Bud's Poem Page
          Sunni/Shiite/Iraq/Iran
Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Bud: 312-925-5248       Kathy: 630-323-8422

29 May 2009

Model Portfolio Update

Model Portfolio Value As of 29 May 2009

$ 570,235

28 May 2009

Model Portfolio Update

Model Portfolio Value As of 28 May 2009

$ 570,313

27 May 2009

Model Portfolio Update

Model Portfolio Value As of 27 May 2009

$ 570,015

26 May 2009

This will be our only post this week since we are heading to the city to visit clients. Don’t be disappointed since our traveling will prevent us from trading this all too difficult market. Our next post will be on June 1.
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Thoughts

Model Portfolio Value As of 26 May 2009

$ 570,035

North Korea has tested a few short range missiles and also may have conducted a nuclear test. All the talking heads are frothing over this latest transgression and the markets are lower in Asia and Europe supposedly on this news. Our thought is that the markets are lower because they need to consolidate some pretty good sized gains.

The markets are suggesting that the crisis of bank failures on a large scale is over. But now the stimulus package has to prove itself before further advances occur. And that will take time.
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GM’s date with bankruptcy court and the aftermath of that once unthinkable action is on the table for this week or next.
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U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating. For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. Nationally, home prices are at levels similar to the fourth quarter of 2002.
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May Consumer Confidence was 52 versus 42 as the guess and 39 last month. That number popped the markets up 1% which gives an idea of how traders are seeking any good news to justify buying.
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We are using the up move to sell Verizon for a scratch gain. We sold AT&T for a scratch loss.
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CNBC is in a time warp this morning. We watch it with the volume off for obvious reasons. We just glanced at the screen and saw Coke Head Kudlow over the Headline: Can a flat tax restore growth?
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European shares reversed early losses to close higher, as investor sentiment got a boost from positive U.S. consumer-confidence data.
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Gold closed down $6 at $952 and Oil was up at $62.34.
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The DJIA gained 200 to 8475. The S&P 500 was up 23 to 910 and the NAZZ jumped 60 to 1750.

Breadth was 3/1 positive and volume was light.

New highs exceed new lows on the NAZZ but not on the NYSE.

The bulls were in control today.
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22 May 2009

Model Portfolio Update

Model Portfolio Value As of 22 May 2009

$ 569,385

21 May 2009

We are taking Friday off so our next post will be Tuesday May 26.

Thoughts

Model Portfolio Value As of 21 May 2009

$ 569,656

Senior holders of Chrysler debt are filing objections to the Chrysler reorganization plan. Jack Welch, former CEO of GE and now would be commentator on the American economy that he helped to ruin says that the Obama folks are favoring the unions over the senior debt holders. CNBC has been having retired folks on TV complaining that they are getting a raw deal on the GM bonds they own. All investing is about risk. There is no free lunch. The folks who own GM bonds should either be blaming themselves or the brokers who sold them the bonds.

Moreover the objectors on TV make no mention that most who now own the senior debt are most likely hedge fund folks who bought the debt at 30 cents or less on the dollar. These traders are trotting out the little folk to make their case on TV. Buying debt cheap to make money is how markets work and have always worked. But markets also give primary control in bankruptcy to the folks who are willing to put up the cash at 100 cents on the dollar to get the company in bankruptcy back on its feet. And guess what? The only entity willing to do that is the U.S. government. And since they are putting up the cash they get the say.

