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30 November 2006 Daily Comment

Thoughts

Today is the last day of the month so we donít expect a sell off. Overnight Asia was higher with Japan up over 1% and Hong Kong up almost 1%. European bourses are mostly higher and U.S. stocks will open mixed. The retail sales numbers were some good, some bad, and Wal-Mart had its first down month (by 0.1%) in many years.

Oil is approaching $63 and Gold is up a coupe of dollars at $645.

Jobless claims were 357,000 which were greater than expected and gave a bid to treasuries which are lower in yield and higher in price.
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Ford expects spend $17 billion by 2009 with most of that being expended in the next year as 40 percent of its hourly workers voluntarily leave their jobs.

Ford said that it projected a cash outflow of $10 billion from automotive operations and $7 billion related to its reorganization plan. That is just $1 billion less than the amount Ford said this week it would borrow by pledging most of its domestic assets as collateral.
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From Reuters: Entergy Corp. will shut the 979-megawatt Unit 2 at the Indian Point nuclear power station Thursday for short work, according to electricity traders. Officials at the company were not immediately available for comment on the outage.

It is interesting that electricity traders know about this event before the general public.
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We have been buying Ford, Qwest, Sony, Walgreen, Fifth Third, Palm and Wild Oats in smaller accounts that didnít own these stocks.
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We sold our Andrew position for a fifty pennies gain in our large/aggressive accounts and in those same accounts we bought Boston Scientific at $15.90 and the Gap at $18.60.

Yes Phyllis we bought The Gap.

Everything seems to be wrong with The Gap. Because things are so bad but because it has great cash flow and still has earnings and the company is priced at less than sales with $2 billion in cash on hand it has become the subject of taking private rumors. Things have been bad for three years since Mickey left. Todayís same store sales numbers for GPS were again abysmal and we donít expect a turn around this year but we are guessing there are at least a couple of points in the shares before next March.

We have been in and out of Boston Scientific for the last year and we are taking a trading position for an over year end bounce as all the Guidant folks who unfortunately took BSX stock on the merger abandon ship through year end.
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This is a link to the December letter of Bill Gross the fellow who runs $500 billion in bond money for large institutional investors.

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2006/IO+December+2006.htm

This line from that letter is especially prescient: that is why investment management is partially art, partially science, and at least a small part BS .
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We read in the NYT last night that bonuses on Wall Street have gone from $8 billion in 2002 to $35 billion this year. That item seems to suggest that a lot of good news is priced into the marketplace. Remember that the bonuses donít come out of thin air they are taken from the pockets of investors.
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European bourses closed lower across the continent with some country indexes losing over 1%.

Oil ended up 67 pennies at $63.13 and Gold was up $11 to $652. It is month end as all the big boys and girls who run hedge funds and hold long commodity positions know.

Treasuries rallied with the two-year closing at 4.62% and the ten-year at 4.41%.
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The DJIA closed down 5 points at 12222. The S&P 500 gained 2 points to 1400 and the NAZZ was flat to 2430.

Breadth was positive and volume was active.

There were 395 new highs and 60 new lows.

And a snow storm is scheduled for Chicago for tomorrow with thunderstorms in NYC. Here in the land of milk and honey we expect clear skies and cold weather. Winter has arrived right on schedule. There is one more casino day this week allowing the big boys and girls to play their fund games.
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29 November 2006 Daily Comment

Thoughts

Can the last two days have encompassed the correction? Stocks futures are higher this morning and Asia was up over night as is Europe this morning. Treasuries are easing a bit and Oil is $61.11 up 12 pennies while gold is down $3 at $641.

Investors Intelligence has Bulls at 58% and Bears at 22%. As a contrary indicator those numbers are bearish but it is year end and so we are mindful but not acting on them.
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Preliminary 3rd Quarter GDP was up 2.2%.
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Tellabs was downgraded by a Lehman analyst today and we guess that is the reason the shares sold off 10% yesterday through today. The analyst lowered his per share earnings estimate by 1 penny for the quarter. We are adding shares at $9.98 to many accounts.
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We added shares of PALM at $14.15 to many accounts that we didnít add to yesterday.
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35,000 Ford workers have accepted buyouts. That number exceeds Fordís desire for 30,000 to take the buyouts. At least Ford wonít file Chapter 11 bankruptcy because the Ford family has too much ego tied up in their ownership of the controlling stock. The family took their money and ran a long time ago but the honor of the Ford name is probably enough for management to try and keep the company out of bankruptcy. Yesterday Ford announced is was borrowing $18 billion. Too bad they didnít keep the $10 billion dividend they paid in 2000 and the money they squandered on buy Volvo and Jaguar and Land Rover.

Last night on PBS TV the Frontline show discussed the United Airlines foisting of its pension liabilities on the taxpayer by surrendering its pension plan to the Pension Guaranty board. That bankruptcy tactic caused pensions for UAL workers to be lowered forcing many to go back to work to make ends meet.

The show mentioned Chapter 11 bankruptcy as a preferred way for corporations to get out of financial difficulty. They interviewed lawyers and bankers with big smiles on their faces extolling the wonders of Chapter 11. The only folks who lose are the workers and retirees.

