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31 May 2007 Daily Comments

Thoughts

Sell in May and go away. It looks like we are the only folks with that aphorism in mind this year.
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Wachovia is buying (for $6.8 billion) AG Edwards, the St Louis based brokerage house, at the top of the market. As with all the companies being acquired this year we wonder what these buyers were thinking in 2003 when the current crop of buyout candidates were priced at half or less of their current level.
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Asia was higher overnight with Shanghai up 1.4% and many European bourses are up over 1% at midday. Treasuries are flat ahead of GDP data release at 7:30am and Oil is down what it was up yesterday and Gold is up $3 in early NYC trading.
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First Quarter Preliminary GDP annualized was up 0.6% revised from 1.3% and with the core PCE (inflation) at 2.2%. Jobless claims for the latest week were 310,000.

The press release on GDP said: "The economy grew at a 0.6% annualized pace in the quarter, revised down from the initial estimate of 1.3%, the government said in its second estimate of quarterly gross domestic product. It was the slowest growth since late 2002."

Another agency of the Federal Government is reporting that home prices rose, albeit at a 0.5% rate, in the first quarter of 2007. So maybe we should take the GDP numbers with many grains of salt.

U.S. home prices increased 0.5% in the first quarter, the slowest quarter-to-quarter price gain in 10 years, the Office of Federal Housing Enterprise Oversight reported Thursday.
The OFHEO price index shows home prices are up 4.3% compared with a year earlier, the smallest gains in 10 years. Price appreciation has slowed sharply from a 13.7% year-over-year gain in 2005.
"
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The gurus are saying a weak economy is good because the Fed will have to lower interest rates. Our take is that as long as the stock markets are strong there is no way the Fed will lower rates.

But we are in a momentum market where bad news is good and good news is even better news. That is what yesterday’s action was all about. That and the fact that it is month end.
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We incorrectly stated in yesterday’s post that the transaction tax on Chinese stocks was 0.3 Yuan. The increased tax is 0.3% of the value of the transaction according to the NYT. If the U.S. imposed such a tax the budget deficit would disappear. By the way there is a rule in China that the share price of any individual stock can only drop by 10% in one trading day.
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U.S. retail milk prices have increased about 3 percent, or roughly a dime a gallon, this year, according to the U.S. Department of Agriculture. But University of Illinois dairy specialist Michael Hutjens forecasts further increases of up to 40 cents a gallon for milk over the next few months and up to 60 cents for a pound of cheese. Hutjens and others said higher gasoline prices have increased the costs of moving milk from farm to market, and corn — the primary feed for dairy cattle — is being gobbled up by producers of the fuel-additive ethanol. The USDA projects that 3.2 billion bushels of this year’s corn crop will be used to make ethanol, a 52 percent increase over 2006. Ethanol has increased the average American's grocery bill $47 since July, and Iowa State University study concluded.
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A taxi medallion which represents the right to drive a taxi in NYC recently changed hands at $600,000. The first taxi medallions were sold in 1937 for $10. As recently as 2001, taxi medallions changed hands for $200,000. There are almost 12,000 taxi medallions for NYC.

When will the MERC begin trading futures on NYC taxi medallions?
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Stifel Nicklaus and Raymond James which are two other regional brokerages are both up 7% in price today in response to the buyout bid for AG Edwards. This mimic buying is a good indication of a speculative market.
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Gold closed up $7 at the sign of the devil $666.70. Oil gained 51 pennies to $64. Treasuries were lower with the two-year at 4.91% and the ten-year at 4.89%.

European bourse indexes closed higher with many up over 1%. Mexico was higher but Brazil was lower.

The DJIA closed down 7 points at 13625. The S&P 500 gained 1 point to 1531 and the NAZZ jumped 12 points to 2604.

Breadth was 5/4 positive and volume was moderate.

New highs expanded to 560 and there were 60 new lows.

May you have a good night.
*****

 

30 May 2007 Daily Comments

Thoughts

Asian contagion is on the loose again this morning as Shanghai sneezed and European and the US. Markets caught the drift. Shanghai was down 6.5% overnight supposedly in response to the tripling of the stock transaction tax from .01 to .03 Yuan by the Chinese stock authorities in a bid to cool stock market speculation. They succeeded at least for a day.

The rest of Asia was lower and European bourses are lower by over 1% at midday. U.S. stock measures are going to open down about 0.5%. Treasuries have a bid and Gold is down $2 while Oil is up 30 pennies.
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The 20 day moving average on the S&P 500 is 1510 and it held at the down opening. That is bullish. After an hour of trading stocks have now recovered and are trying to reach positive. With month end upon us it will take another big downer in Shanghai tonight (tomorrow) to move U.S. stocks substantially lower before Friday and the Employment report.
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Reuters reports:
Four of the 11 stocks Jim Cramer recommended on his CNBC program "Mad Money" on Tuesday touched 52-week highs on Wednesday.

The momentum stocks are now the stocks designated as takeover targets by gurus who suggest that LBO firms will be interested. We are not entranced.

Today’s rally after last night’s drop in Asia is giving us a chance to sell some more issues.

We are going to take some more money off the table today by selling Motorola, Gap, Sprint and GE. Sprint and Gap are LBO candidates but…..

This will raise a good deal of cash. We would rather take our small amount in the market out early than late.
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Why are we selling those stocks? First of all, all stocks are anchovies. We have done well over the last ten years trading stocks and going to cash when we perceive risk in the market place. Currently, we perceive risk. The popularity of all forms of gambling and the idea that poker is not a game of chance but a scientific enterprise has permeated our culture. We laugh at the fact that 200,000 folks a day are opening stock trading accounts in China but we don’t bat an eye when Jim Cramer suggests a stock and it goes up 10% in ten minutes.

We have seen it all before from Joe Granville to Dan Dorfman to Jim Cramer; from Jimmy Ling and Charles Bludhorn to the Hunts; From Penn Square, to Drexel and Mike Milken, to Long Term Capital; from the creation of Gulf & Western to the Gold bull market of the late 1970s to real estate and movie limited partnerships and annuities in the early 1980s, to the 1987 Crash and junk bonds and the failed buyout of United Airlines at $180 per share in October 1989, to internet stocks, and now to every company with cash flow as a buyout target. Folks do make money. And one person wins the World Championship of Poker. The other 10,000 who entered lose all their money.

