Bud's Poem Page
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For those clients of LY& Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
For Quarter Ending March 31, 2003 For Quarter Ending December 31, 2002 For Quarter Ending September 30, 2002
For Quarter Ending June 30, 2003 For Quarter Ending September 30, 2003

28 November 2003 - Afternoon Comment

7:43am and it was reported today that Fred Hassan, the new CEO of Schering Plough had purchased 303,000 shares of SGP in the open market on Wednesday. Since that is the same day we repurchased our shares so he must be following our lead.

8:25am and Treasuries are lower in price and higher in yield as the two year once again exceeds 2% with the ten-year almost back to its recent auction yield at 4.29% and the thirty-year at 5.11%.

8:32am and JNJ is going to open lower because it halted trials for a wider use of its anemia drug Procrit because of the development of blood clots. Coupled with some perceived bad news on its drug treated stents, JNJ has had a run of bad news that has pushed the price of its shares lower.

8:37am and the dollar is weak today on rumors that both Buffet and Soros are shorting it. When those rumors abound we assume the opposite may be occurring since we don’t think that either of those fellows advertise their intentions on the internet.

10:02am and we bought Schwab at $11.70 in our more aggressive trading accounts. We also bought Brocade in our accounts at under $6.10 to add to our low priced package. We traded BRCD earlier this year off lower prices for a profit and we want to repurchase again on the 25% sell off from its November high on disappointing revenue projections.

11:55am and stocks are closing slightly higher in holiday trading.

And tomorrow is another day.

28 November 2003 - Morning Comment

7:07am and we have it on reliable authority that after his surprise two hour visit to Iraq President Bush is planning a visit to Old Orchard Shopping Mall in suburban Chicago today to emphasize his “shop till you drop” theme to get the economy roaring. Of course if this news becomes public the President will have to turn the plane around and head back to Crawford and a week-end of splitting log rails in memory of Honest Abe.

Early futures’ trading is negative but today is historically higher and dull. The morning will be consumed by CNBC reporting from shopping malls across the country.

Markets close at noon and we will be watching and waiting for the close.

So let the games begin.

Thanksgiving Day 2003 - Comment

Happy Thanksgiving and many thank to our clients who have placed their trust in us. As we share our dinner with our usual group we offer again our Thanksgiving poem.

                                       "Indian Summer"

                        Indian summer’s upon us now,
                        with third crop hay safe in the mow.
                        The corn is picked and cribbed up tight.
                        The full moon shines in broad daylight.

                        For those few left who till the soil,
                        they’ll finish soon their yearly toil.
                        The cattle cud the frosted grass,
                        with bull calves shipped for ready cash.

                        The woods are bare and full of deer.
                        Soon eager hunters will be here,
                        hoping fresh snow will ease the stress,
                        of proving once more their manliness.

                        Thanksgiving is this time of year
                        and kinfolk choose to gather near.
                        Up here our kin are friends not blood,
                        They share our deep felt peoplehood.

                        So let the snow begin to fly,
                        and cold wind sweep away clear sky.
                        We’ll hunker down with wood piled high
                        reading saved books through  longer night
                        waiting the redwing blackbirds flight.


The following are our interrupted thoughts as grandchildren and friends ran in an out of the office yesterday.

Thoughts from 26 November 2003

7:45am and stock futures are moving higher on the 7:30am reports that Personal Income rose 0.4%. More importantly, Durable Goods which is a volatile number rose 3.3% versus and expected 0.7% and initial jobless claims dropped to 359,000 and continue to move in the right direction.

Japan was up 1.85% overnight and most of Asia was higher. Europe is higher also with Germany up over 1% and the U.K. and France up close to 1%.

Treasuries are a bit lower on the economic data which has a bullish for stocks tinge to it.

8:40am and the military has released the Muslim Army officer Captain James Yee that the press made such a big deal about when he was arrested three months ago. He was held in solitary for the three months. The implication was that he was involved in espionage. The military found no evidence for this. Now they are pursuing rumors that he had an affair and some pornography on his computer. Does that sound familiar? What a bad joke.

8:45am and stocks have opened higher awaiting the U of M Sentiment numbers at 9am. Then it should be a few trades and off to holiday except for the folks who have to stay around for the auction of the two-year Treasuries.

9:09am and we are going to beat the Black Friday rush by buying back the SGP at $15.40 that we sold last week at $16.10. We sold with the idea that the correction would still occur but since it hasn’t and SGP has come off on more negative news we have decided to reestablish a smaller position.

9:15am and the Michigan Sentiment Index was 93.7 and the Chicago Purchasing Managers Index was 64.1 which was better than expected.

10:57am and we decided to buy Restoration Hardware around in accounts at $6.30. The general markets are lower in light trading. 80% of the time the DJIA is up on the Wednesday before Thanksgiving but given that this year stocks have broken the mold we guess today may also be different.

We are also buying a stock called Sycamore (SCMR) that develops and markets intelligent optical networking products for the telecommunications markets. SCMR products enable service providers to transition their existing fiber-optic network into an infrastructure that can manage and deliver high-bandwidth services to their customers. Its intelligent optical networking product portfolio includes fully integrated edge and core optical switching products, network management products and network design and planning tools. The Company also offers engineering, furnishing, installation and testing services, as well as customer support from multiple locations worldwide. Sales have dropped from $400 million in the bubble years to $50 million in the current year. The entire company is selling for $1.3 billion which is a ridiculous price to sales ratio but the company has over $1 billion in cash (over $3 per share) and is burning money at the rate of $10 million a quarter so it can survive for years. Its products are leading edge and that potential and cash hoard make it a good add to our low priced stock package.

1:38pm and the two-year Treasury is back above a 1.90% yield. Stocks are inching into positive territory. Trading is tailing off.

Gold moved over $400 per ounce as there was a subway scare in NYC. The moves in gold are taken by some as a precursor of bad times for the stock markets. We continue to believe that gold lives in its own world and that the price movements in gold are meaningless as an overall indicator of future stock or bond market action.

European stocks ended lower today.

3:02pm and stocks closed higher with the DJIA up 17 points at 9781. The S&P 500 rose 5 points to end at 1058 and the NASDAQ gained 11 points to finish at 1953.

26 November 2003 - Daily Comment

6:15am and there are a bunch of economic numbers due this morning including jobless claims and durable goods, plus a Treasury auction of two-year notes.

The markets closed basically unchanged yesterday which was OK since Monday was such a large up day. After trading on the numbers this morning, trading should tail off in the afternoon and any big gorilla will be able to move the markets into the close. The bias on this day is to the upside so no matter what the numbers we expect a higher close.

So let the games begin.

Thoughts from 25 November 2003

6:45am and we were amused to hear an analyst on CNBC discuss the Boeing situation where the CFO was fired for negotiating to hire the head of the Defense Departments Tanker Procurement Program while she was working for the Defense Department. It seems that her daughter also works for Boeing and isn’t that a strange coincidence. Anyway, this guy has been elected to take the fall. It is unfathomable that the CEO Phil Condit didn’t know what was going on but we are sure he has deniability. And the analyst whose company has an investment banking relationship with Boeing says that he is sure that everything is now on the up and up. Corporate Welfare is alive and well in America.

It seems that folks are moving more slowly to change wireless phone carriers than had been forecast. At least on the first day that was the case.

7:30am and Third Quarter Prelim GDP was adjusted to up 8.2% from a first Advance reported 7.2%. Treasuries are a bit lower and stocks are a bit higher but the adjustment was expected.

That quarterly report is a function of the child care rebates and lower withholding taxes. A new trick is needed in the future. Inventory decline was revised to $14 billion from $35 billion. Supposedly inventory rebuilding was going to be the engine for Fourth Quarter growth. But the revision throws a little water on the fire. This whole series of numbers is good for the folks on Wall Street but really isn’t yet showing up in the hiring halls.

9:02pm and existing home sales were down a larger than expected 4.9%. Consumer confidence rose to the highest level in over a year at 91.7 versus and expected 87.

Merck is lower again on a First Boston earnings forecast cut.

10:43am and we added a bit more ANDW and CBB to some aggressive accounts. Markets are thin today and will be even thinner tomorrow. By that we mean that it is difficult to buy or sell any size stock without moving prices more than normal.

And so we are heading off with the grandkids for a day of walking and riding in the woods.

Our guess is that the stock markets close higher on the day.

25 November 2003 - Daily Comment

During the next two weeks there will be only one comment which will posted in the morning.

6:15am and with the strong market action yesterday the bulls are hoping for a follow through today.

Europe is higher and Asia also closed higher. U.S. futures are mildly higher but we would expect a bit of a pull back early and then a move higher to day as the bulls keep control.

So let the games begin.

6:42am and as we were thinking about subjects during the day yesterday, we added our thoughts as the day progressed for this morning’s post.

24 November 2003

8:08am and on CNBC the talk about number portability for cell phones seems to assume that if AT&T Wireless doesn’t do well they will be acquired by some other entity. That seems like a no lose situation and so why is the stocks meandering at lower levels. We are obviously missing something. Whatever, we think we’ll make good money on the investment and that the current miasma is a result of the confluence of uncertainty and year end portfolio dressing and tax loss selling.

8:15am and we had a tragic young death up here again last week coupled with the passing of a dear older person who was more than ready to cross the river. Our thoughts on the occurrences follow. For new website visitors the Bud’s Poems icon at the top of the home page allows vests to past poems on the website.

        Two Passing


The lights were on at church tonight

As we passed on hapless chore

To visit friends with child lost

Whom we all will see no more.


So sad as friends from her school years

Mill about in reunion talk

One of theirs has now moved on

The first of class to cross the walk.


Another day and Hannah goes

To be with those who’ve gone before

Less tears for she was ninety three

And ready for her last journey.


One day in church there are but tears

Coupled with the young folks fears

That if to one the end has come

It has begun for more than some


Next day the church is filled with peace

For Hannah happily her life has ceased

She is with friends she did rely

Her children sigh a peaceful bye


Hannah’s buried where she lived

No more than skip stone from where born

A life she spent within sight

Of where she lays at rest tonight.


One day grief and hopeless fright

The next day death welcomed delight

One day questions never to know

The next day talk of when it will snow


The lights in church no longer shine

For dinners two the folks did dine

The family of the Rolling Ground

Has said goodbye in silent sound


There are so many quirks in life

That death is dear in certainty

So sad, so glad in two days time

Mortality once more has been resigned.


And now the snows of autumn come

And fires in the hearth we build

To warm our bodies from the chill

And light our hearts and share the dill.

                                                BL  11/03

8:24am and Boeing has fired for cause its Chief Financial Officer and a woman he hired from the Defense Department. The implication is that there was an ethics violation. Please excuse our cynicism but our only thought is that some newspaper must have had a story in the wings about this hiring. Crossing over from government to business is a time honored tradition as payback for sweet deals made. And with the sweetheart deal the government is making with Boeing concerning the overpriced lease of tankers we can only smile. Time for another donation.

