshes or not.
*****

 

4 May 2006 Daily Comment

Thoughts

We are going to be traveling later today and tomorrow so this will be our last post until Monday.

Japan was closed overnight and the rest of Asia was mixed. Europe is mostly higher and U.S futures are suggesting a higher opening. Treasuries, gold and oil are all a bit weaker.
*****

We get e-mails:

Bud: Your comment today omitted any reference to the MSFT problem with Google and possible tie up with Yahoo. According to WSJ article the sell off was related to the comment by Microsoft executives that "they will need to boost investments in online businesses in the next fiscal year to levels far higher than Wall Street had expected. In addition, Microsoft said the MSN unit fell into the red and its revenue declined. Apparently this is related to the pressure Microsoft faces from Google. Is Wall Street wrong in its assessment of the Microsoft's problems?  Jim

We respond:

Jim, we don't know. But we do know Wall Street does have opinions and our guess is that shorts are ganging up on the stock because the only large buyer is the company and they aren't going to buy all the stock offered by institutions tired of holding MSFT or looking for momentum plays. The basic reason it is under pressure is that the Vista operating system has been pushed back to next January or the spring depending on who is talking. Missing the Christmas season is big but eventually the system will be sold and everyone will have to buy it.

In the meantime earnings are at a record, the shares are selling at 16 times earnings and the company generates free cash flow of $8 billion per year with $40 billion cash on hand. Quarterly earnings and sales are growing around 15% per year which is their market multiple. The way the stock price is acting one would think it was losing money. We really never have been fans of Gates but at these prices and lower we think the stock is worth acquiring and adding to. B
*****

More E-emails

Congratulations to Ms. Lemley. I never met her but I'm sure she's a great person.  For years Wall Street Week was the only TV program I watched.  Now I don't watch it at all.  It is odd that Rukeyser and Galbraith should die within days of each other.  I think that Galbraith was obviously wrong about practically everything (e.g. that GM would rule the world forever) but he was an interesting personality.  It will be interesting to see what William Buckley (who's now 80) has to say.  They were great friends and adversaries for many years.  D.E.

We respond:

Thanks for the nice compliment. She is a very nice person, just like her mom.

GM is still doing a good job of affecting the U.S. economy. Now Exxon rules the world but the idea is the same.

And another e-email:

When I would drive home from Bloomington, IN to visit my mother she would often have Rukeyser on when I came in the door.  That was in the 70s and 80s.  He had a serene, calming effect on people.  R.
*****

Jobless claims were up 5000 to 322,000. Productivity was better than expected up 3.2% but unit labor costs were up 2.5% when only 1.2% was expected. Treasuries are lower in price higher in yield on the unit labor cost number with the five-year back over 5% for the first time in a week.
*****

Investors Intelligence for the week had the least bulls and most bears since the middle of March. The numbers were 49% bulls and 26% bears. As a contrary indicator that is bullish. Our tech guru is calling for the rally to get going today or tomorrow or time will begin working against a rally.
*****

Oil is sitting right on its trend line and a break might let oil drop to $66 which would help the rally scenario.
*****

BankAmerica reiterated its buy rating on MSFT and forecast worse case earnings of $1.40 for the fiscal year.
*****

The drop in Aetna’s share price yesterday was occasioned by another insurer Cigna reporting bad numbers and a drop of earnings of 17%. We know the medical/cost ratio of all the health insurers is the bugaboo in this earnings season but Aetna actually reported higher earnings and sales and said in its second conference call that premiums would catch up in the third and fourth quarters of the year.

Aetna's first-quarter earnings rose from a year ago, beating estimates, and the insurer lifted full-year guidance.

Aetna earned $401.7 million, or 68 cents a share, in the quarter, compared with $389.3 million, or 64 cents a share, a year ago. Adjusted for investment gains and other items, Aetna earned 64 cents a share in the quarter, beating the Thomson First Call consensus by a penny.

Total revenue rose 15% from a year ago to $6.23 billion, also beating estimates, which stood at $6.01 billion.

In Aetna's biggest unit, health care, operating earnings rose to $360.6 million, from $286.5 million, excluding items, a year ago. The increase primarily reflected "higher membership levels across all products and premium and fee rate increases, as well as solid underwriting results and continued general and administrative expense efficiencies," Aetna said.

"Our operating earnings per share increased by 31% over the prior-year quarter. Our medical membership increased by approximately 663,000, well above our prior guidance of 575,000. In fact, we experienced strong growth across all of our health care product lines: medical, dental, pharmacy and behavioral. And our administrative cost ratio declined by 150 basis points," Aetna said.