Sprint is undervalued in relation to VZ and AT&T but it is not overvalued in relation to its own earnings and revenues. Sprint is undervalued only if an LBO firm buys it. And we don’t like the fact that S is borrowing money to repurchase shares when it already has $20 billion in debt.

Motorola is in play because Icahn owns shares and everything he buys goes up—until it doesn’t. If he didn’t own it MOT would be selling at $15.

GE is cheap relative to other big cap stocks. But the big cap boom may have run its course as the momentum folks look elsewhere. And GE has been a source of cash for large institutions for the past few years as it was extremely over owned during the Jack Welch era. We have an idea that he picked Immelt as CEO so that he wouldn’t be out performed. And he left Immelt with a stock at 25 time earnings that should sell at 15 times earnings.

The Gap is a buyout/recovery candidate. We don’t know what the Fishers will do. They control the company and think that they themselves made it great. They didn’t, Mickey Drexler did. As with Motorola and Sprint and GE we are hoping to buy shares of GPS at lower prices later this year.
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Gold ended down $5 at $658 in NYC. Oil rose 32 pennies to $63.57. Treasuries were flat at day’s end with the two-year at 4.89% and the ten-year at 4.88%.

European bourses recovered most of their midday losses by their close as the U.S. markets rallied. Brazil was up 1.4% and Mexico was 1.9 % higher.
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There was a record close for the DJIA and the S&P 500 just made it to a new all time record. No such luck on the NAZZ as it is at 50% of its all time high. Folks aren’t worried about the Gulf War games. Heck, most don’t even know they are occurring. By today’s action the big boys and girls are saying China will be higher tonight. And it is month end.

The DJIA gained 110 points to close at 1330. The S&P 500 was up 12 points to 1530 and the NAZZ gained 20 points to 2592.

Breadth was 2/1 positive on the NYSE and 5/4 positive on the NAZZ and volume was active.

There were 315 new highs and 95 new lows.

Good night.
*****

 

29 May 2007 Daily Comments

Thoughts

The prince and princess are arriving today for the rest of the week and so we will be in and out. Moreover as we begin the day our phone system is out but the message service is taking calls and so we will return them as soon as the phones are working.
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Consumer Confidence in May was 108 versus 106 last month.
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Asia was mixed overnight with Shanghai up over 1.5%. Europe is mixed and Oil is down over $1 with Gold up $3. Treasuries are weaker.
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As the end of May and time to go away approaches we want to continue raising cash. There are rumors that Boston Scientific is going to have some more bad news for its Taxus stent. We own for a trade and for the longer term its best possibility is as a takeover target. That won’t happen until the stent controversy is resolved. We are going to take our 40 pennies loss and move on.
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The Chinese government has sentenced the head of its Drug and Food agency in China to death for corruption. And in Japan a department minister committed suicide after being called to testify about some funny stuff that went on is his department. In the U. S. such officials either become lobbyists or corporate CEOs.
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For the last two weeks the DJIA has usually opened higher only to slip into negative territory after a few hours of trading. This action is a distinct departure from the action of the rally since the March lows. Whether it represents the pause that refreshes or…. only time will tell.

By the by, breadth remains 2/1 positive at 11am and the S&P 500 and NAZZ are higher as the DJIA is lower. Smaller cap stocks may be playing catch up.
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As the end of May approaches we are seeking to eliminate trading positions that haven’t worked and want to own only stocks we would add to at lower prices. We may yet sell everything and wait for autumn but we aren’t there yet.
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Oil ended down $2.05 at $63.15. Gold was up $2 to $663. Treasuries closed a tick lower with the two-year at 4.89% and the ten-year at 4.88%.
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European bourses closed mixed and Brazil and Mexico were both 1% lower.
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The DJIA closed up 8 points at 13515. The S&P 500 was up 2 points at 1517 and the NAZZ gained 13 points to 2570.

Breadth retreated to 3/2 positive for the day and volume was moderate.

There were 295 new highs and 75 new lows.

Good night.
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25 May 2007 Daily Comments

Thoughts

The markets are closed Monday in observance of Memorial Day so our next post will be Tuesday May 29.
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The S&P 500 closed on its 20 day moving average on Thursday night. This morning's rally off that close is important to show that the 20 day moving average will hold as support. The break in February into mid March in the major indexes occurred immediately after the S&P 500 failed to hold its 20 day moving average.
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The Gap beat estimates by a penny. Hooray.
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Asian markets were mostly lower except Shanghais which recovered Thursday’s small loss. European bourses are down small at midday. Treasuries are flat and Gold is up a couple of dollars and Oil is up 50 pennies.
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There were $480 billion in leveraged loans last year and this year there will be substantially more. That is one reason why stable interest rates are so important to stocks.
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We are selling Micron Tech for a scratch. When the shares broke down a few weeks ago on the news of the sale of converts and the covered call strategy we said that we would eliminate the position when the shares recovered to the point we could exit without a loss. We are at that point.

The takeover rumors for Micron persist but as we said yesterday we don’t think the company would have just completed the convertible note financing if they were in talks. Of course a hostile bid may be in the works. We bought the shares for a trade and the trade didn’t work. Happily we didn’t lose any dollars for the experience.
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Dow Jones has traded over $55 per share three times in the last 25 years. The first time was 1987, the second time was 2000 and this year is the third time.
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Existing Home Sales were down 2% in April which suggests that yesterday’ New Home Sales 16% increase was probable influenced by home builders giving deals to buyers as the 10%drop in the median sales price of the new homes suggests.
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At least 20 sub prime lenders have filed for bankruptcy protection in the last few months.
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And who said all the Neanderthals are dead?