9:30am and in the first hour of trading the DJIA gained 100 points which is a good start to the holiday week. But we think stocks may be getting ahead of plan.

We sold the rest of the OATS we own at $11.10 and we began a position in Cincinnati Bell at $5.25 for some accounts as part of our low priced speculative telephone package. S&P just raised their bond rating and while the company has a lot of debt it is the major carrier in the area and has always been a consolidation candidate. Once they clean up their balance sheet we can see that happening again. Even the Bengals are winning these days.

11:03am and stocks are holding their gains and breadth is fine. Treasuries are weaker and the two year is at a 1.86% yield. The Treasury announced the sale of $26 billion in two-year notes on Wednesday. Crude oil is below $32 a barrel.

1:52pm and entering the final hour the DJIA is up 108 points. The bulls have to hold this gain to win the day and week.

Upon further review it is apparent that the CFO at Boeing was fired because of the Defense Dept found out in September that some hanky panky had gone on in the bidding on the tanker leasing contract that is a giveaway of taxpayer dollars to support Boeing. We actually don’t have an argument with doing it since the national defense requires that Boeing stay in business. But we would like the giveaway to be properly labeled as Welfare for Corporations and we also don’t think there should be a built in profit for corporate welfare payments.

2:11pm and the cut and run Democrats have caved on the Medicare Boondoggle Bill. As a result drug stocks and some HMOs are higher in a knee jerk reaction.

3:02pm and the DJIA held its gain to close up 120 points at 9750. The S&P 500 rose 17 points to end at 1052 and the NASDAQ jumped 50 points to 1945. As they used to yell in Chicago, “Bulls win”!

24 November 2003 - Morning Comment

6:13am and the prince and princess arrive today with their mother for the Thanksgiving holidays and a trip to Chicago for the Christmas lights and client meetings next week.

Today number portability for cell phone users arrives and by next week the analysts will be telling us who is winning and losing so that traders can trade off their reports. As with Windows 2000, but on a much smaller scale, we think the issue is a non event for earnings and sales at companies although we are sure it will lead eventually to lower prices for all. But that will come in the form of more minutes offered and as capacity is added the cost of providing more minutes will allow the companies to maintain their margins. Or at least that is our guess.

Japan was off a tad overnight and Europe is higher this morning.

Debate continues in the Senate on the horrendous Medicare “Confusion” Bill and the “Dick Cheney take care of my Friend’s Energy growth through more tax rebates Bill”. Only Congress could create such a monstrosity. As it is written only an accountant and lawyer will understand when and how folks are to be reimbursed. And the bill does not allow states to negotiate lower prices for drugs or find alternative sources. So much for states rights and the free market, the supposed cornerstone of the Repubs who are ramming the bill through. Letting the fox remodel the hen house they never wanted is the height of folly.

Ah well, this is the week stocks usually rise and U.S. futures are higher this morning. Today’s trading should revolve around settling up Friday’s Witching and then by tomorrow the holiday week will begin and trading should tail off. Friday is a half day and Wednesday usually acts like a half day also.

And so we are going to a morning post only format for the next two weeks as we enjoy the company of our two children and two grandchildren and many friends. We are content with our speculative holdings and don’t want to add the larger companies back to the portfolio until we see how early December goes.

Our next post will be tomorrow morning.

So let the games begin

21 November 2003 - Evening Comment

7:05am and we sold a bit more OATS yesterday at $11.10. We are exiting the stock because we think it will head back under $10 in the next correction. As we said a few days ago we may be too cute on this stock but we have been trading it successfully recently after a bumpy period two years ago.

7:15am and as we see all the retail stocks we use to trade reaching year highs we wish for Don. He had the genius to understand these situations when they were in the dumps and the conviction to persuade us to hold them through the inevitable media malevolence that usually accompanies troubled stocks. We miss him and for more than that.

9:09am the markets are meandering at slightly higher prices. Over the last week the S&P 500 is down about 2% with all the up and down gyrations. AT&T Wireless has popped to $7 today and in keeping with our buying low priced stocks near their lows we are buying a new position in busted RBOC Qwest at $3.70.

The larger cap stocks that we traded out of are holding the levels where we sold and our idea on them is to use them at year end as trading vehicles if they don’t move higher before then. We want to own the lower priced package of stocks for the bounce after year end as tax selling and window dressing (selling losers so they don’t show up in year-end portfolios of large funds) abates.

CNBC had an interesting segment on large U.S. companies and the percentage of their workers who are outside the U.S. The talking heads made the point that most of them need to have large number of overseas workers to service the business or accounts created. But we think it should give Congress pause when it decides to enact legislation to benefit these “U.S. Companies”. We know it won’t because of the donation dollar flow that allows companies to spend pennies to get thousand of dollars of tax benefits but at least it is good to know the numbers. The percentages behind the names are the percent of non U.S. workers. Coke 68%, McDonalds 64%, Exxon Mobil 63% and they just received a $2.2 billion tax rebate, Alcoa 56%, IBM 54%, Hewlett Compaq 52%, 3M 52%, United Technologies 51%, Johnson & Johnson 50%, and GE 49%.

9:21pm and we just purchased another round of JDSU at $3.35.

Merck is down $3 per share has broken through downside support. It looks like it could trade down to the $35 per share level, especially because it is year end and getting close to or $39 per share interest.

Gap plans to close about 125 Gap stores while opening 125 Old Navy stores. That is going from higher quality to lower quality. GPS will also lower capital expenditures.

www.minyanville.com made an interesting observation this morning that the S&P 500 is only 2% higher than it was in August. With that said it will be interesting to see how investors who have entered the markets in the last four months react if the S&P sells off another 3%. That would place folks under water on their recent investments.

9:55am and the DJIA is down 25 points which is a function of Merck’s bad day. Breadth is positive and trading is active.

10:35am and The White House is projecting strong growth next year but a record high deficit of close to $500 billion. We wonder when the supply side boost in tax revenues will hit. If The White house keeps eliminating taxes and giving tax credits to its business friends the rise in revenues to deal with the deficits even under the discredited supply side theory can’t occur. But then deficits don’t matter until they do.

10:42am and Asia ended trading for the day slightly lower. Freddie Mac restated earnings $5 billion higher for the past few years. In one year 2001 they overstated earnings by $1 billion. The accountants and officers should go to jail.

In a similar vein we read this morning in the NYT that the heads of Pilgrim Baxter Mutual funds really did steal from their shareholders by trading against the stocks they bought for shareholders. We guess we were too kind last week to bums like these two fellows.

10:49am and Schering Plough has increased the size of the money it is going to borrow from $1.7 billion to $2.3 billion. We aren’t excited about this borrowing because it implies that they need monies that should have been generated from internal sources. Coupled with the investigation of their Polish operations we would guess that we will be able to buy the stock around $13 before year end.

10:54pm and another year end theme we are developing for larger accounts is to buy four electric utility stocks as a package. Those four are the ones we traded last year with mixed results. We would be paying higher prices but these companies are a year further along in their turnarounds and look like they will survive for the period of time we plan to own. The list is XEL, LNT, DUK, and TXU. We aren’t pulling the trigger yet.

Beans have reversed their move to the teens with the January contract at $7.41.

12:51pm and stocks are floating along in light trading. Maybe Thanksgiving Holiday trading has already begun.

1:56pm an entering the final hour of trading the markets remained mixed with no trend. We’ll see if we get the dying swan routine this afternoon too, or if we reverse yesterday’s collapse in the last thirty minutes.

We are buying some Restoration Hardware at $6.40 today in aggressive accounts. RSTO earnings were bad and the stock is off several dollars in the last few days in anticipation. We have been waiting for the earnings announcement to take a flyer.

3:02pm and the DJIA closed up 10 points at 9630. The S&P 500 was up 1 point at 1035 and the NASDAQ gained 10 points to 1892.

And tomorrow is another day.

21 November 2003 - Morning Comment

6:42am and we apologize for the late post of Wednesday evenings comment. Whatever, we had a good trip to Madison and a wonderful lunch. The stock markets showed early strength yesterday and then gave it all back plus Wednesday’s up move with the DJIA over 70 points lower at the close.

This morning Disney and Gap and Barnes& Noble have announced earnings that beat the estimates. Stock futures are higher in Europe and the U.S. and Asia was slightly lower.

Today is an expiration day and with no economic numbers due the trading will be moved by expiration and individual stocks. The major measures have clung to support levels for the last four days and we don’t think the up versus down argument for the overall markets will be answered today.

Next week with its normally light trading and upward bias will give an indication of the bulls resolve.

And so let the games begin.

19 November 2003 - Evening Comment

There will be no posts tomorrow as we are driving to Madison Wisconsin on business and for a little sushi. The next post will be Friday morning.

7:10am and we love Jeff Cooper’s comments on www.realmoney.com. No one has more imagination in his descriptions of the technical stuff he sees and acts on in the marketplace. We subscribed to his service but it was too technical for us, but the commentary he runs sporadically on www.realmoney.com is always interesting and more right than wrong. We loved the following sentence in this morning’s commentary:

With three down closes in a row on the S&P, the index is poised for an attempted bounce... if it is bullish. The Gilligan Sell Signal Test of the first Gilligan Sell Signal on the Nazz and the two Soup Sells on the S&P that I mentioned the other day argue for a bearish resolution.

So there you have the answer to all your questions about today’s market action.

7:15am and AT&T Wireless is going to fire 300 workers and send the jobs to India to save money. Normally we try to avoid stocks that do this. But since we have such a big stake in the stock and the actions will help cash flow and eventual earnings and the last analyst standing has turned negative on the stock we are going to hold for recovery.

With our sale of Time Warner yesterday the Model Portfolio is at 10% invested and 90% cash. Our foray into stocks has temporarily cost us 3% of performance but that is usually the way it is at year end. We don’t like giving back any gains but there are times of the year when we have to assume risk if we are going to have any return.

Our stock choices could have been delayed a bit but we never now the bottom. Also there has been a bit more trading that even we like but trading is a function and unction of trying different theories and sometime they work and sometimes it is best to go back to cash and start over again.

7:30am an October Housing starts were up 2.9% at a 1.96 million annual rate and September was revised upward. Building permits rose 5.2%. Treasuries are lower on the news and stocks are finding a bid.

7:36am and the ‘free trade’ folks in the White House and Republican Congress are moving to limit textile imports from China. And the ‘states rights’ folks in the White House and Republican Congress are going to interfere in the Massachusetts Supreme Judicial Court decision on gay marriage. And we are sure Rush Limbaugh and Newt Gingrich, both of whom have been married three times, will wax less than eloquently on the sanctity of heterosexual marriage.

7:47am and we miswrote yesterday when we said that Governor Arnold was going to borrow $20 billion to close the budget gap. He plans on borrowing $15 billion. It will be interesting to see how the anti-tax anti-borrowing groups who opposed Davis’ plan to borrow to close the budget gap will respond. We know it is different because Arnold is a Republican and won’t be profligate like all Democrats are.