And the U.S. wants the unions protected and wants them to have a large part of any recovery that occurs. If the senior debt holders have a better plan they can put up the cash and control the outcome. That isn’t going to occur.
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Markets are going to open lower today. Asian and European markets were lower and oil is down a few dollars with a $60 handle and Gold is up $5.
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Jobless claims were 631,000 which were lower that expected but still way too many.
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European shares ended sharply lower after Standard & Poor's lowered its credit-rating outlook on the U.K. The London FTSE lost 2.8%.
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We switched half our AT&T and bought the same amount of Verizon to give us room to buy more of both lower. VZ yields 6.3%. And we bought a few shares of the Natural Gas Price tracking fund ETF (UNG) in a few large accounts.
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The Fed purchased $8 billion of $45 billion Treasuries tendered. This was much less than dealers thought the Fed would purchase and as a result Treasury prices are lower. Yesterday the Fed said it would maintain purchases but the market is saying that its wants action not words. The Fed’s non action is suggesting that it won’t’ be a patsy and purchase at just any price. And the beat goes on.
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Oil closed at $60.94 down $1.10 and Gold was up $15 to $955.
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The DJIA dropped 140 to 8285. The S&P 500 was down 16 at 887 and the NAZZ lost 35 to 1695.

Breadth was 3/1 negative and volume was active.

The bears are back.
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20 May 2009

Thoughts

Model Portfolio Value As of 20 May 2009

$ 570,063

BankAmerica raised $13.47 billion in a sale of common stock last night by issuing 1.25 billion shares at an average price of $10.77 per share. BAC sold 400 million shares in the public markets over 8 trading days at higher prices and then priced the final 800 million shares last night at $10. And so the unknowing public bought shares at $11 to $12 while the knowing institutional folks waited to get their stocks at $10. Ain’t capitalism great?

The successful sale of stocks has given a positive tone to U.S. stocks in pre-market trading. Some market mavens have declared the banking crisis solved.

Asian markets were lower overnight as are European bourse indexes at midday. Oil is up over $1 at $61.32 and Gold is up $4 at $930 as the trading day begins.
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Hewlett Packard reported a $17% drop in earnings and warned the rest of the year is going to be tough. It is going to be especially tough on the 7000 more folks HPQ is going to fire. That is on top of 20,000 firings already announced. The share price is down about 5% in early trading.
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Fear not, Geithner says financial system is healing, with $123.7 billion in bailout funds yet available.
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AT&T has a 6.7% yield and is within 15% of fifteen year low and 50% below its 2 year high. We repurchased it. The dividend is exceptional and cell phones are now a necessity and not a luxury.
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Most European markets ended higher, with oil producers and airlines leading the advance.
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From WSJ: Some Federal Reserve officials are open to raising the amounts of mortgage and Treasury securities purchase programs beyond the $1.75 trillion that they've already committed to buying, according to minutes from the Fed's April meeting.

Officials, meanwhile, projected an even deeper recession than they expected three months earlier and a more sluggish recovery over the next two years as labor markets remain under pressure. The unemployment rate is expected to end 2009 between 9.2% and 9.6%, and stay above 9% in 2010.
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Oil closed at $62.05 up $1.95. Isn’t it funny how in the midst of a terrible economic downturn the price of oil is up 50% in a month just in time for the summer driving season?
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The DJIA lost 54 to 8420. The S&P 500 dropped 5 to 903 and the NAZZ was off 7 at 1727.

Breadth was 5/4 positive on the NYSE and the reverse on the NAZZ and volume was pre-holiday active.

The Bulls are still in control.
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19 May 2009

Thoughts

Model Portfolio Value As of 19 May 2009

$ 570,353

Asian markets were higher overnight with Hong Kong up 3% but India was basically unchanged after its huge move on Monday. It is a wonder how mavens have determined that the continued rule of the Congress Party has solved the economic problems of that country.

European markets are plus 2% and higher at midday. Oil is touching $60 and Gold is flat in the early going in NYC. U.S futes suggest a mildly higher opening.
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Every day for the past two weeks has reversed the previous day’s action.
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In March we were comfortable being fully invested in the panic although we must admit we didn’t enjoy the turmoil. It is now May and the S&P 500 is 40% higher than its March 9 low and we are comfortable in cash. Our theme for the past ten years has been that the markets are gambling casinos that must be traded to survive and not investment areas and we have no evidence to alter that view. The ferocity, rapidity and depth of the February-March decline were an experience not easily forgotten. We survived it but were chastened. And so we are reevaluating our manner of managing accounts.