From Reuters we learn that Senator Tom Coburn of Oklahoma has blocked a Senate Resolution to honor Rachel Carson who wrote the book Silent Spring.    Sen. Tom Coburn derailed approval of a Senate resolution honoring the life of Carson, whose 1962 book "Silent Spring" warned of the dangers posed to wildlife and humans by the pesticide DDT and who is credited with inspiring the modern environmental movement. "Rachel Carson's work both directly and indirectly created a climate of hysteria and disinformation about the impact of DDT on the human populations," said John Hart, a spokesman for Coburn, in explaining why the Oklahoma Republican withheld his support for the plan to honor her.  "Obviously her central claim about what it does to ecosystems was largely correct," Hart said by telephone. "But her approach was consistent with a lot of environmental rhetoric which tends to sensationalize the facts." Sen. Ben Cardin, a Maryland Democrat who planned the Senate honor for Carson and expected an easy approval in time for what would have been her 100th birthday, was taken by surprise by Coburn's decision to block it.  "Rachel Carson has been an inspiration to a generation of environmentalists, scientists and biologists who made a difference and changed the irresponsible use of pesticides," Cardin said in a telephone interview. "Honoring her 100th birthday should not be controversial. I wanted to share that with our country." Originally developed as a powerful multi-species pesticide, DDT was used in World War Two to clear South Pacific islands of malaria-causing insects for U.S. troops and in Europe as a de-lousing powder.  Carson described how DDT enters the food chain and accumulates in the fatty tissues of animals, including humans, causing cancer and genetic damage. Her book is credited with the U.S. decision to ban the chemical in 1972, though the World Health Organization approved it last year for use indoors to fight malaria.
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We sold our J Crew position for a $3 per share two week profits.
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Oil ended up $1.02 at $65.20. Gold gained $2 to $655 in NYC. Treasuries were quiet with the two-year at 4.85% and the ten-year at 4.86%.
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Europe reversed as the U.S. markets rose and European bourses closed mostly higher as did Mexico and Brazil.
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The DJIA gained 70 points to end at 13510. The S&P 500 was up 10 points at 1517 and the NAZZ gained 22 points to 2560.

Breadth was 2/1 positive. Volume was holiday light.

There were only 160 new highs and 95 new lows.

Good night.
*****

 

24 May 2007 Daily Comments

Thoughts

The WSJ reports that Goldman Sachs has created a marketplace to trade unregistered securities. Because the shares of the companies traded are not registered with the SEC only large hedge funds and financial institutions may trade them.

This strategy fits in nicely with the LBO firms taking companies private. Fees for hedge funds and LBO firms are based on the value of assets and the increase in the value of assets; and so it is much more convenient to have a marketplace where the holder of the security determines the value of the security rather than have a public marketplace determine the value.

Using private valuations to determine performance assures a consistent increase in asset values as so insures that fees continue to increase.

The casino is expanding just as Las Vegas continues to expand. Now the big boys and girls are creating a poker table where only those with a $100,000,000 or more can play.
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Once again the markets have reached a level that when we are visiting with folks the first question is,” what should I buy”, and the second question is, “how long will it last”. Our answer to both is usually, “the last times we were asked these same questions was 1999. Before that it was 1987 and before that it was 1972”.
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Overnight Asia was lower and Shanghai dropped 0.5%. As the Chinese would say, “Greenspan who?”

European bourses are fractionally lower and Gold is off $2 while oil is down 40 pennies.

Treasuries are slipping lower in price on a firm Durable Goods report for April of up 1.5% ex transportation and up 0.6% ex defense and a revision higher of March’s Durable Goods number to up 5% from up 3.5%.

Jobless claims were up 15,000 to 311,000 for the latest reporting period.
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The NYT had a story last week about some folks who had credit card debt with Sears on which they were paying 32%. They also had a savings account which had about as much money in it as the Sears credit card debt and was paying them 4%. Go figure.

The story also told of the folks using a debit card in which they exceeded the money in their account and so had to pay overdraft charges of $32 on each of seven transactions. They had used the debit card so as not to run up their credit card debt. Unfortunately the husband didn’t know that the wife had written a check drawing their balance down at the same time he was using the debit card. He only bought $200 worth of goods and the overdraft charges were $234.

The charges that banks are making on these transactions are unconscionable as is a 32% interest rate.
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With all the talk of Murdoch buying Dow Jones for his new cable financial show to help it compete with CNBC we are at a loss why the talking heads don’t mention GE as a prospect for purchasing DJ. CNBC is profitable for GE and DJ reporters appear regularly on CNBC. It would be a perfect fit and GE has $11 billion from the sale of its Plastics division. They could offer the same price as Murdoch and beat him at his own game.
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New home sales for April were up 16% when only up 2% was expected and that has given home building stocks some hope. That is the largest jump in 14 years 9but from a distressed level). And, the average price of a home last month decreased to $299M, from $324M in March. The median price was $229M, lower than $257M in March.
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The DJIA moved strongly higher in the first hour of trading but as it ahs the last three days it is now losing steam and heading back down to even. Breadth is positive but not by much.

Treasuries are higher in yield and the yield curve is almost positive. It is positive on the two-year to ten-year but the five-year is still lower than the two-year. A positive yield curve is when longer maturity bonds yield more than shorter maturity bonds.
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Decisions, decisions.

"Implied options volatility exploded in Micron Technology today as call buyers piled in on unconfirmed rumors emerging about a possible buyout or merger at the firm," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group. Micron said it does not comment on rumors or speculation.

Micron just sold convertible debt and purchased capped calls at a cost of $190 million so we don’t think there is a buyout. But time will tell. We may be gone by that time.
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Today’s market action in the DJIA is known as an Island Reversal. That occurs when the DJIA opens above last night close, goes to a new high and then closes lower on the day. That is at least a short term negative.

We do think that the big boys and girls are saving their buying for next week which is month end.

With the Monday holiday traders will be heading out tonight and during the day tomorrow and so the odds are that the down trend for the last four days will continue tomorrow.
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Oil closed $1.25 lower at $64.25 in NYC. Gold also dropped $8 to $654 and Treasuries slipped with the two-year at 4.85% and the ten-year at 4.89%. The thirty-year is at 5.03%.
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European bourses closed lower as did Mexico and Brazil.
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The DJIA lost 85 points to 13440. The S&P 500 dropped 15 points to 1506 and the NAZZ was off 40 points to 2537.

Breadth was 3/1 negative and volume was active.

There were 225 new highs and 95 new lows.