And showing the Christmas Spirit the Governator has promised not to lay off any state workers till after Christmas. So we are sure those employees will have a merry holiday, or at least that no work will get accomplished by them during the holiday as they scramble to find other jobs.

8:01am and the WSJ reports on ‘front running’ investigations by the Massachusetts attorney general at Putnam and Fidelity. That is where the real crookedness lies in the mutual fund money management business. It is a great big rock to turn over. ‘Front running’ occurs when a money manger buys stock ahead of buys by a fund or client he/she manages or sells. We have written about this several times. As we remember Fidelity had a five day rule instituted in the early 1990s that said fund managers couldn’t buy stock the funds they managed were buying until five days after the fund started buying. At the time we asserted that that proscription was a bogus cure to the problem, since fund managers should only own fund shares of the funds they mange on a long term basis and should never be allowed to trade in individual stocks that their funds are buying. It takes a large fund much longer than five days to buy and /or sell a position and allowing purchase of shares is like coining dollar bills for the managers.

Fidelity is such a major media advertiser that we don’t think the major media companies will touch this topic.

8:31am and from: From the Center for American Progress: we receive the answer for why AARP supports the Medicare drug coverage bill currently before the Congress.

"Critics say AARP, which formally unveiled its new headquarters building in downtown Washington last month, has softened its earlier militancy because it is preoccupied with its profit-making enterprises, including $100 million in earnings from the sale of insurance, mostly Medicare supplemental policies." - Newsday, 10/21/2000

"AARP's receives more than $100 million in revenue from health insurers." - Denver Post, 5/21/96

"Critics suggest that AARP's substantial profits from the sales of Medigap and other insurance policies, drug company advertising in its magazines, and investment schemes conflict with its interests on behalf of seniors...AARP President William Novelli acknowledged complaints from members that AARP has been too timid in the political battles to defend Medicare and Social Security. He conceded that AARP has pulled its punches since right-wing groups and members of Congress criticized it as too liberal." - Newsday, 2/19/02

"AARP's pharmacy service is part of its insurance sales operation which generated $ 101 million in revenue last year - 17 percent of the organization's total budget." - Capitol News Service, 8/15/02

"AARP receives millions of dollars from United Healthcare, a national health insurance firm based in Minnesota." - Milwaukee Journal Sentinel, 2/24/01

One final thought is that Novelli wrote the preface for Newt Gingrich’s new book on healthcare. In it he said:

“Newt's ideas are influencing how we at AARP are thinking about our national role in health promotion and disease prevention and in our advocating for system change.”

Newt’s the guy who wants to get rid of Medicare and replace it with the so efficient private sector that ‘cherry picks’ and denies.

8:35am and stocks are opening mixed. Awe is going to open around $6.50 and we may buy some more shares.

8:40am and GE announces it sees a range of $1.55 to $1.65 for next year and increased its dividend. It expects 11 of its 13 businesses to grow double digits next year. Jeff Junior learned well from Master Jack. The big news today is that GE lowered its projections on earnings for next year but made a whole bunch of other positive (?) announcements to mask that fact and give cover to the analysts who have a buy on the stock.

8:59am and we just noticed that only our profits for the year in the Model Portfolio are now invested in stocks. The Model began the year at a total value of $460,300 and we have almost that much in cash right now. Given our trepidation, that distribution of cash and stocks feels right.

9:02am and CNBC is showing currency traders being arrested this morning. The CFTC. Commodities Futures Trading Commission says it didn’t miss anything because it doesn’t regulate currency trading.

9:51am and stocks are inching steadily higher

11:25am and stocks are stuck at up fractionally in light trading. There isn’t much happening in the marketplace. Treasuries are weaker today with the thirty-year down over one point.

We are bidding on Charter under $3.85 per share and AWE at $6.53.

It’s interesting how support levels work. The other day we mentioned that GE was at $27.50 which had been support twice over the last six months. Well now you can make it three times. By the way there is a theory that the fourth visit to support usually breaks support. For now, the share price is over $29 per share on the spin off news and yesterday’s prescient buy call by Merrill Lunch. We aren’t sorry to have sold; rather we are just mentioning that support held again. We do think GE will break support before year end.

12:18pm and we bought another round of AWE at $6.53 for accounts.

1:51pm and entering the final hour of trading the DJIA is up what it lost yesterday. So we will see how the bulls and bears behave in the last hour of trading. European stocks closed fractionally lower and Treasuries closed on their lows for the day with

We bought more Charter Communications, the cable company with a ton of debt today t $3.85. Charter is part of our threesome of CHTR, JDSU which has no debt and $1 billion in cash and PCS. PCS has a ton of debt when but when paired with its other half FON the debt is manageable. A year ago CHTR was trading under $1 and there were fears of bankruptcy. Last week Charter sold Senior Notes due in 2013 to institutional investors on an 8.75% yield. Now that is a junk bond yield in today’s marketplace where ten-year Treasuries yield 4.25% but a year ago there were few bids for any Charter paper. With CHTR’s ability to sell notes to redeem higher coupon debt we are comfortable that it will survive for the holding period we envision and so we are willing to take a flyer as part of a package at $4 when we weren’t at $1. Last year there were many companies like JDSU selling for twice cash or less with no debt and those were the ones we traded. This year there are fewer choices available and that is why we are taking the package approach.

3:02 and at the close the DJIA was up 66 points at 9690. The S&P 500 gained 9 points to end at 1043 and the NASDAQ rose 19 points to finish at 1900.

And tomorrow is another day.

19 November 2003 - Morning Comment

6:13am and an e-mail we answer is below.

You stock broker guys are always talking about risk/reward ratios for stocks. These seem to be a centerpiece of your trading philosophy. Could you perhaps 'splain' to a somewhat dimwitted scientist as to how to compute such a thing for any given stock or bond. I like to have the comfort of some analysis in my trading wanderings. Thanks

You really know how to hurt a guy. If we buy a package of stocks like JDSU, PCS and CHRTR we are guessing or maybe hoping that two of them will double or better and the other will go up 50%. That would be a double or better. If we think the downside for the period of time we are holding is only 50% then we think the potential it 2/1. With the AWE we think the upside over the next year is a double and the downside is another 25%. At the time we bought it at $8.50 the upside was 50% and the downside was 25%. We are at the downside risk point that we foresaw.

6:20am and the House that Jack built is now being dismantled. GE is going to sell off its insurance unit in an IPO next year. We wonder if mother Merrill will be the lead underwriter-given its upgrade yesterday. This spin off has caused the Merrill analyst to lower his earnings for the year forecast by another 5 cents to $1.55 for 2004.

This is how the story goes. A company president named Jack spends 20 years buying other companies, firing folks and taking special charges all in a successful effort to manage earnings and thus wow Wall Street. And he does and the day he leaves the share price of his company makes it the most valuable in the world. Then the next guy to run the company who is named Jeff decides to begin deconstructing the House that Jack built in order to take special charges or one time gains as the case may be so that the new guy can also manage earnings. But in the process the industrial company somewhere along the line went from making its dollars from operations and instead realizes its real earnings from trading companies. And the share price of the company is now 50% of what it was when Jack left.

6:33am and Hong Kong was down 1.5% and Japan down almost 3% on the trade embargo imbroglio. Europe is also lower and gold touched $400 before backing off while oil remains at $33 a barrel.

These next three days with a witching day on Friday are unpredictable. Next week is the most predictable week of the year with the markets rising over 70% of the time on the day before Thanksgiving. What the markets do before then may be very interesting.

So let the games begin.

18 November 2003 - Evening Comment

6:45am and Paul Krugman in today’s NYT has an excellent simplified one paragraph explanation of the mutual fund scandal now in the news:

You're selling your house, and your real estate agent claims that he's representing your interests. But he sells the property at less than fair value to a friend, who resells it at a substantial profit, on which the agent receives a kickback. You complain to the county attorney. But he gets big campaign contributions from the agent, so he pays no attention.

6:49am and Merrill Lynch raised GE to a buy.

AARP has endorsed the Bush Medicare drug plan. Not the Rush drug plan. Who the heck is AARP? They have sent me membership forms for years and I can become a member for $15 and get discounts at motels and restaurants and stores. It’s basically a discount club for folks over 50. Who are the folks that run AARP? How much money do they make? Who selects them? Their endorsement is a joke, a bad joke.

7:04am and from the daily scandal sheet we learn that a few employees have departed from Janus Funds because they didn’t think market timing was harmful. And many regulatory folks are now interested in how big brokerages helped Freddie Mac smooth out –as in hide– earnings by arranging transactions to obfuscate profits in one area by creating artificial losses in other areas. The losses would be recovered the next year. Freddie Mac is a quasi government entity. Who can we trust?

And the WSJ reports that some moron is burning down the covered Bridges of Madison County, the bridges were the focus of the story of the book and movie of the same name.

7:24am and it turns out that Arnold is going to balance the California budget by borrowing $20 billion to bring it in balance. Huh?

7:31pm and the October CPI is unchanged, ex food and energy the CPI was up 0.2%. So food and energy prices didn’t go up in October. Where?

8:26am and stocks are going to open higher. We are interested to see how HD acts with their positive earnings and sales forecast, and GE because of mother Merrill’s upgrade.

8:35am and GE opened 70 cents higher as all the Merrill brokers get to work on selling that stock to clients. We would guess it is an easy sell. HD hasn’t opened. We would guess it will open a dollar higher.

Short Treasuries are under pressure. Short yields dropped last week on a flight to quality trade.

9:23am and the best the DJIA could do in early trading was up 35 points. It is now up 9 points. The markets look like they want to test the downside and the bulls’ resolve this morning.

10:33am and the major market measures are back to the upside. Treasuries are higher in price and lower in yield as two Fed governors say no rate increase till mid year 2004.

Our thought process is to hold a few stocks that can double or better if the markets move higher while maintaining a large cash position with which to re-enter the markets at lower levels if year end trading opportunities arise. We don’t want to own big cap stocks at these present levels for year end trades because the risk/reward ratio is about even with them. As we’ve said we are willing to trade big caps or the DIA or SPY if the S&P 500 revisits 960.

We may be getting too cute but we are trying to game the markets with as little principal risk as possible.

10:40am and Home Depot is not holding its gain being up only 25cents on the day after opening $1.10 higher. GE continues to climb higher as the Merrill brokers do their thing.

11:38am and if we get a rally this afternoon we are going to raise some cash by selling TWX. Janus Fund is a large holder of the stock and TWX will remain under pressure as a source of funds for Janus until the run on Janus Fund ceases. TWX is also the least speculative of the stocks we own – which is a statement in itself – and we may redeploy the money to more aggressive stocks or return to TWX if it moves lower.

We were going to sell TWX this morning but as we got ready to pull the trigger a gorilla came in and started selling stock. We would guess it was Janus.

11:47am and the dollar is making multi year lows against the Euro. Reason given are less foreign investment in U.S. including Net selling of Treasuries in September. Also there are rumors Soros is talking against the dollar.