Until we arrive at some conclusion we will remain in cash.
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Housing starts were down 12% in April and permits down 3% both of which were worse than expected.
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The Credit Card Reform bill that Congress is going to pass is a sham. No company that is able to borrow money at less than 1% from the Fed should be able to charge 20% and more interest when it lends that money. That is usury pure and simple. The interest rate charged should be set at 12% higher than the cost of funds that they can borrow at the Fed.

Moreover the credit card companies are raising rates on consumers who have always paid their bills on time. Obama has failed consumers on this bill. And so has the Democrat Congress. Shame.
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When the Treasury rescued the banks last year the Treasury was given warrants to purchase shares in the banks as an upside carrot for lending the money. Now the banks that are repaying the TARP are trying to retire the warrants without testing the prices at which they will repurchase them from the Treasury in the marketplace. Geithner continues to work for Wall Street instead of the American taxpayer and Obama is folly to let him do so.

http://dealbook.blogs.nytimes.com
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The “Me” generation has returned. Last fall TARP program created by the Treasury to save the banking system was premised on the notion that whole country was in a financial mess and that everyone (the taxpayer and C/D buyer especially) had to sacrifice to assure the survival of the capitalist system. The TARP loans assured the survival of JP Morgan and Morgan Stanley and Goldman Sachs. Had the TARP funds not been provided, those companies would have failed along with all the other financial institutions as the failure of a few would have affected the survival of all. Moreover the rescue of AIG provided $10 billion to Goldman Sachs which wouldn’t have been there if the government hadn’t provided the funds. The same holds true for other insurance companies and banks who had engaged in speculative transactions that were recklessly insured buy AIG. Moreover, as we have often stated the artificially low interest rates being maintained by the Fed are providing extraordinary profits to financial industry at the expense of those ordinary folks who saved and were cautious.

But now the “Me” has resurfaced as Goldman and JP Morgan and others boast that they are solvent and shouldn’t be beholden to the American taxpayer or controlled in any manner by the government. Hogwash. Obama needs to quit paying to Wall Street. He and the Congress need to stand up to the charlatans. We know they won’t because Washington and Wall Street are back scratching each other as they always do.

We are angry, very angry, because we and our clients continue to earn artificially low interest while the Wall Street’s wonders begin to again weave their magic spell of speculation and greed.
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Oil closed at $59.25 and Gold was up $4 at $926. European markets closed 1% higher.
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The DJIA closed down 28 at 8477. The S&P 500 lost 2 to 908 and the NAZZ was up 2 at 1734.

Breadth was 2/1 to the good on the NYSE and flat on the NAZZ and volume was moderate.

There were more new highs than new lows on the NAZZ.

The Memorial Day weekend upcoming suggests that traders will begin flying the coop tomorrow at noon.

The bulls remain in control.
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This story from Friday’s Wall Street Journal displays the perfidy of many of the folks who run money on Wall Street:

Simons Questioned by Investors

Disparity Is Seen in Running of Two Renaissance Funds

By SUSAN PULLIAM and JENNY STRASBURG

Investors in a hedge fund run by James Simons are asking questions about why a fund held by Mr. Simons and fund associates is racking up big gains while another held mostly by outside investors is losing money.

In a conference call Wednesday, investors asked Mr. Simons about why the Renaissance Institutional Equities Fund lost 17% this year through April, lagging behind the stock market, while another fund -- held nearly exclusively by Mr. Simons and his colleagues -- surged 12%. The fund, known as RIEF, also lost money in 2008 while the internal fund jumped 80%.

In his monthly letter to investors, Mr. Simons said RIEF suffered a "performance onslaught" during an "extreme market rally," adding: "We certainly understand our clients' discomfort." Mr. Simons reiterated those views in the investor call.

It is a rare misstep for Mr. Simons, who is one of the hedge-fund industry's biggest stars. The 71-year-old manager rose to fame on Wall Street using sophisticated computer models to engineer trading strategies that indicate when to buy and sell stocks, bonds and futures. Mr. Simons -- the top-paid hedge-fund manager in 2008, receiving $2.5 billion, according to Alpha magazine -- declined to comment.