Please have good night.
*****

 

23 May 2007 Daily Comments

Thoughts

Asia was mixed overnight with Shanghai up over 1%. Since January 2006 the Shanghai Index is up almost 250% and for the year 2007 to date the Index is up 47%.

European bourses are mostly higher and Gold is flat with oil up a few pennies. Treasuries have a small bid.
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Talbot’s earnings were in line and going forward guidance was cautious. The shares are up $1 in the early going.

Investors’ Intelligence numbers are unchanged with bulls at 54% and bears at 20%.
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Monday and Tuesday were the first consecutive down days for the DJIA since March.
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1527 is the all time closing high on the S&P 500. 1554 is the all time intra day high on the S&P 500. The S&P 500 is trading at 1529 at 11 am.
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Alan Greenspan, who now has a consulting agreement for big bucks with PIMCO Advisors, spoke today in Madrid and it was reported and said that he sees a dramatic drop in the Shanghai (China) stock market. That comment has caused the U.S. markets to pause and move lower. We wonder who knew Alan was going to say this.  And of such meaty analysis are market corrections made.
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Reuters reports that Sprint is up on takeover speculation because of the large valuation gap between what Sprint is valued in the marketplace and the value at which Alltel is being acquired. (We opined this last week.)

Sprint shares have risen 6 percent since Alltel announced its deal late Sunday. Such investor expectation will continue to boost the stock, analysts said. But several industry experts said they doubted private equity buyers would have the appetite for Sprint, the No. 3 U.S wireless provider, whose market value is close to $62 billion. UBS analyst John Hodulik raised his share price target for Sprint to $23 from $20 due to investor hopes that the company could be next on the block. "While we continue to believe it is unlikely that a deal for Sprint Nextel will materialize in the near term, we expect ongoing speculation to provide support to the stock," Hodulik said in a note to clients e-mailed on Wednesday. ….. Steve Clement of Pacific Crest Securities said that investors may be looking at Sprint's lower valuation, which has diminished due to poor subscriber growth in recent quarters, as a cheap way to bet on the next big deal.     "I think that's probably a pretty fair way of looking at it," he said. "There's a pretty substantial valuation gap between the purchase price of Alltel and where Sprint trades.
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There can’t be any self interest involved in this warning, can there?

Boeing Co.'s BA arms chief warned on Wednesday against cutting U.S. military spending to create a "peace dividend", and said Congressional moves to scale back funding for one of the company's high-profile programs could eat into sales for this year and next. Boeing, the Pentagon's No. 2 supplier, will get about half of its $65 billion revenue this year from its defense unit, which makes jet fighters, missiles, satellites and a range of military electronics.
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Oil ended the day up 26 pennies at $65.77. Gold gained $3 to $652 in NYC and Treasuries lost their bid and closed lower in price on the day with the two-year at 4.84% and the ten-year at 4.86%.

European bourses closed higher. They closed before Uncle Alan spoke his words of doom. Brazil was lower and Mexico was higher at the bell.
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The DJIA dropped 15 points to end at 13525. The S&P 500 failed to close at a new high again today. It was down 2 points at 1522. The NAZZ lost 8 points to 2580.

Breadth was a little less than 5/4 negative at the bell and volume was active.

There were 480 new highs and 70 new lows.

Have a good night.
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22 May 2007 Daily Comments

Thoughts

Asia was mostly higher overnight except Hong Kong and European bourses are higher at midday. Oil is down a few pennies but still above $66 and gold is unchanged at $663. Treasuries are flat.
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There wasn’t much on the news front overnight and, with the DJIA down yesterday and the waning of the expiration blues, today may give an indication of whether the bulls need a rest or are ready to continue their assault into unknown territory.
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Intel is at $22.90. If it can move up through $23.25 and the markets stay benign then the next stop could be $30.
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The WSJ reports today that some folks are taking out nine year car loans. The WSJ also says: Last year, about 29% of car buyers who traded in a vehicle to buy a new one owed more on their car loans than their cars were worth, compared with 20% five years earlier.
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There is a fellow on TV saying that railroads are no longer a cyclical industry. We think that a logical corollary of the statement would be that cyclical industries that ship by rail are no longer cyclical. It is always different this time until it isn’t.
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Oil ended the day down $1.36 at $64.91. Gold was off $4 at $659 and Treasuries gave ground with the two-year at 4.84% and the ten-year at 4.83%.

European bourses closed higher as did Mexico and Brazil.
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The DJIA dropped 3 points on the day to end at 13540. The S&P 500 was down 1 point to 1525 and the NAZZ gained 10 points to 2588.

Breadth improved all day and was 2/1 positive at the close. Volume was moderate.

There were 410 new highs and 60 new lows.

Good night.
*****

 

21 May 2007 Daily Comments

Thoughts

Asia was higher overnight as is Europe at midday. Treasuries are again higher in yield and Gold is off $4 while Oil is $66.

Goldman Sachs and TPG are buying Alltel for $27 billion including debt.
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Alltel has 11 million wireless subscribers and revenues of $8 billion. Including debt the buyout price is $27 billion.

Sprint has 41 million wireless subscribers and $42 billion in revenues. Including debt Sprint is priced at $80 billion.

Sprint shares would be priced at $50 to match the Alltel buyout price on a Price/revenues or price/subscribers basis.
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At noon the S&P 500 is at a new all time high and Oil is over 466. Treasuries are now flat on the day.
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From minyanville.com we learn that the all time closing high on the S&P 500 was 1527. And last Friday marked 1527 days since the S&P 500 began its rally in March 2003 from under the 800 level.
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Oil ended up $1.34 at $66.28 in NYC. Gold gained $2 to $663. Treasuries were flat on the day with the two-year at 4.81% and the ten-year at 4.79%.
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European bourses closed mostly lower while Mexico and Brazil were higher.
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The major measures retreated in the final hour of trading and the DJIA was unable to hold its gains.

The DJIA closed down 15 points at 12540. The S&P 500 gained 2 points to finish at 1525 and the NAZZ was up 18 points to 2575.

Breadth was 2/1 positive and volume was active.