1:04pm and Home Depot is now trading lower on the day. Stocks are giving ground and breadth after being 2/1 positive early in the going is now even on the NASDAQ and slightly positive on the NYSE.

1:37pm and crude oil is over $33 per barrel. So much for next month’s CPI number.

1:56pm and entering the final hour the major measures are on their lows for the day and close to the lows they made yesterday. The final hour will tell the tale.

2:32pm and with the market continuing to trend lower we sold all our TWX holdings at $15.50 for a scratch. The trade will not be posted tonight because of technical problems.

With this sale we have a comfortably huge cash position in all accounts. And we own a few speculative stocks that will participate in any rally. We know we should be playing for the year end rally but our contrarians nature tells us that it isn’t as easy as the gurus suggest; or maybe our caution is just a matter of turning 60 and having been in the business for 38 years.

The NASDAQ broke through yesterday’s low but the S&P and DJIA have remained above their lows of yesterday.

3:02pm at the bell the DJIA closed down 88 points at 9623. The S&P 500 lost 9 points to end at 1034 and the NASDAQ dropped 28 points to finish at 1882.

And tomorrow is another day.

18 November 2003 - Morning Comment

6:15am and overseas markets are higher and so are U.S. stock futures. Maybe the correction was a one day wonder.

Home Depot announced better than expected earnings this morning and that my reassure traders that all is not lost. The sell off yesterday was muted by a last hour rally although the volume was suspect.

We are looking for a point of entry to put a few more dollars to work and if bears like us are on the sidelines waiting to get in we presume there are a lot of late blooming bulls with the same idea.

GE and Microsoft are trading at six month support levels. But there are many stocks that are still well above their March lows and the question is whether they give some more back before heading higher.

We listed many negatives yesterday but there are always negatives and the ‘old saw’ about markets climbing a wall of worry well describes the current situation. So we are conflicted about entering now or waiting a few more weeks. Our present state of mind says give the market more time to see if the correction will expand. If it doesn’t we will probably miss the move but the stocks we own will recover.

So let the games begin.

17 November 2003 - Evening Comment

7:36am and business inventories rose 0.3% in September. That means that third quarter GDP will be revised higher to close to 8%. On that news short Treasuries lost their bid (weakened) but longer Treasuries have maintained their early morning strength.

The immediate trading levels are support at 1045 on the S&P 500 and resistance at 1060. Either of those must be breached for stocks to break out of their tight range. 9625 is good support on the DJIA.

7:47am and we read that Madonna and Time Warner are scrapping and so we would expect weakness in TWX this morning in addition to the overall market weakness.

We have reduced Model Portfolio and client positions to our speculative stocks package and Andrew Corp, Time Warner, AT&T Wireless and Wild Oats. All these stocks offer a double potential from their current prices over the next year if the markets move higher; and if the markets move lower these issues have half or less of that downside. Actually the speculative package can trade at 200% of its current price if speculative conditions return.

We have used this double or better approach the last few years to maintain our large cash holding while at the same time participating in upside moves and limiting downside risk.

7:52am and the Arnold becomes Governor today so CNBC will be all Arnold all the time. That’s the perfect vapid follow up to CNBC’s blanket removing coverage of the Victoria’s Secret Runway show last Thursday.

8:01am and media and market gurus continue to make a big deal on the intentions of individual investors as a result of the mutual fund trading revelations. Our take is that mutual fund investors were so turned off by the piercing of the golden stock bubble that this current media mayhem is but a small blip to their investment outlook. The realization that mutual fund managers were mortal and lucky rather than supernatural and all knowing was a much larger and more important awakening. And that first clarion call was met with inaction because there was nowhere to go.

And so we don’t think the current scandals are the reason for any stock market weakness. The little folk have always known that the big gorillas operate under different rules and will continue to do so after this current ‘problem’ is soon forgotten. For the big guys at BankAmerica, Citigroup, Bear Stearns, Merrill, Schwab and the rest of Wall Street always have a layer of deniability between themselves and jail time.

8:46am and stocks have opened lower in orderly trading. There seems to be more an absence of buyers rather than a plethora of sellers. Breadth is negative but it will take a few hours for todays and maybe this week’s trends to develop.

9:38am and stocks are heading lower in moderate trading. The S&P 500 is dropping through the 1040 level. The NASDAQ is off 28 points and Breadth is 3/1 negative.

10:06am and the SEC is on TV saying that they are bringing an enforcement action against Morgan Stanley Dean Witter for paying its brokers to suggest certain funds to clients. MWD will pay a $50 million fine and promise never to do it again. The SEC must have been living under a rock for the past umpteen years. Sales contests have been a way of life at brokerages since the Buttonwood Tree. It is one reason we recoil in horror when anyone refers to us as a stock broker.

12:13pm and since the weather folks are predicting rain this afternoon, we took the dogs for their daily romp in the woods for the past hour. In that time stocks continued to sell off with the DJIA now down 130 points and the NASDAQ off 37 points. Maybe the long awaited correction is upon us. Since everyone has been predicting it with bright skies to follow we don’t sense any panic in the selling. It is an orderly rout. Breadth is 3.5/1 negative and down volume exceeds up volume by a 7/1 margin. There are 161 new highs.

One market guru we follow remarked today that it is interesting how quickly sentiment can turn negative. Our thought at that posting was what took folks so long? The downing of our helicopters in the last week, the Italian massacre, the Turkish bombings, the hepatitis A outbreak in Pennsylvia, the reemergence of SARS talk, the battle of Britain over Bush’s arrival are all enough to give an investor pause. Moreover while earnings beat estimates for many stocks in the recent quarterly reports, the P/E of the leadership stocks of the last month are back in the stratosphere and the quality of the leadership in the tech arena is also suspect. So we say it is about time we paused.

The economy may be rebounding but either the FED doesn’t think so or they are more concerned about next year’s presidential election than they are about the actual inflation in prices that is occurring in food, health care costs, and energy and just about anything that folks need to live.

So maybe this will be the pause that refreshes, or maybe it is more. As always time will tell.

Overseas Germany is down over 3%, France over 2% and Britain over 1%.

1:15pm and Dupont is selling its clothing and fiber businesses to Koch Industries for $4 billion. Koch, which is privately held, then will lay off the workers that Dupont can’t for political and union reasons. And Dupont will take a big charge to mask other problem areas that it needs to write off. That is the GE way of doing business.

Time Magazine has an article this week about job growth. And on CNBC when they were interviewing the Time reporter a listing of the ten top cities for job growth was shown. Most of them were smaller cities. Why in those places? Because there are no union pressures and so jobs are lower paying. That is why the recovery will stall at some point.

As we have often remarked the last great period of growth in the U.S. from 1950 to 1980 was marked buy higher paying jobs and increasing benefits. The last thirty years have seen a steady erosion of benefits and historically low wage growth.

1:35pm and Arnold gave a good speech and looked good while delivering it. And he has already begun reducing taxes. That will certainly help with California’s deficit.

1:50pm and entering the final hour there has been a slight rally in the last sixty minutes but the trend hasn’t changed yet. GE is at $27.50 which has been support for the past six months and MSFT is under $25 which is a new lower price for the last six months.

3:02pm and in the last hour stocks staged a spirited rally but still closed lower on the day. At the bell the DJIA was down 60 points at 9710. The S&P 500 was off 7 points at 1043 and the NASDAQ dropped 20 points to end at 1910. Treasuries closed on their highs in price for the day.

And tomorrow is another day.

17 November 2003 - Morning Comment

7:20am and overnight Japan was down 3.7% to fall under the 10,000 level. Hong Kong was also lower and Europe is lower across the board. The talking heads reason for the sell offs is that terrorism has again begun to affect stock markets around the world. U.S. stock futures are lower while Treasuries have a safety bid in them right now.

The terrorism bugaboo is also a good excuse to lock in profits for the year. Europe and Asian stock markets have had big runs this year too.

We think there will be some selling this morning and then we’ll find out how many dollars are left in the bull shopping purse. Our ideal scenario would be to see a pull back to the 960 area on the S&P over the next week which was a resistance level several times in the last two years and then became a support level. We’d be interested there.

So let the games begin.

15-16 November 2003 Weekend Political Observations and Commentary

6:15am and in our weekend readings we see that the Pentagon has cleared Richard Perle, noted Chicken Hawk, of any conflicts over the fact that at the same time he was serving as Chairman of the Defense Policy Board at the Pentagon he was also representing two companies negotiating with the Pentagon for work. We are not surprised he was, or that he was cleared. When one political party controls all three branches of government new rules apply.

A jury in Alabama awarded the State of Alabama $11.8 billion in punitive damages against Exxon Mobil because they found that Exxon Mobil had not paid the state all the royalties due for oil and gas extraction on state lands. The state will probably settle for $50 million. It’s the thought that counts.

From the WSJ we find that Coke has issued new guidelines for its provision of beverages to schools. Notice that the schools lose their upfront payments for letting Coke be the only provider in the school.

  • No carbonated drinks should be sold in elementary schools during the school day; instead, they should be offered juices, milk-based products, sports drinks and waters.
  • In middle schools and high schools, carbonated drinks can be sold in vending machines, but should not be offered in cafeterias. Coke also proposes putting timers on vending machines so schools can restrict the hours drinks are available.
  • Schools should not receive one-time, upfront payments in their beverage contracts; rather they should receive consistent payments over the length of the contract.
  • Carbonated drinks and Dasani, Coke's bottled water, should be offered at the same price in schools.
  • New graphics on vending machines will promote "educational activities, physical fitness and non-carbonated beverage choices."
  • Promotional activities should be limited to those requested by school officials to support "academic achievement and physical activity.”

We still can’t get over the fact that the town Tom Delay comes from is called Sugar Land.

President Bush has granted an exclusive interview to the British Tabloid “The Sun” which publishes daily pictures of bare breasted women on page three of every edition and reports stories on a par with The Enquirer. But since Bush doesn’t read papers he probably doesn’t know “The Sun” from the “Chicago Sun Times”. In fact maybe he thought he was interviewing with the Chicago paper although we think the British accent should have given him a clue. Then again there are conservative ex Brits managing The “National Review” and other opinion magazines and Tony Blankly of Newt Gingrich fame is at the “Washington Times” so maybe Bush really didn’t know. Ah! Family values and Governor Arnold. This story was reported in the Washington Post and since it ran the “Page 3” website has been non responsive because of too many hits.

The resumption of the bombing and large scale military operations while it may kill some Iraqis is going to stiffen the resistance and bring more wall sitters into the fray. But now the NYT reports that the Bushies want to turn over government to the Iraqis by June. That will be just in time to bring the troops home by September and the start of the presidential race. We aren’t complaining, they should bring the troops home now and tell the Iraqis that if they start abusing the population U.S. will come back with the regular army and do the same thing we’ve done the two previous times. The U.S. fights conventional wars well. It is impossible to win guerilla wars in far away lands. That is the unfailing history of the last two hundred years.