RIEF, a $5.5 billion fund, invests in U.S. stocks, typically holding many positions for a year in an effort to outperform the S&P 500 Index over the long haul. The other fund at issue, the roughly $9 billion Medallion fund, has a rapid-fire trading style and flexibility to roam the globe to find stocks and other securities its algorithms consider mispriced. The performance gap was even wider last year, when Medallion surged 80% even after its higher-than-average fees were deducted, and RIEF declined 16%.

Renaissance managers say RIEF never was advertised to provide the same returns as Medallion, which they say has a different investing strategy.

Few Sure-Fire Profits

The gulf in returns signals how much the markets in recent months have favored investors whose strategies are tied to fast-action trading among many types of assets. It also underscores the pitfalls of making investments based on a manager's reputation, especially with expectations for making a quick, sure-fire profit.

Mr. Simons was among five hedge-fund managers called to appear before Congress last year amid calls from lawmakers for regulation of the industry.

The government has said it plans to require hedge funds to register with the Securities and Exchange Commission amid a push to require the $1.3 trillion hedge-fund industry to disclose more information about risks the funds' trading poses to markets and investors.

The SEC also is examining hedge-fund trading and whether sophisticated strategies -- including ones driven by computers and known as "quantitative" -- involve manipulative or abusive practices, a person familiar with the matter says.

The regulatory interest is part of a broader effort by the SEC to examine whether hedge funds are manipulating trading or engaging in insider trading using complex derivatives called credit-default swaps, the person says.

In April, the SEC began an examination of Mr. Simons's fund company, Renaissance Technologies, looking at its books and records, along with the other information that the SEC typically requests as part of such a procedure for funds registered with the agency. The examination is "routine" in nature, a person close to the situation says; there is no evidence that the SEC believes Renaissance has done anything wrong.

Meantime, some Renaissance investors have voted with their wallet. In 2008, investors pulled out $12 billion from the fund company; total assets have fallen to about $18 billion from a peak in mid-2007 of about $35 billion, according to Renaissance.

Mr. Simons launched RIEF four years ago to great fanfare, saying that he could manage as much as $100 billion under the new vehicle, which represented the first time Renaissance, had taken outside money in more than a decade.

Beating the Index

In the Wednesday conference call, with 250 investors and analysts, Renaissance managers and Mr. Simons told investors that RIEF has done what it is intended to do: beat the index over the long term.

They note that last year's decline of 16% in RIEF still beat the S&P 500, which swooned 38%, they say. This year through April, however, RIEF's 17% decline lags behind the roughly 3% decline in the same period for the S&P 500.

In recent weeks, Renaissance told investors, it has moved some members of its research staff away from Medallion to focus more of their time on RIEF.
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18 May 2009

Thoughts

Model Portfolio Value As of 18 May 2009

$ 570,353

The Congress Party in India won a decisive victory in elections and that caused the Indian market to jump 17% which in turn led to higher markets around the world including the U.S. which is up 1% in the early going. There are rumors of pipeline bombings in the Middle East and so Oil is also higher as the trading week begins.
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The Sunday NYT had an interesting article on one family’s credit crisis. http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?hpw
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Ideally we would like to see a 10% or greater pullback from whatever level the March to ? rally reaches before recommitting any money to the fray.
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Gold finished at $920 down $11 and Oil was up $2.71 at $59.02. European shares ended higher, led by sharp gains in the banking sector. London's FTSE rallied 2.3%.
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The SJTI gained 240 top 8510. The S&P 500 was up 27 at 910 and the NAZZ jumped 52 to 1732.

Breadth was 4/1 positive and volume was moderate.

The bulls won the day.
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15 May 2009

Model Portfolio Update

Model Portfolio Value As of 15 May 2009

$ 570,353

14 May 2009

We are taking Friday off. The next post will be Monday May18.

Thoughts

Model Portfolio Value As of 14 May 2009

$ 570,353

Asian markets were 2% to 3% lower overnight and European bourse indexes were mixed at midday. Gold is $923 in the early going and Oil has 56 handle.