There were 555 new highs and 75 new lows.
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18 May 2007 Daily Comments

Thoughts

If you’ve been wondering what Exxon has been doing with all its profits instead of building refineries this article in Business Week explains:
http://www.businessweek.com/magazine.
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Asian markets were mostly lower in a small way overnight and European bourses are mostly higher in a small way at midday. Treasuries are flat and gold is up $2 while Oil is touching $65 in the early going in NYC.
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Microsoft is spending $6 billion to buy a company that creates and measures web ads.
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GE is selling its Plastics division for $11 billion to some Saudi folks according to the WSJ. This price is more than expected.
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Merrill raised Intel to a buy from neutral.
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The University of Michigan Sentiment Index was 88.7 in May versus 87.1 in April. We aren’t sure whether this is the final, preliminary or in between measure since we wanted to get this news to our readers as quickly as possible.

Stocks are higher this morning and Treasuries are weaker.
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Micron issued the convertible notes with a conversion price of $14.13 and an interest rate of 1.875%. MU is also spending $131 million to enter capped call contracts with the underwriters. In effect Micron is paying 25% future interest to borrow money at 2%. Nuts.
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China is giving LBO folks Blackstone $3 billion with which to play.
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Gasoline supplies are down 5% from a year ago. But there are no lines at gas stations or stations without gas. There are only higher prices.
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And soon there will be a way to play the other big casino in the world, China.

Scheduled to Launch May 20, 2007
In response to a growing need for a product offering 24-hour access to the Chinese equity markets, CME is introducing CME E-mini® FTSE®/Xinhua® China 25 Index futures. The FTSE/Xinhua China 25 Index is comprised of 25 of the largest, most liquid “red-chip” and “H-share” Chinese companies listed on the Hong Kong Stock Exchange. With its launch, this contract will be the only futures product to provide efficient, 24-hour, global electronic access to the Chinese equity markets.
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Gold closed up $5 at $662 and Oil was up 14 pennies to 465 in NYC trading. Treasuries closed higher in yield with the two-year at 4.81% and the ten-year at 4.80%.
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European bourse indexes were up large fractions to over 1% higher as were Brazil and Mexico.
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The DJIA gained 80 points to end at 13556. The S&P 500 was up 10 points to 1523 and the NAZZ rose 20 points to 2558.

Breadth was 3/2 positive and volume was brisk.

There were 390 new highs and 125 new lows.

And the casino is closed for the weekend.
*****

 

17 May 2007 Daily Comments

Thoughts

For those who use snail mail please note that it costs 41 pennies to mail a letter now.
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We are back from our quick trip to Kansas. Western Iowa and eastern Kansas were under water last week and there still were standing pools of water in the low lying fields. And a lot of the fields were too wet yet to have been planted to corn.

We also saw a lot of fields where trees had been cleared this winter to open up more space for planting corn. It is of note that most of the erosion preventing tree plantings and contour stripping of the mid 20th century era have now been removed. As we were driving clouds of topsoil blew across Interstate 80 obscuring vision.

When we reached the old family farm we tried to drive down the gravel road to where it lay. Unfortunately years of wind erosion had mixed about four inches of topsoil in with the gravel and because of the recent rains the seeming gravel road became a track of mud. And we became mired in the mud, in the middle of nowhere. The view was beautiful but unfortunately we couldn’t enjoy it as visions of hours walking through mud and yuck to find help entered our consciousness. Luckily, the AWD Volvo came through as we made one last attempt to extricate our selves. And so we learned our final lesson from Mother: never drive on gravel roads in Kansas after a six inch rain.
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The markets were volatile during the three days we were traveling. On Tuesday the S&P 500 was up 12 points in the morning only to close 2 points in the red. And on Wednesday the opposite occurred. This action is a change in the trend from the last many months and may be signaling a change in market direction. Or then again it may just be noise in the unrelenting move higher. Time will tell.

Although some of the economic news has been mellow, jobless claims were again under 300,000 and Treasuries continue to move higher in yield as they have all week with the two-year now at 4.76% and the ten-year at 4.74%.
*****

Oil remains in the $62 range although as we all know gasoline continues its inexorable push higher for the summer driving season. Those poor oil companies continue to have trouble getting enough refining capacity on stream.
*****

Gold has lost some steam in the last few weeks and now is down around the $660 level. Foreign markets are mirroring the U.S. markets and were higher overnight in Asia and are higher today in Europe.
*****

While we were away the Investors Intelligence numbers showed a decline in Bears to 19.6% and a rise in Bulls to 54.3%.
*****

On Monday, Cerberus, an LBO firm, announced the purchase of Chrysler for $7.6 billion plus $18 billion in pension liabilities and we don’t know how much debt.

That price for Chrysler is chump change for the rumor that Cerberus is also thinking of buying BCE, Canada’s largest telephone company, for $32 billion plus debt. Maybe they are doing that buy to balance the much more speculative Chrysler buy.
*****

There have been $1 trillion in buyouts and stock buybacks in the last 18 months. Since the market value of the S&P 500 is about $13 trillion (remember that 2% or less of outstanding shares trade on any given day) this represents a significant amount of stock removed from the public markets and traders suggest that the removal presages higher stock prices as demand for stock confronts less supply.
*****

Micron Technology is going to sell $1.5 billion in convertible notes and on that news the share price is off 4% today. MU is going to do some fancy stuff called capped calls to reduce dilution but the fact is that they are borrowing money with the share price on a low. That is not favorable to us who own the stock. There will be some noise around the shares for a week or so as arbs and traders play their games and then the share price may recover a bit. We may move on if we are able to exit at no loss.
*****

The WSJ has a story today about the reduction of use of stents in the last month and that news is hitting Boston Scientific. We don’t think the stent stuff both coated and not is new news. We are going to hold and add as appropriate.
*****

We bought a few shares of J. Crew for the Model Portfolio and some other accounts at a share price under $39. We will be adding to other accounts over time. We owned the shares at $25 last year and sold around $29 and have been hoping for the share price to come back down to that level again. Unfortunately, JCG has been doing a bang up job selling clothing and the street has taken notice. And so we are repurchasing in smaller amounts at higher prices with room to add more on any general market sell off. hopefully we’ll have as much luck with this purchase at a higher than sale price as we did with The Gap back in the 1980's when Mickey Drexler was building it as he is J Crew now.
*****

Leading Indicators for April were down 0.5%.
*****

Recently, Warren Buffet has been buying railroad stocks as has Carl Icahn. Warren is very rich and a very good investor and so folks and traders are piggy backing on his purchases and running the price of rail stocks higher. Most of them are now or three times higher share price than they were a few years ago. So are the folks who bought them then smarter than Buffet? And are the folks who sold them then the same folks who are buying them now?

