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.
The Chicago Purchasing Managers Index was 61 versus
an expected 56 and 57 last month.
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. *****
Two hours into the day’s session
stocks are higher on the rebound and the drop in oil prices.
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.
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." *****
over 1% higher today reversing yesterday’s losses and Mexico is down 1% while Brazil is up fractionally going into their
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.
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
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 .
30 May 2006 Daily Comment
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
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.
Stocks opened lower and the DJIA
is down 90 points at .
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.
After and hour of trading all
thirty Dow stocks are lower with GM and WMT both off over $1.
We added shares of SYMC to more accounts today at $15.65.
Three hours into the day Europe
is down 2% as is Mexico
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.
Cisco broke $20 to the downside this 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.
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%.
The dollar is being smacked down
The minutes from the May Fed
Meeting will be released tomorrow.
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.
26 May 2006 Daily Comment
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.
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.
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.
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.
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
Oil ended at $71.37 up 5 pennies and Gold was up $1.10 at $652.10.
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
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. *****
25 May 2006 Daily Comment
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
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.
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 indexis 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.
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.
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
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
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
Treasuries are moving higher in
yield lower in price after the five-year note sale at 4.945% was not well
Oil closed in New York
at $$71.35 up $1.49. Gold was up $11
Treasuries ended weaker with the two-year ended at 4.96% while the ten-year
finished at 5.07%.
closed up 4% and Mexico
was up 2.8%. These are wild times in trader land.
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.
24 May 2006 Daily Comment
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%.
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.
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?
Mother Merrill is recommending GM. Rally time.
Copper is down 7% in early
trading after being limit up yesterday. Jack be nimble Jill be quick when
trading in the copper pit.
ABN-AMRO and GE are buying $2
billion in non-performing loans from Italy’s
Unicredito Bank. No price was given.
and Mexico are
down another 2% this morning.
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.
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.
The FTSE, which is the London
Stock Exchange, lost 1.7% to close underwater for the first time this year.
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
Breadth is now 2/1 negative at and the dollar is almost 1% higher versus
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.
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.
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
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
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.
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/.
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
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
Volume was brisk.
And there are two more days left
at the Casino before the three day week-end.
23 May 2006 Daily Comment
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.
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.
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
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.
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
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%.
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.
22 May 2006 Daily Comment
“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
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
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.” *****
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.
going along with the other bourses with France
down over 1% and the other countries showing sizable losses.
futures are indicating a lower open.
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.
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%
Other than those two issues we are
in a watch and watch mood.
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.
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.
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.
The company DreamWorks had respectable attendance figures for its new cartoon Over
the Hedge at $37.2 million.
Shares Yahoo rose 1.6 percent before the bell after a Barron's newspaper
report said the stock was poised for a rebound.
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. *****
"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
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.
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.
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.
down big-time with all the bourses off over 2% or more and Norway
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.
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
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.
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%.
Brazil was down 3.8% on the day with Mexico over 4% lower. *****
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
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.
19 May 2006 Daily Comment
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
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
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
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
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.
1257 is the two hundred day
moving average on the S&P 500 and the next logical support area.
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.
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.
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.
16 May 2006 Daily Comment
We are traveling
tomorrow and Thursday and so the next post will be Friday May 19.
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.
We get e-emails:
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
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
Consumer Confidence Index topped 50 for the first time since June 1990. Over 50 signifies confidence in the economy.
Margin requirements for Gold,
Copper and Silver were raised on the NYMEX yesterday for the second time this
PPI ( Producer Price index) was up 0.9%, Core PPI (ex allthe
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%. *****
Housing starts were down 7.1% and building permits were down 5.4%.
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
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
theprice 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
15 May 2006 Daily Comment
We wish a happy 93rd birthday to our mother.
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 profitin 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.
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
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.
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
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
University of Wisconsin - Madison
Christine Keller Lemley
is a canidate for the degree of
Doctor of Philosophy
Curriculum and Instruction
Friday afternoon, May twelfth
Two Thousand Six
10 May 2006 Daily Comment
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.
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.
economic planning agency reported that CPI rose at a 1.2% rate in the first
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
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
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 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
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
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?
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
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
And for sure tomorrow is the day the Fed meets and issues its announcement. We’ll be at the Casino
ready to spin the wheel of fortune.
8 May 2006 Daily Comment
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
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
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
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 farmingis 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
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!?? *****
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.
churches might close. Air travel would be limited to emergencies only. Parents
could temporarily lose their day care.
avian flu turns into a global epidemic, it could disable the U.S. economy, resulting in a loss of $600
billion of national income.
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
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."
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."
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.
calls for stockpiling enough antiviral medication to treat 75 million people in
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.
isn't Hurricane Katrina, where it's just in Louisiana, or the Northridge earthquake, where it's
just in Los
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
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 StanfordUniversityMedicalCenter, 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.
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
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.
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.
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
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
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.
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.
worst-case scenario, Rutherford said, a pandemic would mimic any other
natural disaster, only with a protracted time of suffering and recovery.
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.
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?
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
According to CNBC, only nine of the DJIA 30 are higher than they were at the last record high six years
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 .
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
We are going to be
traveling later today and tomorrow so this will be our last post until Monday.
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
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 *****
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.
Thanks for the nice compliment. She is a very nice person, just like
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.
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.
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
% of Market Value
Eli Lilly & Co.
Merck & Co., Inc.
Johnson & Johnson
King Pharmaceuticals, Inc.
Barr Pharmaceuticals, Inc.
First Horizon Pharmaceutical
Alpharma, Inc. Class A
Bristol-Myers Squibb Co.
Forest Laboratories, Inc.
Medicis Pharmaceutical -Cl A
Endo Pharmaceuticals Holdings,
Gilead Sciences, Inc.
Watson Pharmaceuticals, Inc.
Kos Pharmaceuticals, Inc.
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.
Asia was up big
overnight with Hong Kong, Japan
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
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 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
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
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%.
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.
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.
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 forAT&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
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
Happy Mayday to all our fellow
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.
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.
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
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 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
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
The big casino is open for all
types of games of fortune tomorrow.
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