14 November 2003 - Evening Comment

7:32am and the Producer Price Index was up 0.8%. Core PPI was up 0.5%. And now the bonds go lower. Fed Member Poole might look in his crystal ball again about inflation. Retail sales were down 0.3%, ex autos they were up 0.2%.

The gurus are saying if you take out food, energy, and autos the PPI is up only 0.2%.

There is little reaction in bonds or stock futures.

8:20am and according to Reuters Wal-Mart has chided analysts for not realizing that when they gave a range of 45 cents to 47 cents that they really meant 46 cents on their earnings forecast for the third quarter. Wal-Mart rules the world.

8:41am and the S&P 500 is again at 1060. If the Univ. of Michigan sentiment number comes in above 90 in 15 minutes we may finally see the blast off to the upside that both the bulls and bears want. The bulls think the stock markets have higher to go and the bears want a breakout high at 1068 to fail to set up the down move.

Drug stocks are higher for the second day in a row. An analyst cut GE’s earnings number for the year to $1.60 from $1.65 and the stock is weaker on that news. We want to repurchase GE, last weeks quick trade not withstanding, but we want to see if it can hold the $27 level. Both GE and MSFT are trailing the major measures this year with both stocks basically flat.

9:02am and the U of M Sentiment number was 93.4 and stocks are moving higher. By the way Industrial Production rose 0.2% and Capacity utilization was 75%. That’s all the numbers for today.

9:52am and noon business (personal) bankruptcies rose 7% in the fiscal year ended 9/30/03 to 1.63 million.

Stocks have given up their attempt at new highs and now are floundering at lower levels.

10:13am and we were thinking as we walked last night that if our philosophy is to continue what we have done for the past five years we should continue our trading pattern and be willing to take profits especially when we believe the major measures may roll over. The move to drug stocks the last two days allows us to take a trading profit on SGP in some accounts and to get out for a scratch in others. We are also trying to move our Wild Oats holdings for a 15% gain.

10:30am and the negative action in GE today is a drag on the markets. In the bull market of the 1990s GE was the big gorilla even though tech stocks led that rally, GE moving higher gave credibility to that rally that the high flying techs couldn’t. Now with GE and MSFT marking time in relation to the overall market, the negative vibes from those two stocks has stymied the rally. If GDP is really growing at 4% plus, GE should benefit and the fact that the share price is moving sideways is disconcerting.

12:25pm and the following are quotes from a few folks that we found on the website www.calpundit.com.

“Customers continue to buy the cheapest items in any given category — a sign that household budgets remain tight,” Lee Scott, Wal-Mart chief executive officer, said on a recorded message. (Buyers are) "… timing their expenditures around the receipt of their paychecks, indicating liquidity issues," Scott said. "I don't think consumer spending is slowing, but I also don't see the strength that many of you in the investment community appear to see," Scott said.
"There can't be a jobless recovery," Treasury Secretary John W. Snow recently told the Economic Club of Washington. "The nature of a recovery is to recover. You don't recover if lots of people are looking for work and can't find work."
12:56pm and the DJIA is down 10 points and the NASDAQ is off 16 points. Treasuries are holding their gains of yesterday. Breadth is positive on the NYSE and negative on the NASDAQ. New highs exceed 300 on the NYSE and only 200 on the NASDAQ. Volume is moderate. The S&P and DJIA are only slightly below even and they may lead a charge in the last hour as the move to better quality stocks seems to be occurring.

We were able to sell the SGP at $16.12 for a scratch to a $1 per share profit.

Crude oil is above $32 per barrel.

2:23pm and we sold partials of the OATS in some accounts and eliminated it in others at $11.10. In some accounts where we had relatively small holdings we kept the position.

The DJIA is down 85 points and the NASDAQ is off 33 so it looks like there will be no rally entering the weekend.

3:02pm and the DJIA closed down 71 points at 9766. The S&P 500 dropped 8 points to finish at 1050 and the NASDAQ lost 37 points ending at 1930. In the final hour of trading there was no liquidity in the markets.

And tomorrow is another day.

14 November 2003 - Morning Comment

6:54am and at 7:30am we get PPI and Retail sales, then at 8:15am there is Industrial Production and at 9.00 am we round the morning off with University of Michigan Sentiment Numbers. And that should provide plenty of fodder for the boys and girls to trade on today.

U. S. futures are off a bit, Europe is stronger and Japan was down 1% with Hong Kong fractionally lower. Treasuries should open strong again today with the auction complete and the Fed folks talking bearishly about the economy which is bullish for bonds. Or maybe the Fed folks are just saying that the government will keep adjusting the inflation numbers so that never again is there official inflation in this country.

We are confused as we have been for a while and so our trading gloves are on the sidelines and with the addition of the PCS yesterday we are about 20% invested in the Model Portfolio (35% in smaller and trading accounts) which is about where we want to be right now. We like what we own and will add to any that move lower.

So let the games begin.

13 November 2003 - Evening Comment

6:56am and Pfizer’s cholesterol drug Lipitor works better than Bristol Myers’ drug Pravochol to lower plaque in heart patients. The study was conducted by a doctor who was paid by Pfizer but he says there is no way that the fact he was being paid by Pfizer would influence the results.

7:13am and the WSJ reports that demand for grain by China has created a rise in the price of many crops. Soybeans are approaching $8 per bushel. Can beans in the teens be far behind?

7:31am and first time claims for unemployment rose 13,000 to 366,000 and last week’s claims were revised 5000 higher. Continuing claims rose 49,000 to 3,527,000. The trade deficit widened to $41 billion. Treasuries are up in price and down in yield, stock futures are lower.

The trade deficit includes the importing of services of $21 billion. That is folks in India answering the phone calls of U.S. inquisitors. As we understand this figure, the fact that companies in India are paying folks to provide info and research to U.S. Companies and citizens is considered a positive when ten years ago that research and info would have been provided by folks in the U.S. being employed. How that is a positive for the overall economy is a mystery.

7:59am and in looking at some stocks that have gone straight up from their March lows we presume the selling pressure on their prices, if there is any, will not come until the new year. That’s because tax paying folks aren’t going to want to pay short term taxes and will take the chance.

9:01am and stocks have opened lower which is to be expected given yesterday’s strong move. That will set up a rally this afternoon.

We sold Level Three for a scratch after learning that Buffet had sold most of his position. We only bought as a trade in very small amounts in very large accounts and never had any desire to increase our position. We have a client in Omaha who was interested in the stock in the bubble years and so we took a flyer on it a month ago but don’t have the stomach to hold it even though it was a small position. The three speculative low priced stocks we own are enough to watch.

10:05pm and Applied Materials earnings were down 94% on restructuring charges and sales were down 12%. Most of the tech stocks are trading on hope.

Many folks forget that Hoover ran large deficits to get the economy going after the 1929 Crash but that the deficit stimulus only worked for a little while before the economy rolled over.

10:23am and the WSJ is reporting that Janus did after all let hedge funds do asset value scalping trades. Janus was the worst of the bubble fund companies and now they are getting their comeuppance and it couldn’t happen to more deserving folks. Janus funds should be renamed Icarus funds. In mythology Janus was a Roman god and he often is depicted with two faces because he could look backward and forward. With the recent information on Janus funds there is another reason for Janus to be depicted as two-faced.

12:51pm and the major measures remain lower. The tape needs a day to dry after the painting it received yesterday. Breadth is even but new highs are approaching 500. We added PCS to accounts at $4.29 which is 10% lower than our last purchase.

12:56pm and another outfit that has escaped the bubble mania recrimination game is Morningstar, the folks who rate funds. As we remember more than a few of the Janus funds were five star performers on the Morningstar scale back in the last century.

On this same subject T Rowe Price, the mutual fund folks are offering free Morningstar services to their retirement accounts and company sponsored plans. Price says it is to help folks out. We would guess that Morningstar has good ratings on T Rowe Price mutual funds.

12:59pm and some day the folks at CNBC will grow up and stop flashing the Victoria Secret runway walk every three minutes on the screen. Guess the producers and decision makers never made it out of college.

1:08pm and the ten-year Treasury auction is complete with primary dealers buying 60% of the auction. The yield was 4.36%.

Dell Computer reports tonight.

1:19pm and St Louis Bank Fed President William Poole said the Fed may be able to keep interest rates low well beyond March because inflation is contained and growth likely will be too slow to reduce the jobless rate. It is interesting these remarks were made while the Treasury auction was occurring. The government makes rules for everyone else but itself. No company could make bullish remarks on the day it was selling bonds or stock.

These remarks are also at odds with 7.2% GDP growth, $31 oil and rising food prices.

The average thirty year mortgage rate rose above 6% last week.

1:59pm and entering the final hour it looks like the boys and girls want to rally.

Bonds closed on their highs today after Poole’s comments with the just auctioned ten year yielding 4.27%. The primary dealers owe Mr. Poole a good job as senior economist when he retires for the money he made for them today with his comments.

2:33pm and Dell ACCIDENTALLY released earnings and sales numbers early and they were good but the stock didn’t pop higher. That follows on the heels of AMAT bettering the street with no share price improvement. That’s tired action but it may only mean that the rotation to drug and other stocks has begun. Drug stocks are strong today.

3:02pm and the DJIA closed down 15 points at 9835. The S&P 500 lost 1 point to end at 1058 and the NASDAQ was down 8 points at 1966.

And tomorrow is another day.

13 November 2003 - Morning Comment

6:27am and with the big push higher yesterday the bulls have something to prove. They haven’t been able to put two back to back days together for a while so today should be interesting. There is a ten-year Treasury auction and if that goes well it could provide the spark for an afternoon rally.

Lower yields on Treasuries and higher oil prices don’t seem to jibe with a higher stock market but we have been so out of touch with this market that we have given up trying to understand it.

Applied Materials announced higher earnings on 12% lower sales which were higher sales than expected even though they were lower and AMAT share price moved up a bit in late hours trading. GE said that short cycle orders which account for 10% of GE business are picking up and IBM says it has seen some increase in interest overseas. And on this kind of news bull market rallies are occurring.

Wal-Mart announced earnings that were a penny short of the analyst guesses. Japan was up 1% overnight and Hong Kong was up 2%. Europe is also higher this morning.

And so let the games begin.

12 November 2003 - Evening Comment

11:45am and we are back from Chicago. Yesterday we sold Zoran for a $1 to $1.50 per share loss. We decided to stop ourselves with a 10% loss. As has always been the case with us, sometimes we don’t know how the shoe fits till we try it on and live with it for a day or two.

We’ve been reconsidering our future investment posture. That reevaluation is not complete because we can’t get a handle on the economy. 7% growth is not sustainable and we would argue didn’t occur except in the government figures. We are mulling rapid recovery versus slow growth with unreported inflation and what that means for stocks. We do believe the stocks we now own have decent recovery potential over the longer term no matter what the markets do in the short run, but we don’t want to overexpose our selves to market conditions too early before year end and/or we make up our mind.