For 2006, Aetna raised adjusted earnings guidance to $2.74 to $2.76 a share, from $2.71 to $2.74 a share. Analysts were forecasting $2.76 a share, according to Thomson First Call. The stock closed at $46.42 Wednesday, 16.8 times the high end of the new 2006 guidance.
*****

Aetna Inc. President and Chief Executive Ronald A. Williams bought more than $1 million worth of his company's stock just days after the health-insurance company lost 20 percent of its market value. Williams reported buying 26,000 Aetna shares on Tuesday for an average price of $39.08 each, according to a filing with the Securities and Exchange Commission.
*****

JP Morgan cut Aetna from over weight to neutral. At $51 they thought is should be over weighted in portfolios. At $37 it should be neutral. Actually the drop in price probably took it from an overweight to a neutral position.
*****

There are rumors that a large health care fund is being liquidated which would account for the weakness in biotech stocks and the continued sell off on the health insurers.
*****

We’ve been wanting to gain some exposure to drug and biotech stocks and today we purchased as an investment and not to trade shares in an Exchange Traded Fund (ETF) that owns both ethical and biotech pharmaceutical stocks. The symbol for the fund symbol is PJP and with the name of PowerShares Dynamic Pharmaceutical Portfolio.

List of All Holdings as of: 12/30/2005

 

 

 

Product Name

Symbol

% of Market Value

 

Eli Lilly & Co.

LLY

5.54%

Pfizer Inc

PFE

5.32%

Wyeth

WYE

5.28%

Merck & Co., Inc.

MRK

5.08%

Abbott Laboratories

ABT

5.00%

Johnson & Johnson

JNJ

4.78%

Amgen, Inc.

AMGN

4.71%

Genentech, Inc.

DNA

4.70%

Cephalon, Inc.

CEPH

3.38%

Allergan, Inc.

AGN

2.93%

King Pharmaceuticals, Inc.

KG

2.87%

Schering-Plough Corp.

SGP

2.87%

Barr Pharmaceuticals, Inc.

BRL

2.85%

First Horizon Pharmaceutical Corp.

FHRX

2.81%

Celgene Corp.

CELG

2.80%

Alpharma, Inc. Class A

ALO

2.78%

Bristol-Myers Squibb Co.

BMY

2.78%

Forest Laboratories, Inc.

FRX

2.78%

Ivax Corp.

IVX

2.78%

Pharmion Corp.

PHRM

2.77%

Medicis Pharmaceutical -Cl A

MRX

2.70%

Endo Pharmaceuticals Holdings, Inc.

ENDP

2.68%

Gilead Sciences, Inc.

GILD

2.62%

Watson Pharmaceuticals, Inc.

WPI

2.59%

Icos Corp.

ICOS

2.57%

Genzyme Corp.

GENZ

2.54%

Mylan Laboratories

MYL

2.54%

Millennium Pharmaceuticals, Inc.

MLNM

2.41%

Sepracor Inc

SEPR

2.35%

Kos Pharmaceuticals, Inc.

KOSP

2.04%

Cash

CASH

0.16%

The above information may not be representative of all holdings.
*****

As we head out the major measures are higher and oil is down pennies while gold is now $7 higher. Treasuries are lower in price, higher in yield, with the two-year at 4.95% and the five-year at 5.03% and the ten-year at 5.15%.

There is not post tomorrow but the casino will be open for games of chance and the Kentucky Derby is Saturday.
*****

 

3 May 2006 Daily Comment

We are pleased to announce that Christine Lemley has successfully completed her course work, dissertation, and yesterday her oral exam and will graduate on May 12, 2006 from the University of Wisconsin at Madison with a PhD in Education.

Thoughts

Asia was up big overnight with Hong Kong, Japan and Singapore all up close to 1% or better. Europe is lower and U.S. futures suggesting a higher opening.

Our guru tech considers yesterday’s close on the S&P 500 a confirmation of a breakout and looks for a rally higher. His problem is that he sees the rally ending at the end of May so the rally is going to have to occur quickly and may be sharp- or so he says.

PG's earnings and sales were less than exciting for traders and the shares are trading lower.