Wal-Mart reported flat earnings and revenues that were $3 billion short of consensus and Jobless Claims rose 32,000 in the latest week.

Secondary offerings of common stocks and new issues of bonds by companies in need of capital and even those not in need like Microsoft may have absorbed a lot of cash. Our thought is that there isn’t a whole lot of new news to continue to push stocks higher until second quarter earnings in July.

Folks now know that banks aren’t going to fail but the markets need time to see if the stimulus package will work its magic. Until then traders will have to manufacture news and rely in tidbits for buy and sell motivation.
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Europe markets closed a choppy session in positive territory, helped by financial shares.
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Oil closed at $58.60 up 65 pennies. Gold gained $3 at $929.
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The DJIA closed up 50 at 8330. The S&P 500 gained 9 to 892 and the NAZZ rose 25 to 1688.

Breadth was 2/1 to the good and volume was active.

The bulls continue to hold serve.
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13 May 2009

Thoughts

Model Portfolio Value As of 13 May 2009

$ 570,597

Stocks are going to open lower this morning because retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to boost their savings.

The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Excluding auto dealers, sales fell 0.5 percent.

Asian markets were higher and European markets were mixed overnight. Gold and Oil are flat.
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Paul Otellini, Intel's chief executive officer, in April said demand for its computer chips appeared to have "bottomed out" in the first quarter. At a meeting with analysts here Tuesday, Mr. Otellini said that the company's recent order pattern indicates business in the current period is "a little better" than the company expected.
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Ford sold shares at $4.75 last night. The shares were trading at $6.20 Monday but the sale of $1.4 billion in stock is considered a success by market mavens.
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To die — to sleep.
To sleep — perchance to dream: ay, there’s the rub!
For in that sleep of death what dreams may come
When we have shuffled off this mortal coil,
Must give us pause.

                                    Hamlet, Shakespeare
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We have never understood why institutions trade with Goldman Sachs or listen to their salespeople. Goldman works for Goldman. They need the gullible to take the other side of their trades and because folks at institutions are invited to play golf in exotic places and eat expensive lunches with Goldman sales people and traders they are the children to Goldman’s Pied Piper sales pitches.

The following excerpt from the WSJ illustrates what we mean. http://online.wsj.com/article/SB124217307257813061.html#mod=testMod

One of Goldman Sachs Group premier real-estate funds is in discussions with its lenders to restructure debt on some of its biggest investments: Nevada casinos, German office buildings and a U.S. hotel chain.

The wrinkle: One of the main lenders on those deals is Goldman Sachs.

Investors were warned about potential conflicts of interest when they put money into this group of real-estate vehicles, which use the Whitehall name. Such funds were billed as "opportunity funds," huge, highly leveraged investments funded directly by Goldman, its employees and a group of outside investors. Overall, Goldman has raised $31 billion for various Whitehall funds over the past 18 years, with outsiders usually investing two-thirds or more into each one.

With commercial real-estate values plunging, investors and their advisers have begun focusing on the conflicts. They say that Goldman is able to use its position as investor, lender and fee-collector to benefit itself at the expense of outsiders.
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That Goldman owns 33% of the fund is a straw dog. Goldman places money in the fund and also loans the fund money. If the deal works Goldman profits. If the original investment plan flails Goldman still is in the game since as a senior debt holder it gets the new equity when existing equity is wiped out. Where are the customers Hampton homes?
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One reason we are in cash:

For the first time since the Bloomberg Professional Global Confidence Survey began in 2007, investors are forecasting that the Standard & Poor’s 500 Index will climb.
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Diane Swonk:

Wednesday, May 13, 2009 - 8:00 a.m.

April Retail Sales Dip on Weak Employment and Heavy Discounting

April retail sales dipped 0.4% in April (0.5% excluding auto sales) after being revised down in March.

At least a portion of the weakness was due to heavy discounting, which means the inflation adjusted figures will show more of stabilization than the headline figures suggest. (Deflation has a way of doing that.)