Our visit to the big city gave us the impression that there is certainly no recession among the well to do. Downtown Chicago is experiencing a building boon that reminds us of the last building boom in Chicago. That one preceded the 1987 Crash. We aren’t predicting a crash but we do wonder who is going to fill all the office space coming on line. And we think badly treated stock market money has migrated to condo speculating.

We admit we are bearish and that this is coloring our thought process and there will come a time when our quick exit, limited investment posture will not work; but we want to wait a little longer before changing an investing style that has worked for the past five years. But if we think change is warranted we will.

We own three low priced speculative stocks that we view as a package. Those are JDSU, CHTR and PCS.

The rest of the stocks we own are turn-around situations of medium to good quality that are attractively priced. When they dropped in price after purchase we were only encouraged to buy more and that is how we measure our confidence level in a stock. We are looking for other stocks to purchase but our recent experiences have been negative and so we are treading lightly.

We are doing this because several times in the last ten years we have surrendered too much of our yearly gain by taking year-end trading positions too early. We want to error on the side of leaving some money on the table this year.

1:04pm and stocks are higher with breadth over 2/1 positive. Volume is moderate and new highs are lagging with the total under 400 for the day. The final hour may suggest that the up move today is for real or just part of a reallocation process.

There are arguments going around as to whether this is a cyclical bull rally in the context of a secular bear market or if a new bull market has begin. That kind of argument is fun for gurus but for us folks in the trenches the real question is whether potential risk outweighs potential reward over the near term. We think it does. Thus we are maintaining the large cash position we have for the last four years. The six month rally has been a surprise but it is history now and we have to make decisions looking forward and not to the rear.

1:35pm and the five-year Treasury auction was completed at 3.43% yield. Ford debt was downgraded to one notch above Junk status. Ford stocks is higher on the day. The auto companies are still selling cars at zero financing and not making money. Are they the new steel companies?

Applied Materials announces earnings after the close and tech stocks seem to be anticipating a good number and good comments.

1:55pm and entering the final hour the bulls have the bears on the run with the DJIA up 95 points. Treasuries are closing the day higher in price and lower in yield in response to a well received auction.

2:40pm and crude oil closed at $31.63 on the NYMEX today. That’s a high for the past few months and may reflect the Middle East imbroglio.

3:02pm and the DJIA closed up 112 points at 9850. The S&P 500 gained 12 points to end at 1058 and the NASDAQ gained 41 points at 1971.

And tomorrow is another day

10 November 2003 - Evening Comment

7:21am and this week is a Treasury refunding week. The next refunding will be in February. The auction of three-year Treasuries is today because tomorrow is Veterans Day and a bank and bond holiday. The five-year auction is Wednesday followed by the ten-year on Thursday. The auction today will be unusual because the first leg of a refunding week is normally Tuesday. The total amount of notes to be auctioned is $57 billion.

JP Morgan has upgraded Intel this morning. Goldman Sachs has downgraded Kohl’s. Speaking of Goldman that stock has moved from $85 to $97 quite easily in the last month.

8:35am and as stocks open they are moving lower. Treasuries are higher in price lower in yield ahead of today’s auction. Most of our stocks are under pressure. But since many are near their lows and it is tax selling season this activity is not unusual. The media talk is implying that the correction may begin to occur here and that it is nothing to worry about. We agree with the first part of the statement but are not convinced about the second part.

9:06am and stocks are a bit firmer but no real action is occurring.

9:15am and Schering Plough filed with the government saying that fourth quarter earnings will be below the 6 cents per share earned in the third quarter. When it rains it pours. We are maintaining our holding and will add more at lower prices.

10:02pm and with the failure of the rally on Friday and GE sitting on its 200 day average we are going to sell at $28.17 for a scratch loss and look for a lower entry point in a few weeks. We bought on Friday as a market substitute when we thought the employment numbers would kick off a rally to higher highs.

With the DJIA down 20 points we are going to be heading to Chicago. The next post will be Wednesday evening.

And tomorrow is another day.

10 November 2003 - Morning Comment

6:30am and we are heading to Chicago this afternoon for meetings with clients. So we’ll have an early post this afternoon and then no posts Tuesday or Wednesday morning.

Asia and Hong Kong were lower over night and Europe is lower this morning. There isn’t much news this week and the stock markets are going to have to manage on their own devices.

After Friday’s action we have no predictions or idea of where stocks are going over the short term. Our long term crystal ball is cloudy also. We’ll have a post this afternoon before we go.

So let the games begin

7 November 2003 - Evening Comment

6:51am and the NYT is conjecturing that in his speech yesterday Chairman Greenspan hinted that the end of low rates was approaching. The exact phrase the Washington solon and oracle used was: "no central bank can ever afford to be less than vigilant about the prospects for inflation."

As we reported the Bank of England raised rates yesterday and the swooning Treasury bond market gave every indication that it thinks Greenspan may be going to raise rates after the New Year. If the economy is recovering as the gurus tell us it is, then rate increases are in the cards.

CNBC is reporting that the Federal Government obtained a court order in Oklahoma shutting down a company that provided Canadian obtained drugs at lower prices than available in the U.S. This action gives the lie to the Bushies’ “free market” talk when they destroy a free market occurrence to protect their contributors’ bottom line.

Today is 7/11 in Europe and 11/7 in the U.S. and there is lunar eclipse in store. Mars is in the west in the morning sky and a move to 1068 on the S&P 500 today on any good news followed by a lower close would complete a very important Fibonacci retracement and presage the end of the rally. That’s according to some of the bearish gurus we’ve been following. We didn’t see any black cats on our way to the office, but we are glad it isn’t Friday the 13th.

Finally from bizarre California, Governor-elect Arnold has hired a private investigator to look into charges that Governor-elect Arnold may have groped women in the past. Arnold says he wants to get to the bottom of this matter.

7:32am and non farm payrolls were up 126,000 for October. The September revision was higher from a reported 57,000 to over 125,000 jobs added in September. This is a very bullish report and stocks are up and bonds are down.

8:51am and stocks opened higher with the S&P 500 making it to 1062 before retreating. Now we are in a sell the news phase but there should be another rally attempt today and the final hour will tell the tale.

9:47am and with nothing happening we are of the opinion that the markets move higher from here. With that in mind we purchased GE in many accounts at $28.50. GE is going to move with the stock markets as it has over the past years.

We bought a few shares of ANDW around $13.50 for some aggressive accounts and AON Corp, the insurance broker, at $21.25 for our larger/aggressive accounts. We also are adding another round of ZRAN to some accounts at $16.60.

Our theme is to add quality stocks most of which remain well off their multi year highs.

11:35am and the major measures don’t think much of the bullish opinion we expressed a few hours ago. As we said earlier the real test will be the final hour. The DJIA and S&P 500 are both slightly lower for the day while the NASDAQ remains fractionally higher. Breadth is positive and total new highs exceed 800.

Europe has given back some of its gains as the U.S. markets have weakened but still remains broadly higher for the day.

1:08pm and the markets are not acting today as anyone forecast. We want to keep our market exposure relatively constant. And so we are selling AT&T at $19 for a scratch profit. We have telephone exposure in the wireless area in a big way with AWE and PCS and the T sale replenishes some of the cash we spent on GE earlier.

1:18pm and London, Paris and Germany all closed up over 1% on the day which was below their best levels but at highs for the year.

1:49pm and as we approach the final hour, Treasuries have come off their lows for the day but still will close with losses for the day and week. If you’ve owned Treasuries this year you haven’t made any money.

Stocks have been hot all year and if the major measures close lower it may mean that a rest period is in store. The bears are hoping for a lower close while the bulls are satisfied with this morning’s employment numbers. That manufacturing jobs continued to disappear to be replaced by service jobs doesn’t matter to the bean counters or bulls.

The U.S. has closed its embassy in Saudi Arabia because it is thinks their may be imminent attacks but the markets don’t seem to care. That certainly is a change from last year.

2:34pm and the major measures continue to meander. Breadth has been positive all day and total new highs are over 900 and were made early in the day. There were over 1000 new highs back in June when the markets first spiked higher. Some technicians think that the failure to exceed June’s new highs on these rallies is a negative.

3:02pm and the DJIA closed down 50 points at 9807. The S&P 500 lost 5 points to close at 1054 and the NASDAQ dropped 5 points to end at 1970.

And tomorrow is another day.

7 November 2003 - Morning Comment

6:28am and this morning it’s all about the employment report. If the economy added over 150,000 jobs in October then it’s up and away. If the number comes in between 50,000 and 150,000 then it is quagmire city. Below 50,000 will lead to a sell off. You read it here first if any of those three events come to fruition. If not just forget it.

The boys and girls didn’t want to push the markets higher on the Cisco number but a good employment report will be the catalyst stocks need to enter the next level.

For those who are confused, the employment report to be announced today gives the net number of jobs added or subtracted during the previous month. The first time claims for unemployment insurance number reported yesterday is only that. It does not take into account the number of people hired in that same week that folks lost their jobs. So as a measure of the economic recovery, today’s number is key.

And with that we will await the number at 7:30am.

Overseas Asia was mixed with Hong Kong and Japan fractionally higher. Europe is strong across the board.

So let the games begin.

6 November 2003 - Evening Comment

Please Note:

We have received word that the orphanage in Sri Lanka has closed it doors. As a result we will no longer be raising money for the orphanage. We ask for your thoughts and prayers for the children. Thank you for your past support.

6:45am and Wal-Mart’s same store sales were up 4.5% which was within estimates. The Limited’s same store sales were down 2% when up 2% was expected.

Oil is back over $30 per barrel.

7:16am and we have received word that VP Cheney has left his hidden and secure location somewhere in the Washington, D.C. area to fly to Sought Dakota to hunt ring necked Pheasant.

7:30am and jobless claims were down 43,000 to 348,000. Stock futures are not moving on that news which is supposed to be bullish. Productivity rose 8.1% in the third quarter. Jobless claims were the lowest since January 2001.

8:39am and the NASDAQ is higher and the DJIA is lower. Treasuries are lower across the board. Retailers with good numbers are up 10% or more today while those with lousy same store sales are off fractionally. That is certainly bull market action.

9:27am and even with the reduced first time claims for unemployment and the good Cisco report stocks are having a hard time moving higher today. That first time jobless number was a positive surprise that should have kicked stocks into high gear. Maybe traders are waiting for tomorrow’s payroll report. Any number over plus 150,000 should start the ball rolling. Any number under 50,000 and there could be a strong sell off.

10:46am and stocks are meandering with no discernible trend. The NASDAQ is higher and the DJIA is lower. Breadth is negative and new highs are subdued.

12:32pm and with the sell off today in Treasuries the total return (price change +coupon) on both intermediate and long tem Treasuries is negative for the year.

A buy program brought the DJIA close to even but then the rally faltered. Today seems to be a day of rest.