In the old days, when we began our investing/trading career, railroads used to sell at 6 times earnings when times were good for them. Now they sell at fifteen times earnings. The same metric applied to banks. The question always is will the old valuation metrics ever return? Or is it different this time?

We remember when interest rates were 20% and gurus scoffed at the idea that 5% interest rates would ever return.
*****

Today and tomorrow are expiration days for the monthly Triple Witching and so what occurs today with the major market measures may be reversed tomorrow or Monday or never.
*****

Gold ended at $657 down $4. Oil was up $2.42 at $64.97 in NYC. Treasuries closed higher in yield with the two-year at 4.78% and the ten-year at 4.76%.
*****

European bourses closed mostly higher as did Mexico and Brazil.
*****

The DJIA lost 13 points to 13472. The S&P 500 dropped 2 points to 1512 and the NAZZ which has been a bummer all week (down 20 points on both Monday and Tuesday) lost 9 points to close at 2539.

Breadth was 3/2 negative and volume was brisk.

There were 307 new highs and 150 new lows.

And the casino will be open tomorrow to close out the games for the week.
*****

 

11 May 2007 Daily Comments

We will be out of the office and there will be no posts until Thursday May 17. We are heading off to the family plot in Kansas to fulfill our mother’s final wish. Keep the faith.

Thoughts

Asia was lower overnight as is Europe a midday. This time foreign markets are following the U.S. markets. Gold is up $3 in early NYC trading and Oil is above $62.
*****

The Producer Price Index for April was up 0.7% and ex the essential of food energy was unchanged. Year over year the PPI is up 3.2% and ex the essentials it is up 1.5%. Retail sales were down 0.2% in April and ex autos Retail sales were also unchanged. The tame inflation data has placed a bid in Treasuries.
*****

The major measures have opened higher and breadth is 2/1 positive. The dip buyers are back.
*****

All the gurus are a twitter over the lousy retail store sales numbers of yesterday for the Month of April. Off month retail sales are only important to traders. Fourth quarter retail sales in November, December, and January are what make or break the year for retailers.
*****

ALLSTATE is not going to insure any new property in California after July 1. It seems that if the fires continue they may have to pay on policies. And of course that wouldn’t be good for profits. We thought that was what insurance was all about. Silly us.
*****

Gold ended the day up $5 at $672. Oil gained 60 pennies to $62.40. Treasuries gave up their gains today and closed lower in price with the two-year at 4.71% and ten-year at 4.68%.

European bourses recovered into the close on the back of the higher open in New York and almost all closed higher on the day. Mexico and Brazil were both up over 1%.
*****

Traders seemed to begin the week-end early on Friday afternoon but a flurry in the final half hour enabled the major measures to regain their early morning momentum.  

At the bell the DJIA was up 115 points at 13330. The S&P 500 bounced off its 20 day moving average and closed 15 points higher on the say at 1506. The NAZZ gained 28 points to 2562.

Breadth was over 2/1 positive and volume was moderate.

There were 235 new highs and 90 new lows.

We’ll be back on Thursday next. We hope the casino can keep spinning without us.
*****

If you want to refresh your memory about the history of the Iran/Iraq/Sunni/Shiite/Middle East Imbroglio we have a complete review at :

http://www.lemleyletter.com/lemley_iraqiran.html
*****

 

10 May 2007 Daily Comments

Thoughts

Asia was lower overnight as is Europe at midday. US futures are indicating a lower opening. Gold is down $7 at $675 in early NYC trading and Oil is up 35 pennies. Treasuries are flat.
*****

Jobless Claims dropped below 300,000 to 297,000.
*****

Same store retail sales numbers are lower than expected in many cases. Gap same store sales were down big-time for the month of April but for the quarter the negative comps this year were better than the negative comps last year.
*****

Whole Foods reported less than warnings of 32 pennies then analysts expected 36 pennies and the share price is off 10% as a result. The FTC is also going to do an in depth review of the proposed Wild Oats purchase. The reality is that if WFMI doesn’t purchase Wild Oats someone else will or OATS will go down the tubes.

Last Quarter the announcement of the OATS purchase masked the miss on earnings and so this quarter the analysts have discovered that this is a transition year for WFMI and are lowering their recommendations. We made a relatively small investment in shares last month at $45 in our larger/aggressive accounts and are inclined to buy more after the dust settles from this round of disappointment if the share price moves below $38.

We think the franchise over the long term is worth the short term pain and the share price is becoming more reasonable on a P/E basis but still is not value cheap. The multiple on WFMI is now 30X which is down from 50X last October.
*****

Talbot’s same store sales were down 3.5% and that is a not good but better than we expected.
*****

The Bank of England raised its benchmark interest rate 25 bps to 5.50%. That is the highest rate in six years.
*****

At two hours into today’s trading session and it looks like there is some real selling occurring. The DJIA is down 90 points.
*****

Oil closed up 26 pennies at $61.81. Gold was down $15 to $667 in NYC trading. Treasuries were firm with the two-year at 4.68% and the ten-year at 4.64%.

European bourses closed lower and Mexico and Brazil were also down.
*****

After being down 120 points at 2:15pm the DJIA and other stock measures could not improve into the close.

The DJIA lost 148 points to end at 13214. The S&P 500 dropped 20 points to 1491 and the NAZZ lost 43 points to 2533.

Breadth was more than 3/1 negative and volume was active.

There were 260 new highs and 115 new lows.