Gold is up its usual $7 in early morning trade and oil is off pennies. Treasuries are weaker as the day begins.
*****

Mother Merrill strategists changed their sector weightings on Wednesday in favor of industrials, technology, materials and financials. The firm cut its recommended weighting on health care, consumer staples and utilities. It made no changes to its overweight rating on the telecommunication sector and equal weight rating on the energy sector. Merrill adjusted its sector weighting to better position its model portfolio against a weakening U.S. dollar, strategists wrote.
*****

Louis Rukeyser of Wall Street Week fame died yesterday. He created financial television and was a must watch every Friday night in the 1980s. And we neglected to mention that John Kenneth Galbraith died over the week-end. His NYT obituary is here: http://www.nytimes.com/2006/04/30/obituaries

It’s interesting that CNBC is spending time today remembering Rukeyser with his picture all over the tube while they didn’t even mention Galbraith’s death.
*****

Mother Merrill’s chief guru Richard Bernstein raised his equity allocation from 40% to 50%. Minyanville is saying that he went from 30% to 40% equities and from 45% to 30% on bonds and from 15% to 20% cash. We’ll just say he changed his allocations.
*****

Oil is down $1.76 and oil stocks are lower at midday taking the major measures lower. PG is down $2.50 and drug stocks are lower while biotech is higher which is the reverse of yesterday. Treasuries are a little weaker and Gold has given back most of its early morning gains. Breadth is 2/1 negative.
*****

We had to take a few hours off to tend to a wounded horse. The Vet sewed her up and hopefully everything will be all right.

Microsoft made another new low on large volume. We guess it is never going to sell another operating system. The share price is now at 15 time earnings. it is a value stock in a momentum market.

While we were gone Aetna did another falling knife routine. We are stuck with it right now. It dropped because Cigna Insurance reported the same type of earnings problem this morning that Aetna did a few days ago. Cigna is down $13. Hopefully the sellers in AET will finish soon. We are going to try and ride the storm out for a while, at least.
*****

Oil ended the day down over $2 at $72.30 and Gold was over $1 lower at $667.

Treasuries ended weaker with the two-year at 4.93% and the ten-year at 5.13%.
*****

The DJIA closed down 16 points at 11401. The S&P 500 lost 5 points to 1308 and the NAZZ was down 5 points to 2305.

Breadth was negative and volume was moderate. There were about 380 new highs and 140 new lows.

There are two more days left for folks to place their bets in the big casino and then the Kentucky Derby will be up for the week-end action.
*****

 

2 May 2006 Daily Comment

Thoughts

Verizon reported earnings of 60 pennies beating expectations by a penny. Revenues were $22.7 billion versus $22.9 expected. Those earnings were down form last year but the revenue gains of the different segments were in the most profitable areas and Verizon Wireless revenues were up 18%.
*****

Overnight Japan and Hong Kong were both up over 1% and Europe is mostly higher as are U.S. futures. The long end of the Treasury market has regained some of the yield surrendered in the last few minutes of yesterday’s trading although the short end remains under pressure. Oil is over $74 and Gold is $661.
*****

In our larger/aggressive accounts we sold out T for a ten penny loss in some accounts and a small profit on others. T’s price seems to have some kind of top at this level with BLS in the merger arbitrage. Also we wanted to use the money to re-purchase Aetna without increasing our exposure too much.

We re-purchased AET at $39.57 after the CEO held a second conference call to clarify his first conference call. It seems that leader type folks are having a tough time saying what they mean.  In that call he reiterated that the third and fourth quarters are going to be good. Anyway, since AET is still down $8 from the days before earnings and we think there is some room left to trade.
*****

A fire erupted in Iraq's Ministry of Oil on Tuesday and badly damaged two floors, police sources said. The cause of the blaze was not immediately clear. The sources said the second and third floors were heavily damaged. Insurgents sometimes fire mortar bombs at the nearby Ministry of Interior.

That says it all about Iraq. Ahmed Chalabi was probably burning some records.
*****

Bolivia is nationalizing its natural gas industry and there are rumors that all the extractive industries in Bolivia will be nationalized. Some silver and gold stocks are down on the news.
*****

At noon the major measures are higher on the backs of oil stocks and large cap exporting industrial names like CAT and Boeing. Breadth is mildly positive.
*****

The Gartner group which is a tech research group that Wall Street listens to says that the new MSFT operating system called Vista will not be available till the second quarter of 2007. MSFT is sticking with its timetable of late November for volume customers and January 1 for retail but some traders are siding with the Gartner Group as MSFT slips another 25 pennies in active trading to $24. We bought to own for a while and it looks like we will.
*****

Watching CNBC, and reading trading blogs and newspapers suggest that we are in the midst of a greed induced buying panic and need by the big boys and girls to keep up with their benchmarks. This may go on for a while but we do think it will end scarily.
*****