3:02pm and in the last hour of trading the boys and girls had some fun and moved stocks higher. At the close the DJIA was up 35 points at 9840. The S&P 500 gained 6 points to end at 1057 and the NASDAQ jumped 16 points finishing at 1977.

And tomorrow is another day.

6 November 2003 - Morning Comment

6:16am and the NYT reports that lawyers at the EPA tell the NYT that the EPA will drop 50 clean air enforcement actions against utilities that were started under the Clinton Administration. The dropping of these actions was a recommendation of VP Cheney’s Energy Task Force which received its input on this matter only from utility industry executives and so we know the conclusion to end the actions is unbiased and reasoned. And the beat goes on.

6:20am and Asia was lower overnight while Europe is moderately higher. U.S. futures are lower but that is because they ran higher after the close on Cisco’s earnings announcement.

Cisco says everything is peachy keen and that there are more sales on the horizon. CSCO now has a market cap of $165 billion which seems a little steep for a company with $20 billion in revenues and no revenue growth over the last few years. But hope springs eternal and folks want the magic bean pod to grow again.

6:27am and the Bank of England raised interest rates ¼ % because of improving business.

We think the markets will move higher during the day on the Cisco news and anticipation of a good jobs report number tomorrow.

So let the games begin.

5 November 2003 - Evening Comment

Please Note:

We have just received word that the orphanage in Sri Lanka has closed it doors. As a result we will no longer be raising money for the orphanage. It is a sad day and we ask your thoughts for the children. We have no way of continuing to provide for them. Please disregard our previous appeal. Thank you for your past support.

7:25am and American Eagle Outfitters just announced horrendous October sales numbers with same store sales down 18%. We said as we bought this stock last week that we were going to go through an Abercrombie with it and it looks like we will. What we don’t understand is the upgrade by Prudential Securities of the stock yesterday morning.

By going through an Abercrombie we mean our eventual substantial profit on an initial losing position in Abercrombie several years ago when they were going through a fashion miss like AEOS is currently experiencing. Having traded retail stocks for years we are aware that some of the moves can be gut wrenching but we are of the opinion that the move back to consumer companies in the next leg will include under valued specialty retailers. AEOS is a volatile stock.

8:21am and Challenger Gray & Christmas Inc, the job placement people announced that in October announced job cuts more than doubled the September number. In October companies announced plans to eliminate 171,000 jobs versus 76,000 in September. That’s the highest number of announced job cuts since last October when 176,000 job cuts were announced.

9:17am and stocks have been lower and higher today. The trading activity suggests lower than higher. Breadth is slightly negative and total new highs are half of yesterday and the day before. The pause may be coming.

9:28am and the Treasury says it is not considering thirty-year bonds. That seems short sighted. We posit that the average cost on a portion of the newly created debt will exceed 5.5% over the next thirty years. The only reason the Treasury won’t borrow long now is because they want to keep the current deficit down at the expense of future deficits and generations. That is choosing political expediency over the long term needs of the next generations.

9:31am and a large sell program hit the markets with the DJIA now down 50 points in the blink of an eye.

The ISM survey for October came in at 64.7 which was better than expected. New orders rose to 64.4 and employment also rose to 52.9. Prices paid fell to 58.7. Factory orders rose 0.5% which was below consensus but August factory orders were revised higher to plus 0.8% from a first reported minus 0.3%. Those are all good numbers for the boys and girls to trade on and the sell off after this news confirms the weakness in the stock markets today. Treasuries are also a tad lower in price higher in yield.

9:38am and upon further reflection on the AEOS report this morning we sold half our position at $15.51. That was stock owned in smaller and less aggressive accounts. We realized we’re too old to go through the down part of another Abercrombie type move with a specialty retailer. The half sold represented the shares we purchased Monday at $15.30 so we are getting out with a scratch profit. Our remaining shares are owned by our more aggressive accounts at higher prices and so we are holding for now to see if the positive action in the stock will carry through this afternoon and allow us to exit at less of a loss.

Investing at year end in out of favor stocks involves adjusting commitments with the news flow and price action of the stocks we own. We like AWE and a few other stocks we own that have better stories than AEOS. The same store sales numbers for October suggest more than a bad weather miss.

12:06pm and now that MCI is emerging from bankruptcy the company should reestablish the merger talks with Sprint that fell apart several years ago. MCI would get the wireless it needs and additional long distance and could keep or sell off the local stuff and we would hopefully make a profit on our Sprint PCS holdings. We are interested bystanders but the deal makes sense at these prices when it didn’t at the four times higher prices originally proposed.

1:31pm and Schering Plough is down today. The only news aside from the weakness in all drug stocks is that they are replacing their CFO who has been with SGP since 1982. We think that is a positive. We are biding our time before buying more since all drug stocks are under pressure and there is no reason for SGP to move counter the trend; but we are comfortable with the stock and hope to buy more before year end.

AT&T Wireless opened down 30 cents at $6.70 and traded lower to $6.60 before reversing course and moving up to unchanged at $7. Two more analysts downgraded the stock today and that was probably the reason for the initial sell off. We have no reason for the move back to unchanged except the stock is cheap. Our next buy level is $6.

2:28pm and we sold the higher cost AEOS at $15.75.

3:02pm and the DJIA closed down 18 points at 9820. The S&P 500 lost 2 points to end at 1051 and the NASDAQ closed higher by 2 points at 1960 after being lower most of the day.

And tomorrow is another day.

5 November 2003 - Morning Comment

6:35am and on our way to the office we were thinking about a call from our daughter Lisa last night. She lives in Kentucky and called to tell us that a Republican had been elected governor. It seems one problem for the Democrats was that the former governor had been caught in an affair. As we all now know politicians running for governor in any state but California can’t be caught fooling around.

But that is not our point. While commiserating with her we wanted to tell her that we have lived under Republican governors our entire adult life except this year. And this year doesn’t seem any different. And even the stuff going on in Washington doesn’t seem that different in the every day lives of most Americans from the few times we remember the Dems in control. Surely those who have loved ones in the military are on knife’s edge but that is always the case. Certainly the poor may feel slighted but that has been the all too usual case.

There have been flashes of compassionate times but usually the decisions in Washington have been and are about power. And the folks running the government are the same kids who were cheerleaders and student government types in high school and college who argue about the same dumb topics. The only difference is that they have bombs and soldiers and taxes and spending to make their points.

All these thoughts lead us to the conclusion that times are as they always have been for most folks. Most folks are trying to make a living, raise their children properly and live and let live. In earlier times folks tried Dr Spock, or hippiedom, now they are trying evangelical religion or Waldorf or Montessori.

So what do those thoughts have to do with the stock markets? Well removing the noise that sometimes was very loud, during the last forty years the major thrust of the stock market has been upward. There have been periods of scary sell off in the 1960s, 1970s, 1980s, early 1990s and the early 2000s. These have all been followed by periods of either stability or rapid rises in stock prices.

So is it different this time? We don’t know. But in our experience in the times before when the stock markets have come out of deep corrections or bear markets in the last thirty years have not been times of high and continuing budget deficits. And that to us is the fly in the ointment which gives us pause that things are different this time around.

And that caution is what leads us to gingerly invest the money we are stewarding for clients.

6:56am and the stock futures are slightly lower. Cisco earning come tonight and will set the tone for at least a few minutes tomorrow. Asia was lower and Europe is also. In neither case are the lower prices extreme.

Our guess is a slightly lower opening and a slightly higher close.

So let the games begin.

4 November 2003 - Evening Comment

7:08am and we have one housekeeping note. We neglected to mention yesterday that we traded in to & out of 500 shares of FHCC in The Model Portfolio for a $400 loss.

Also, the Autumn Lemley Letter has been posted.

Tyco posted a quarterly loss and is initiating a restructuring. That must be about the fifth restructuring for Tyco. Darden has reported continuing weak sales at Red Lobster.

According to a survey waiting times have dropped dramatically at casual dining restaurants like Darden while rising substantially at steak house type restaurants. We wonder what that means.

8:44am and stocks are opening lower in controlled trading. AT&T Wireless is under selling pressure again today as Goldman Sachs downgraded the stock from in line to under perform. We don’t have the buying power to overwhelm Goldman’s call so we will watch today’s action in AWE. MCI mentioned that it was looking for a wireless partner and AWE and PCS and NXTL were mentioned. NXTL is the street’s darling right now and it and Verizon are expected to steal all of AT&T Wireless’ customers when portability becomes available on November 24. That is a little hyperbole but traders and short sellers are pressuring AT&T Wireless stock with that news.

Prudential Securities raised its opinion on AEOS to overweight and the stock has a bit of a bid today.

11:30am and there isn’t much happening in the marketplace. Breadth is positive, new highs are approaching 700 but down volume exceeds up volume on the NYSE while the reverse is true on the NASDAQ. Treasuries have rallied and regained half their losses of yesterday. With the S&P 500 up seven days in a row a pullback here would be expected. We have a bid in for some AWE but other than that we are quiet.

1:23pm and we purchased more shares of AWE at $6.99. Other than that we are watching the paint dry. The Model Portfolio is now 21% invested. Our more aggressive and a few smaller accounts are 30% to 40% invested. We are watching Newell, AON Insurance, Hewlett Compaq, Darden (Red Lobster/Olive Garden), Maytag and Limited.

We don’t feel like pulling the trigger any more since even bull markets need to rest and seven days in arrow of ups has to engender a pause for a day or two or more. We remain bearish but are open to the rally continuing through year end and into next March. A move to 1150 on the S&P 500 would be a 50% retracement of the sell off. In 1932 and the sell off retraced up to 60% of the fall before resuming the downward spiral. We continue to believe that the deficit creation being accomplished by the Bush Budgets are economy breakers in the long run.

But we also want to take advantage of year end trading opportunities as they arise.

Tyco is higher on the restructuring news.

3:02pm and the DJIA closed down 25 points at 9835. The S&P 500 was off 8 points at 1052 and the NASDAQ dropped 10 points to end at 1957

And tomorrow is another day.

4 November 2003 - Morning Comment

6:01am and overnight the Nikkei and Hong Kong were higher while Europe is mostly lower. U.S. stock futures are also slightly lower.

Economic news is thin this morning. The SEC chief in Boston was fired for not catching Putnam or maybe it was for letting Spitzer embarrass the SEC. Years back we remember Fidelity fund managers’ front running stock purchases by their funds and not much happening. As we remember Fidelity promulgated rules that fund managers had to wait five days after beginning purchases or sales before taking action in their personal accounts. At the time and even now we consider that to be an egregious violation of fiduciary responsibility and we wonder if it is still occurring.

CBS has cancelled the mini-series about Ronald Reagan because the Republican National Committee objected to some of the made up dialog. What was that about a free press?

And the Justice and Defense Departments settled with Linda Tripp for invasion of privacy to the tune of $600,000. Can anyone say payoff? And speaking of invading privacy what about all the taped telephone conversations? Sorry folks but the conspiracy is a subject close to my heart and mind, but its time to get on to business.