Tomorrow should be interesting.
*****

 

9 May 2007 Daily Comments

Thoughts

Asia was mostly higher overnight with Shanghai making it above 4000 for the first time. We read a report that said that 1.5 million new brokerage accounts were opened in China last week. Welcome to capitalism and cycles. When the down cycle eventually arrives will there be another revolution?
*****

Europe is mixed at midday and Gold and Oil are up small in the early going in NYC. Treasuries have a bid ahead of the Fed announcement at 1:15pm today.
*****

A couple in Hong Kong fortuitously purchased 400,000 shares of Dow Jones in the days before the takeover was announced. They sold the day after the announcement for an $8 million profit. Unfortunately the spoil sports at the SEC are investigating and won’t give them their money. The SEC is also looking into the increase in option trading in the days before the announcement.
*****

Investors Intelligence now has 54% bulls (up from 51%) and 20% bears (down from 24%). It is a truism that as markets rise more folks become bullish and less bearish. When there is no one left to buy...
*****

Blackstone Group is considering a $30 billion bid for Alltel the phone provider in the Midwest. Blackstone wants s to take it private. That bid would value Alltel’s 12 million wireless subscribers at $3000 per subscriber.

Sprint’s wireless subscribers are being valued at $2000 per subscriber in the market place.
*****

Cisco’s earnings were up in the latest quarter but management caution going forward has pushed the share price down $1.50 in the early going.
*****

We don’t like not owing Intel and so we are repurchasing the shares we sold on the first day of May. We are paying up 40 pennies for the shares. We are encouraged by HPQ’s announcement yesterday that computer and server sales were strong.
*****

As the price of premium gas goes thought the $4 level Crude Oil inventories continue to rise. But the well-run oil companies can’t seem to refine enough oil into gasoline to keep the prices down. Of course we don’t see any lines or out of gas signs at gas stations so could it be speculation and collusion that is keeping prices high?
*****

By the by, we remain cautious because there are no real values now, just relatively cheaper stocks and stocks we think might play catch up to their overvalued brethren and sistern.
*****

In the 1:15pm announcement the Fed remains stressed its preoccupation with inflation. And with that comment stock measures gave up their gains and Treasuries weakened.
*****

The downturn in stocks was short lived and entering the final hour of trading the DJIA is up 50 points and breadth is turning positive.
*****

Gold finished down $5 in NYC trading at $683. Oil lost 70 pennies to $61.50 on the supply info of today. Treasuries closed lower with the two-year at 4.73% and the ten-year at 4.67%.

European bourses were mostly higher and Brazil and Mexico were up.

The DJIA gained 54 points to close at 13364. The S&P 500 was up 5 points to 1512 and the NAZZ rose 5 points to 2576.

Breadth moved from negative to 3/2 positive in the final hour and volume was moderate.

There were 440 new highs and 80 new lows.

And tomorrow the big boys and girls will be playing bingo with the monthly same store sales numbers for retailers.
*****

 

8 May 2007 Daily Comments

Thoughts

Asia was lower overnight except Shanghai which was up 2%. European bourses are lower at midday and U.S. stocks are going to open a bit lower. Gold is off a couple of dollars and oil is up a few pennies. Treasuries are flat.

Hewlett Packard raised guidance on strong PC and server sales and is up a dollar.
*****

The NYT has a story today on sub prime mortgage lenders filing bankruptcy. In the story there is one sentence that is a gem:

Officials at mortgage companies and Wall Street banks acknowledge that it may be too dangerous to allow borrowers with weak credit who are financing 100 percent of a home’s purchase price to borrow without documentation of their income.
*****

With stocks opening lower today we’ll get an idea of how much strength is left in the bulls. A pullback today would not be untoward; in fact, it would be healthy from a technical view for the markets. But the markets have been in a runaway phase and who knows how long it will last.
*****

Cisco reports earnings after the close today and the Fed meet tomorrow on interest rates.
*****

Gold Ended down $4 at $687. Oil gained 76 pennies to $62.25. Treasuries were flat.
*****

European stock markets closed lower as did Mexico and Brazil.
*****

The DJIA and S&P 500 traded in negative territory all day but tried to make it higher in the final hour. They didn’t but then maybe today was the down day for the week. At the bell The DJIA was down 3 points to 13309.  The S&P 500 was down 2 points on the day at 1507 and the NAZZ gained 1 point to 2571.

Breadth was 3/2 negative and volume was moderate.

New highs contracted to 285 and new lows expanded to 80.

The Fed speaks at 1pm to the big boys and girls and all the traders in the casino.
*****

 

7 May 2007 Daily Comments

Thoughts

Major Asian markets were higher overnight except India. European bourses are mostly higher at midday. Gold is up $2 at $691 and Oil is lower for the sixth straight day at $61.97. Treasuries are a tad weaker as the trading day begins.
*****

Alcoa has made a hostile $27 billion bid for Alcan in a battle of the aluminum giants and the takeover news of the weekend.
*****

Boston Scientific is getting a minor pop today as Johnson & Johnson withdrew a new coated stent from trials because the stent wasn’t any more efficacious than the Taxus stent made by BSX.
*****

Aerial pictures of the devastation in Kansas:
http://www.kansas.com/static/slides/050507tornadoaerials/
*****

Alcoa is up a couple of dollars (when usually the acquirer’s stocks falls when a bid is made) because speculators think that the Alcan bid was a ploy to prevent a takeover bid for Alcoa itself. We are in that kind of market which reminds of the speculation in the late 60s when all the conglomerators were buying up companies.
*****

Timberland put itself up for sale last year and jumped to $32 on the news. Nothing has occurred on that front for the last many months and earnings have been punk. As a result the shares have dropped to under $26 and at that level we bought shares for a trade in our very largest account last week. Today TBL jumped $1 on twice its recent daily volume. Someone must have begun a rumor.
*****

Adjustments by the BLS for phantom Birth/Death assumptions added 315,000 new jobs to the jobs report last month. Without those additions the jobs report would have been a negative 200,000.
*****

Consumer Credit expanded over $13 billion in March when an expansion of $4 billion was expected.
*****

Oil ended the trading day in NYC at $61.54 down 39 pennies. Gold gained $1 to $691 and Treasuries were flat with two-year at 4.67% and the ten-year at 4.63%.

European bourses closed mixed and Mexico and Brazil were fractionally lower.
*****

The DJIA gained 45 points to 13310. The S&P 500 was up 4 points at 1509 and the NAZZ dropped 2 points to 2570.

Breadth was positive on the NYSE and negative on the NAZZ and volume was moderate.

There were 460 new highs and 66 new lows.