Earlier mortgage refinancing, cuts in payroll taxes and $250 checks mailed out to 50 million Social Security recipients will help to keep retail sales from collapsing in the second quarter. Additional weakness in employment and a recent increase in prices at the pump, however, suggest we are not out of the woods yet.

Moreover, the composition of retail sales suggests that we still have a lot of healing to do. "Affordable" luxuries like eating out continue to be substituted by carry-out, and discount retailers continue to outperform traditional department stores. We have even seen some trade-offs within the discount sector as outlets are losing to the discount superstores. Indeed, Filene's Basement just filed for bankruptcy.

Finally, in what has become a sign of the times, consumers are buying super-sized bottles of liquor when they have money at the start of the month, and then switching to airplane-sized bottles as they run out of money at the end of the month. Drink carefully...make it last!
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Chutzpah!

Read this first: http://www.forbes.com

And then this: http://www.bloomberg.com
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The National Debt and future generations.

If we can run a deficit to spend $500 billion a year on war then we can spend $500 billion on health care and education and mass transit.

More on this subject from: http://www.truthout.org (we made a few changes for clarity)

Suppose that the federal government decided to give every newborn baby $200,000. That might seem like an extremely generous gift. However, by the peculiar accounting of those who claim to be watchdogs for future generations, this policy would be bankrupting our kids.

If that is hard to understand then you haven't been reading The Washington Post or listening to the Blue Dog Democrats or following the work of the Peter G. Peterson Foundation. This crew, along with the other deficit hawks inside the beltway, has decided that the way to measure intergenerational equity is to measure the size of the national debt.

With a bit more than 400,000 kids born every year, a gift of $200,000 to each of them would add more than $1.6 trillion dollars to the national debt over the next two decades. No doubt the Peterson-Post crew would be decrying the unfairness of handing down this huge burden to our children.

In their quest to cut Social Security and Medicare they have promoted the notion that the size of the national debt id the measure of how well we are treating our children. In the Peterson-Post world view, programs that spend money to better the plight of our children ( For example, improving the education system or rebuilding the infrastructure or developing clean energy technology) all make our children worse off, since spending on those programs will increase the size of the government debt.

In reality, what determines the well-being of future generations is the whole world that we hand down to them: the public and private capital stock, the state of technical knowledge and the specific skills and education that we give the future workforce as well as the natural environment and resources.

If we let the capital stock deteriorate or destroy the natural environment, then our children and grandchildren should be furious at us, even if we hand them a country with zero debt. The national debt is not only a bad measure of the burden born by future generations; it is not even a measure of intergenerational equity at all.

At some point, everyone alive today will be dead. At that point, the government bonds that constitute the debt will be owned by some of our children or grandchildren and all of our children and grandchildren will be paying interest on that debt through their taxes. In other words, our children and grandchildren will be paying the interest burden to themselves. If future generations both receive and pay the interest on the debt, then how can it be, on net, a burden to them?

There is an issue of foreign ownership of debt. But this is due to the trade deficit, which is a result of the over-valued dollar and has no direct connection with the budget deficit. If we had the same overvalued dollar, but no budget deficit or even national debt, then we would be in the same situation relative to foreign investors, except that they would be buying up more of the private capital stock rather than public debt. The outcome for future generations would be the same; a larger share of future income would be paid out to foreigners.

However the Peterson-Post crowd doesn't want to talk about the overvalued dollar; that would offend the Wall Street crew. A lower dollar would give them less clout in the world, even if it would increase the competitiveness of US manufacturing and improve the economy that we hand down to our children. No, the Peterson-Post crew just wants to talk about cutting Social Security.

The Peterson-Post crews’ line on the debt is just straight bad logic and bad economics. If the money being spent today helps boost the economy out of the downturn, then it will lead to more growth, an improved public and private capital stock, better technology and a richer, cleaner world for our children and grandchildren, even if it is a world that comes with more government debt.