6:15am and we would expect the markets to sell off a bit in the morning and then try to pierce the 1060 level again today.

So let the games begin.

3 November 2003 - Evening Comment

7:15am and we can’t figure out who is more popular, Elliott Spitzer or the attractive no name woman who is trying to pick out “the average Joe” to marry on NBC. CNBC has turned the infomercial into an art form. We watch CNBC with the volume off and are struck by the amount of advertising both paid for and presented in news format that the television series “Average Joe” is receiving. The blending of advertising with movies and cable TV is almost complete. In the movie theatre last week we had to watch at least five minutes of commercials as well as umpteen trailers for gory movies before we were allowed to watch the flick we had paid for. This is advertising overkill but who are we to question the wisdom of Madison Avenue.

7:28am and we are becoming more optimistic about year end prospects. It may seem strange to be excited at the end of a 30% run in the S&P over the last six months that we basically missed. But remember that before the S&P began its run it dropped 10% into its March low while we were up 12% in that same time period. And so we didn’t miss 22% of the 30% move because we had avoided the necessity to participate.

And as we approach year end a few of the stocks we are buying are 40% or more below their highs for the year and so are set up for the rebound after year end that we have been relying on over the years to give us a push to achieve the 10% to 12% return that we always hope to earn on a yearly basis. With 2% short term Treasury rates and 5% long term with a lot of risk Treasury rates; a 10% return with the large cash position we maintain is our goal.

8:05am and Treasuries are lower with the ten-year down in price to a 4.35% yield and the thirty-year at a 5.16% yield. Oil is creeping back to the $30 per barrel level.

Marsh & McLennan the big insurance brokerage that owns Putnam Funds has been under pressure the last few weeks because of the scandal. If the stock drops under $40 we may be interested. We are also interested in Merck if it sells off under $40 in the next month.

8:14am and Reuters just had the headline: Moskow Says U.S. Economy Not Out of the Woods Yet. Our first reaction was, “what does Putin know that we don’t know?” then we realized the spelling of Moscow was wrong and that the headline writer was referring to the economist Harry Moskow. We bet the headline writers enjoyed that one.

8:51am and stocks have opened higher. We are buying more AEOS, American Eagle Outfitters at $15.20. We have a feeling that this stock is going to be a bit like Abercrombie was for us a few years ago. By that we mean there may be some pain this month as we establish a nice sized holding followed by gain next year. Retail sales come on Thursday and AEOS may disappoint so we are keeping some powder for that opportunity.

We are also picking at Charter Communications at $4.26, the cable operator with a ton of debt in which Paul Allen of Microsoft wealth has a very large stake. The stock is up from $1 to $4 but down from $24. We don’t know what a fair price is but they aren’t going broke in the next few months and so we are hitching our wagon to the momentum horses for a ride to $7, we hope. CHTR announced results this morning and revenues were light but earnings were better. We had been waiting for the earnings before purchasing.

We are also buying FHCC $18.90 per share. First Health Group is a medical costs management provider. They announced OK earnings this morning but warned that next year’s earnings would be in the $1.50 area when $1.80 was the street expectation. The share price is off $5.50 and we are buying in our large trading accounts only. FHCC is owned by Janus Funds so they are probably selling. But Oakmark and Acorn funds are the largest fund shareholders and our bet is that they are buying. Both the latter funds have excellent value investing records and seldom abandon ship on one bad quarter. The company also has a buyback plan in place. This is purely an anchovy trade.

9:26am and strength in the ISM number is being given for the renewed surge in the S&P 500 and the continued drop in Treasury prices. The S&P 500 is at 1060 which is resistance and piercing that level on the upside will set off buy stops and result in a further move higher which then will be the big bull test.

11:46am and the battle is fixed at 1060 on the S&P 500. Breadth is good and volume is also. Treasuries remain under pressure and stocks seem to want to go higher. Cisco earnings come on Wednesday night and so stocks may battle around the 1060 level until then.

12:38pm and Reuter reported that Porsche October vehicle sales were up 85% in the U.S. Who says the tax cuts aren’t working?

1:30pm and the S&P 500 1060 barrier is holding as we approach the final hour. The bulls may be saving their dollars for the last hour or they may be waiting for Cisco to report before committing any more funds. Breadth remains 2/1 positive, up volume exceeds down volume 3/1 and total new highs are approaching 700. The two-year Treasury is at a 1.915% yield. That’s up 40 basis points in the last month.

We must admit that we are surprised that stocks are ignoring the terrible tragedy in Iraq over the weekend. It must mean that unless terror revisits American shores the panic phase is over in relation to affecting the stock markets.

European stock markets closed up 1% or better across the board. Crude oil has turned lower in price and is now under $29 per barrel.

2:01pm and as we enter the final hour the S&P 500 is again at 1060 and threatening to move through that number.

The FCC says it has found that AT&T has called 28 customers a total of 78 times who had been placed on a specific AT&T ‘do not call list.’ AT&T says they didn’t do it. With the millions of calls that AT&T makes every year soliciting folks it is amazing that only 28 folks who were on a list were called. The FCC wants to fine AT&T $780,000. They instead should give them a medal.

It is also poignant that the proposed fine comes on the day that MCI is emerging from bankruptcy, a bankruptcy that cost investors about $50 billion and happened on the watch of FCC. Maybe iffy the FCC hadn’t been so busy finding the 28 wrong calls they might have found the flim flam that MCI was running.

3:02pm and after buying FHCC at $18.82 in early trading we watched it traded over $19 per share for most of the day. Then at 2.01pm the shares began selling off and dropped to $18 before rallying a bit about 2:30pm. That kind of price action suggests two things. The first is that the company was buying back stock to support the price since the drop off didn’t occur till after 2pm. Companies can’t buy their own stock in the last hour of trading. Secondly day traders got scared when CNBC made the stock its blow up of the day and Maria the Mouth made comments about insiders selling ahead of earnings. We don’t need headaches to distract us at this time of year and the last hour action in FHCC was not pretty. So we sold and took our loss.

An example of encouraging action in stocks we have recently purchased on sell offs was Andrew Corp and Wild Oats both of which opened over 15% lower but closed above their opening trades with Andrew actually closing higher on the day. We held both those stocks and are looking to buy more.

At the close the DJIA was up 60 points at 9860. The S&P 500 closed at 1059 up 9 points and the NASDAQ gained 363 points to close at 1967. Maybe the NASDAQ will finish the year at 2004.

And tomorrow is another day.

3 November 2003 - Morning Comment

6:45am and in our readings in ‘mindless media’ over he weekend we were amused by the sanctimonious air exuded by the various state treasurers and university endowment chairpersons as they gave reasons for withdrawing funds from management by Putnam.

Putnam is a money manger and mutual fund provider that has been under intense media scrutiny and has legal problems because 6 of its managers market timed trading in funds that prohibited in and out trading. We in no way support such activities but without a shadow of a doubt we believe that the shenanigans of Citicorp and JP Morgan and other banks and large brokerage firms in assisting Global Crossing and Enron and WorldCom in their illegal activities cost investors real money.

These folks at Putnam should have been fired. But their crimes, if they were crimes were penny ante, and the cost to any individual shareholder would have been pennies.

Moreover the large state pension plans and Endowment funds had their assets managed individually and so would not have suffered any monetary losses. Moreover by withdrawing their assets from Putnam in a show of feigned outrage these treasurers and endowment chairpersons are creating real harm. That’s because they are interrupting an established investment program with which they were perfectly satisfied and now those funds will be given to another management firm with a different approach and philosophy and there will be a period of non consistent performance for the managed money that may do real harm. But in the media hype of the situation it is an opportunity for some folks to have their fifteen minutes of fame.

The better question for the media to ask these outraged treasurers and chairpersons is that with Putnam’s lousy record over the past four years why did they have their money invested there to begin.

6:55am and MCI, formerly WorldCom which was previously MCI has been given permission to emerge from bankruptcy. So crime does pay except for shareholders. But it was important for MCI to emerge so major banks and financial institution wouldn’t lose all the money they had foolishly invested in MCI debt. There are different rules for some.

7:02am and a judge agreed to a $1.4 billion settlement of charges that a number of brokerages misled investors with their research. In the settlement the where the supposedly offending parties did not admit or deny guilt. Those firms were as listed in the WSJ: The firms involved in the pact are: Citigroup Inc., Credit Suisse Group's Credit Suisse First Boston, Morgan Stanley, Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., Bear Stearns, U.S. Bancorp's Piper Jaffray, J.P. Morgan Chase & Co., UBS AG and Merrill Lynch & Co. Former Merrill analyst Henry Blodget and former Citigroup analyst Jack Grubman also reached settlements with the SEC. Both men received lifetime bans from the securities business and were levied fines of $4 million and $15 million, respectively.

Aggrieved investors will receive about $350 million of that figure with the rest going to lawyers and to allowing the firms to implement walls between research and trading and education programs so such nefarious activity will never happen again.

7:05am and in reading The Chicago Sun Times we see that Denny Hastert, the Republican Speaker of the House of Representatives of our great government has his own plan on drug prices. Rather than have the drug companies charge the prices they do in Canada and elsewhere in what he feel is a ‘populist scheme’ he wants the U.S. Trade Representative to call on Canada and other countries to in effect raise their prices to share the cost of research that U.S. citizens are bearing. The pertinant quote is:

“The solution, in my mind, is not all those populist schemes that are out there,'' Hastert said.”We have to have our trade representative at that negotiating table and saying, 'Look it, if the Canadians are going to buy the (U.S.) product, they got to pay a fair price.' "

Hastert doesn’t mention whether the Canadians should pay for advertising too. And Republicans often accuse Liberals of being out of touch with reality.

7:09am and we haven’t commented in the plus 7% Third Quarter GDP figure before because we wanted to read and understand what was contained in the number. After reading, we still have no idea what the number means other than that economic reality is supposedly better than it was a few months ago.

The numbers of unemployed and underemployed continue.

More folks are without health insurance.

Auto makers are making no money selling a record number of cars.

Inventories dropped in the third quarter because auto makers were clearing the lots.

The Fed remains worried about deflation as the GDP grows 7%. How does that compute?

That last one is the real sticker. If the FED really believed the number they would be getting ready to stomp on the inflation brakes by raising interest rates.

General Electric has disappointing earnings.

Coke is laying off 2200 workers

Drug stocks are under pressure,

Food prices are rising,

Hot stocks are back to 100 times record earnings and

Tech stocks still have no price earnings ratios because they aren’t earning money.

So as may be surmised by the above litany we weren’t’ impressed by the number. We were born in Missouri so we will wait for the next two quarters to believe a new day has arrived.

7:11am and Japan was lower while Hong Kong was higher overnight. Europe is higher across the board and U.S. stock futures are higher. This week is often a sweet spot for stocks ahead of any grinch type pullback that might spoil the holiday spirit. And our guess is that stocks move higher for the next few days.

So let the games begin.

The factual statements herein have been taken from sources we believe to be reliable but such statements are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.