And the casino will be going for 25 of 28 higher DJIA finishes tomorrow.
*****

 

4 May 2007 Daily Comments

Thoughts

There are reports that Yahoo and Microsoft are in talks about MSFT acquiring YHOO. The share price is up $4.50 and we sold our shares. The price being reported is $50 billion. That works out to $36 per share and we sold at $33.10 for a nice two week trading profit. The deal is not certain and we bought YHOO for a trade to $30 and so we are delighted to get an extra $3 per share.
*****

We also sold UPS from our larger accounts for a small profit in our quest to raise a bit more cash.
*****

Asia was lower overnight but European bourses are higher at midday. Treasuries have a bid on the back of a weak Employment Report of 88,000 new jobs created in April. Gold is up $2 and Oil is off a few pennies in the early going in NYC.
*****

As gasoline prices top $3 per gallon Oil futures dropped $1.33 today in NYC to close at $61.86. Gold gained $5 to $689 and Treasuries were better with the two-year at 4.67% and the ten-year at 4.64%.

European bourses closed higher and Brazil and Mexico were also up.
*****

The DJIA gained 25 points to close at 13265. The S&P 500 rose 3 points to 1505 and the NAZZ gained 6 points to 2571.

Breadth was positive and volume was brisk.

There were 490 new highs and 70 new lows.

The big boys and girls will be concentrating on the Kentucky Derby tomorrow to satisfy their need for action.
*****

 

3 May 2007 Daily Comments

Thoughts

If you bought the S&P 500 on September 7, 2000 today you are finally back to even on your investment.

Asia was higher overnight and Europe is lower at midday. Gold is up $3 and Oil is back to $64. Treasuries are flat.
*****

Jobless claims dropped 20,000 to 305,000 in the latest week.

The ISM Non-Manufacturing Index was 57 for April versus 52 in March.

Non-Farm Productivity was up 1.7% in the first quarter according to the Labor Department. Unit Labor Costs were up 0.6%. The first number was higher and the second lower than expected. Those two numbers which represent strength coupled with the lower jobless claims number and the ISM Index have caused Treasuries to weaken in early trading.
*****

Talbot’s issued a wring this morning and the shares are down 7%. The shares have been trending lower for some time and the company ahs obviously missed the market for the last 6 months. TLB is now priced at less than sales and 50% of the shares are - and have been since its public offering years ago - closely held by some Japanese folks.  TLB can be a falling knife when it sells off like this and so we are buying gingerly. In the past when this has occurred we ought too rapidly and didn’t have the staying power to wait for the eventual recovery in sales and price. Hopefully this time will be different. Our initial purchases were in our largest accounts several days ago and we are adding to those positions and also initiating some new positions in other large/aggressive accounts.
*****

Oil ended at $63.19 down 49 pennies. Gold jumped $9 to 684. Treasuries were lower in price with the two-year at 4.70% and the ten-year at 4.67%.

European bourses were mixed while Mexico and Brazil were both up over 1%.
*****

The DJIA gained 25 points to 13237 to close higher for the 22nd out of 25 days. It is now up 30% from its low last August.

The S&P 500 rose 6 points to 1501 and the NAZZ gained 7 points to 2565.

Breadth was positive and volume was active.

There were 415 new highs and 60 new lows.

And there is one more day at the casino this week.
*****

 

2 May 2007 Daily Comments

Thoughts

Asia was higher overnight and Europe is mixed at midday. Treasuries are flat, Gold is down $4 and Oil is of a few pennies at $64.15.

Traders are concentrating on the Employment Report on Friday.

The rally yesterday was mixed but the bulls showed that they haven’t given up just yet. According to our tech guru the S&P 500 was in a short term buy set up on the close last night.
*****

Investors Intelligence has 52% bulls and 24% bears.
*****

Factory Orders for March were up 3.1% versus 2.2% expected. Treasuries are off a tick on the news.
*****

The New York Post says that The Gap is considering firing some folks to help the bottom line.
*****

European bourses closed higher with London up over 1%. Mexico was up over 1% and Brazil was also higher.
*****

Gold lost $2 to finish at $675. Oil was down 90 pennies to $63.55. Treasuries were slightly lower with the two-year at 4.64% and the ten-year at 4.64%.
*****

The DJIA gained 80 points to 13215. The S&P 500 rose 10 points to 1496 and the NAZZ was up 26 points to 2558.

Breadth was better than 2/1 positive and volume was active.

There were 395 new highs and 70 new lows.

And it is only three days till the Kentucky Derby.
*****

 

May Day 2007 Daily Comments

Thoughts

Japan was lower overnight and London is lower at midday. Many foreign markets are closed for May Day. Gold is down $2 and oil is softer at $65.58. Treasuries are flat.
*****

Circuit City withdrew guidance going forward saying it wasn’t selling large screen TVs and Liz Claiborne had terrible numbers and is trading down 20% from last night’s close. Gurus are suggesting that these two events are an indication that retail is in trouble.

We don’t know. We do know that we aren’t surprised about CC since they fired all their good salespeople to save money and now are reaping the harvest of that misguided action.
*****

We are going to raise some cash today. The stock markets are extended and their inability to close higher yesterday on the last day of the month is indicative of a tired bull. We are selling Kraft, Intel, Fifth Third and Verizon for gains and Pfizer for a small loss.
*****

The ISM Manufacturing Index was 54 for April versus 51 expected. ISM Prices Paid was 73 versus 67 expected. Treasuries are lower on the news.
*****

Pending home sales for March were down 5% versus February 2007 and 10% versus March 2006.
*****

News Corp is making a $60 bid for Dow Jones. The Alien, as Mike Ryoko used to call him, wants to control all the media in the world. And the fat lady is at least humming.
*****

Oil ended down $1.20 at $64.51. Gold lost $7 to $676 and Treasuries were lower but better near the close with the two-year at 4.63% and the ten-year at 4.64%.

The DJIA recovered today and closed up 68 points at 13131. The S&P 500 was up 4 points at 1485 and the NAZZ gained 5points to 2530.

Breadth was positive on the NYSE and negative on the NAZZ for the day and volume was active.

New lows (150) exceeded 100 for the first time in a while. New highs were 215.

And the casino is open for gaming as usual in the AM.
*****

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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