Thinking people who care about future generations should be insisting that the government spend whatever is necessary to get the economy back on its feet, just as we spent as much as was necessary to win World War II. There is no serious prospect that we will face the same debt burden as we did after World War II, which happened to precede the most prosperous three decades in US history.

The Peterson-Post crew strongly disagrees with this analysis. But remember, these are people who somehow could not see the $8 trillion housing bubble that exploded the economy. Remember that fact.
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European shares fell sharply, as a big retreat for bank and mining stocks offset gains for drug companies. Gold gained $3 to $927 and Oil closed at $57.83 down 85 pennies.
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The DJIA lost 185 to 8285. The S&P 500 was down 25 to 883. 882 is very important support level. The NAZZ lost 50 to 1665.

Breadth was 4/1 negative and volume was active.

The bulls are rolling over. It is an expiration week so anything can occur in the next two days.
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12 May 2009

Thoughts

Model Portfolio Value As of 12 May 2009

$ 569,045

Stocks rallied while we were away. Oil and gold also moved higher and the strength in banks and retailers gave confidence to traders and pain to those short. The S&P 500 was up 6% last week but did move lower yesterday. Today is Turn around Tuesday but will it be Turn up or Turn Down?

Oil has a $59 handle and Asian stocks were mixed overnight with European bourses mildly mixed at midday.
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Banks have been raising a ton of cash in the last week to reload their balance sheets after the losses they have absorbed. Interestingly, last year at at this time banks were doing the same thing.

Microsoft sold $3.5 billion in bonds last night even though it has $25 billion in cash on hand. Its’ borrowing rate was super low and would suggest that MSFT is making a call on interest rates. Of course many of MSFT’s recent decisions have been suspect.

Ford is selling 300 million shares of stocks to rub their ability to stay afloat without government help in GM’s face. Of course, selling shares at $6 to raise cash when Ford bought back shares at $30 in 2000 doesn’t really suggest great decision making.
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The media taking heads continue to focus on the trillions in dollars that the government has lent to banks. But these same talking heads never mention that low interest rates are the real and continuing tax on savers. Banks are able to pay 0.5% interest on deposits because the Fed is keeping rates artificially low. These same banks then lend the money at from 5% to 30% to mortgage borrowers and credit card borrowers.

A $100 bank deposit supports at least $500 in loans. And so banks are earning a total of a 50% to 100% annual return on the money on which they are paying less than 1%. That is how the banks will earn back the capital they so wantonly lost by dumb loans. And as bank operating earnings increase bank executives will of course be bonused for their astute money management.
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BankAmerica is selling its interest in China Construction Bank for $7 billion to raise capital. Two years ago that interest was worth three times as much. Too bad CEO Lewis never learned the old trading adage: Sell when you can, not when you have to.
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Six executives at General Motors recently sold more than 200,000 shares of the automaker, liquidating their direct holdings in the struggling automaker. The biggest seller was Vice Chairman Bob Lutz, according to filings with the Securities and Exchange Commission. Mr. Lutz, who used to head GM's product-development efforts, sold 81,360 shares for $130,990. The five other executives, including Mr. Lutz's successor, Thomas Stephens, GM North America President Troy Clarke, Chief Information Officer Ralph Szygenda and manufacturing chief Gary Cowger and head of European operations Carl-Peter Forster also sold all of their GM stock holdings, according to the filings. The executives sold at prices ranging from $1.45 to $1.61 a share, according to the filings. GM shares tumbled 20% trading Tuesday to $1.15 a share on the New York Stock Exchange.
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Home prices in the U.S. dropped the most on record in the first quarter from a year earlier as banks sold seized homes and foreclosures in California and Florida dominated sales. The median price fell 14 percent to $169,000, the National Association of Realtors said today. Prices dropped in 134 of 152 metropolitan areas, with the deepest declines in Cape Coral-Ft. Myers, Florida, and the San Francisco and San Jose areas. The steepest price decline was in Cape Coral-Fort Myers, down 59 percent from a year ago, followed by Saginaw, Michigan, with a 54 percent drop. The next biggest decreases were Akron, Ohio, with a 48 percent decline, San Francisco, down 43 percent, and San Jose, California, with a 42 percent drop.
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Oil ended at $58.83 and Gold was $923 up $10. European bourse indexes closed lower.
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Stocks were lower most of the day in desultory trading but rallied haltingly to positive in the final hour. The DJIA gained 50 to 8468. The S&P 500 was down 1 at 907 and the NAZZ dropped 15 to 1715.