The increase in the price of oil is not included in the core inflation numbers. And as the price rises the slowing effect on the economy is going to do a better job than the Fed’s need to raise short term rates.
*****

We’re afraid Verizon is going to be a dog until they do the Vodaphone deal. CEO Seidenberg mentioned again today that they would like to buy the 44% of Verizon Wireless that VOD owns but that there are no current talks. But as VZ Wireless grows at an 18% clip each quarter the price just gets higher and higher. VZ is probably offering VZ stock which would be best for current shareholders but VOD would want a large chunk of cash also. VZ has 52 million subscribers and the price for VOD’s interest (23 million subscribers) based on what SBC paid for  AT&T Wireless two year ago ($30 billion for 15 million subscribers) has to be over $40 billion.
*****

We just wrote the above piece without reading any news and then saw a report on Reuters that said that VZ had offered $40 billion but VOD wanted $50 billion. That sound like a slow motion negotiation is occurring.
*****

We will add to accounts and add to existing VZ positions if it moves lower because once the deal is finished VZ will be set to perform. With the investment banking fees involved we are sure the deal will get done. And with an almost 5% yield is pays to wait it out.
*****

As MSFT makes a new low and the major measures are pushing higher with a new all time high on the NYSE composite (all the stocks listed on the NYSE).
*****

Gold closed up another $7 and $667. Oil ended higher at $74.60.
*****

Treasuries firmed into the close with the two-year at 4.92% and the ten-year at 5.12%.
*****

The DJIA closed up 75 points at 11420. The S&P 500 rose 8 points to 1313 and the NAZZ gained 6 points to 2310.

Breadth as 2/1 positive on the NYSE and 5/4 to the good on the NAZZ,

Volume was moderate and new highs contracted to 375 while there were 170 new lows.

And the there are three more days to spin the wheel at the casino this week.
*****

 

1 May 2006 Daily Comment

Thoughts

Happy Mayday to all our fellow travelers.

The S&P 500 begins May poised on the 1310 support/resistance line with the easier direction seeming to be up than down. And since May tends to be a kind month to the markets we may have a move higher before the summer doldrums set in.

Iran is talking the conciliation talk with some big buts thrown in and we presume the U.S. will talk the tough talk with no leeway. Commodities were tamed a bit at the end of last week but this morning Gold is back up $5.50 to $660 and oil is over $72 up 57 pennies.

Hong Kong was closed overnight and Japan was up a bit while Europe is closed for Mayday. U.S. futures are firm as are Treasuries in the early going.

And so begins another week in the big casino.
*****

Humana’s first quarter profits were down 22% but above expectations. That’s a great game.
*****

Person Income was up 0.8% versus 0.4% expected, Personal Consumption was up 0.6% versus 0.4% expected and the inflation indicator the Fed likes to watch was the Core PCE Deflator month/over/month was up 0.3% when 0.2% was expected. The nervous Treasury market is off a bit on the short end on the news.
*****

The DJIA remains positive at mid-day but the NAZZ is in negative territory and Oil is up $1.52 at $73.40. Treasuries are now weaker with the two-year at 4.94% and the ten-year at 5.13%.

Volume is slow and the commodities markets are where the action is.
*****

Stephen Roach, the chief global economist of Morgan Stanley has turned bullish, after being bearish for the last many years. He says the world economy is improving and that the powers that be are now focused on the problems of the U.S. Current Account Deficit as evidenced by the communiqué from the last G7 meeting. And now his job is safe.
*****

Oil closed at $73.70 up over $1.50and gold finished at $660 up $5 plus.
*****

Towards the close of Treasury trading Maria the Mouth on CNBC reported that Fed Chairman Bernanke said the markets misunderstood his testimony and that he is not dovish just watchful or some such tripe. As a result Treasuries gave ground more ground near the close as the two year ended at 4.95% and the ten-year at 5.15%.

Banks stocks also reversed their gains for the day and headed lower.
*****

The DJIA gave up the ghost in the last hour on the CNBC comments to close at 11345 down 20 points. The NAZZ was down all day ended down 20 points at 2302. The S&P 500 remained glued to the 1310 support/resistance number most of the day and closed at 1305 down 6 points.

Breadth was negative and volume was moderate. There were 400 new highs made before the markets turned lower in the closing hour and 170 new lows.

The big casino is open for all types of games of fortune tomorrow.
*****

 

 

 

 

 

 

 

 

 

 

 



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