Breadth was 2/1 negative and volume was moderate.

The bulls are holding.
*****

 

11 May 2009

Model Portfolio Update

Model Portfolio Value As of 11 May 2009

$ 568,805

8 May 2009

Model Portfolio Update

Model Portfolio Value As of 8 May 2009

$ 568,717

7 May 2009

Model Portfolio Update

Model Portfolio Value As of 7 May 2009

$ 568,032

6 May 2009

Thoughts

Model Portfolio Value As of 6 May 2009

$ 568,457

We attended a first communion party on Sunday with many children. Last night we came down with the 24 hour flu and since we are only 12 hours into the flu we are not posting today.

Moreover, we are heading out tomorrow to visit clients in Chicago and will return next week. And so our next post will be on Tuesday May 12.
*****

 

5 May 2009

Thoughts

Model Portfolio Value As of 5 May 2009

$ 567,907

The rich get richer and the regulators do too. From the WSJ:

The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after. During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy.

The New York Fed asked for a waiver, which, after about 2½ months, the Fed granted. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They've since risen $1.7 million in value.

Mr. Friedman also was overseeing the search for a new president of the New York Fed, an officer who has a critical role in setting monetary policy at the Federal Reserve. The choice was a former Goldman executive.......

(This is the best part)

In Washington, the Fed's general counsel, Scott Alvarez, also says Mr. Friedman was needed during the New York Fed's transition. He adds that Mr. Friedman was in compliance with the Fed's rules when he first joined the New York Fed board and was put in violation of the rules by events "outside of his control."

Because he wasn't allowed to own the stock he had, the Fed doesn't consider his additional December purchase to be at odds with its rules at the time. The Fed had no policy requiring directors to inform it of new stock purchases, and Mr. Friedman didn't. The Federal Reserve Board is now in the process of rewriting its rules for handling situations like Mr. Friedman's.
*****

Asian markets and European bourse indexes were mixed overnight. Oil is at $54 and Gold at $904 as the trading day begins.
*****

European shares mostly advanced, with gains from the banking sector offsetting earnings-related weakness seen in Adidas, Alcatel-Lucent and Metro.
*****

Hain Celestial is off 12% today on disappointing earnings and at a level ($16) where it has found support. We are buying for a recovery trade.
*****

Gold closed at $898 down $4 and Oil was $53.90 off 57 pennies.
*****

The DJIA lost 16 to 8410 and the S&P 500 was off 3 at 903. The NAZZ dropped 10 to 1754.

Breadth was 2/1 negative and volume was light.

The bulls remain in control.
*****

 

4 May 2009

Thoughts

Model Portfolio Value As of 4 May 2009

$ 568,082

Asian markets were on fire with Hong Kong up 5% DN India up 6%. Japan was closed for the day and European markets are higher with London closed for the day. Oil has a $53 handle and Gold is up but still under $900.
*****

March pending home sales was up 3% and that has ignited a rally. Volume is light and our guess is that today’s move is mostly short covering. Whatever is the cause, it is impressive.
*****

European bourse indexes closed 2% and higher. Gold was up $14 to $900 with Oil up $1.22 to $54.35.
*****

Stocks were strong all day and the DJIA closed up 215 at 8426. The S&P 500 gained 30 to 908 and the NAZZ jumped 45 to 1763. Volume was active and Breadth was 4/1 positive.

The bulls remain in charge. And we remain in cash.
*****

 

1 May 2009

Swine Flu Tip

Don’t do this:

Next post Monday May 4 Click here for April 2009 Thoughts
*****

Thoughts

Model Portfolio Value As of 1 May 2009

$ 567,940

 

 



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