US Air is trying to takeover Delta Airlines which is still in bankruptcy. As we mentioned last week we expected Delta executives and even bondholders to object to the US Air takeover attempt. Thatís because Delta is still in bankruptcy and so the executives and bondholders havenít yet fashioned the sweet stock option deals that would make them rich with no risk.
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We added Walgreen at $40.72 to mid sized accounts that didnít own it. And we added Sony at $39.50 to our larger/aggressive accounts.
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Oil ended up 147 pennies at $62.46 in NYC. Gold was down $2 at $642. Treasuries were flat with the two-year t 4.68% and the ten-year at 4.52%.
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European markets closed higher across the continent.
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The major measures recaptured their early gains after a midday pull back and closed on their highs for the day. The DJIA was up 90 points at 12225. The S&P 500 rose 13 points to 1400 and the NAZZ jumped 19 to 2432.

Breadth was 3/1 to the good on the NYSE and 2/1 positive on the NAZZ and volume was OK.

There were 395 new highs and 60 new lows.

And tomorrow retail sales number will keep the big boys and girls busy with their fund games at the casino.
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28 November 2006 Daily Comment

Thoughts

This is catching a falling knife time in the stock markets. The markets tone changed bullish to bearish over the week-end. Maybe it was the sight of all those idiots pushing each other through doorways to spend money on items they donít need that changed the trend in the markets. Whatever it was traders are on the defensive and looking for stocks to short rather than buy.

We are of the opinion that what is occurring is not unusual for this time of year. What was unusual was that there was no September/October correction. In past years there have been many November/December sell offs. Some have lasted all the way to year end with a true New Yearís bounce. Others have been of a one or two weekís duration with the bounce beginning in mid-December. We arenít prescient enough to know which will occur but we do think that this drop is overdue and temporary. And we also think that the scarier the better.

Of course if the drop wipes out our hard earned gains of the past few months we wonít be happy but we will be given the opportunity to fill out our portfolios with stocks on sale. We own the core of what we plan on keeping into the New Year and will use a come down in prices of the stocks we own to build positions.

Any top that is coming will happen next year. We donít think we have seen the top for this bull run.
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Overnight Asia caught up with the drop in U.S. markets with Hong Kong off 2.9% and other exchanges down less. European markets were fractionally lower at midday.

Oil is up 30 pennies to $60.71 and Gold is off a few dollars at $637.

Durable Goods orders were down 8.3% after being up 8.7% last month. Ex transportation Durable Goods orders were down 1.7%.

Traderís memories are but a moment long and so Treasuries have rallied on the lousy numbers with the ten-year at 4.58% which is back to its March low yield. The two-year is at 4.67%.
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Mother Merrill dropped Palm to neutral from buy after Palm announced that earnings for the present quarter would be in the 11 pennies range when 18 pennies had been expected and revenues would be under $400 million when above $420 million was the guestimate.

Palm gave the delay of the introduction of the Treo 750 in the U.S. as the reason. The Treo will be introduced next week rather than at the beginning of November as had been previously forecast. The Treo 750 is already being sold in Europe.

BankAmericaís kept its buy rating on Palm although it dropped its price target to $18 from $20.
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Eaton Vance introduced a $2.3 billion closed end fund today that they say will earn a tax advantaged 9% per year. glad to know they can earn that kind of money when Treasuries earn 4%.

Closed end funds are a boon to stock brokers who make a big underwriting commission anda bane to the initial buyers who soon see the fund move down to a discount when the folks who sold them the fund move on to other products. Closed end funds should be outlawed.
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Comcast Corp. has become the first U.S. cable operator to take on telecommunications rivals in the cell phone market, having introduced the service in two cities. Comcast, the largest U.S. cable television operator, launched the new service in Boston and Portland, Oregon, earlier this month after a year-long trial.

Time Warner Inc.'s TWX cable unit and Cox Communications expect to introduce their own wireless services early in 2007.

The three cable companies plan to use the wireless network of No. 3 U.S. mobile operator Sprint Nextel Corp. as part of an agreement reached last year.
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We added shares of Palm at $14.20 to small accounts that didnít own it and to some of our larger accounts and have also added shares of Sprint at $19.40, Ford, and Fifth Third to some of our large accounts.
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Research in Motion which makes the Blackberry is priced at $24 billion net of cash in the marketplace and has sales of $2.8 billion. Palm is priced at $1.1 billion net of cash and has sales of $1.5 billion. Obviously the Blackberries that RIMM makes are the toy of choice for the investment community and we think that has something to do with the disparity. Moreover PALM is not delivering but if they do and if they can regain some parity the potential gain is not yet in the stock price. Look at Apples performance over the last few years as they developed the toy of choice for music listening.
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Guru Bernanke spoke to the Italian American Association in New York today and said that the economy is OK and that he is worried about inflation. On that big news (?) Treasuries moved back to even on the day after a morning rally and the major stocks measures moved into negative territory after managing to mount a rally from an early morning lower opening.
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Citadel Hedge Fund is planning on selling $2 billion in bonds to the public to use to trade in the markets. S&P 500 is giving a BBB+ rating to these bonds. We learned this from www.minyanville.com. We watched SEC Chairman Cox on CNBC today announce steps to protect the public. One step would be to outlaw this type of borrowing. It is one thing for hedge fund investors to risk their money. At least they have the chance of outsized gains and are supposedly capable of handling the losses. But to loan money to a hedge fund for a 6% return so that that hedge fund can speculate with the money is ridiculous.
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Oil closed at $60.99 in NYC up 67 pennies. Gold eased down $3.40 at $634 and Treasuries closed higher on the back of a good two-year note auction after being up and then down earlier in the day. The two-year ended at 4.68% and the ten-year at 4.50%.

European bourse indexes across the continent were mixed small fractions at their close.

The DJIA gained 15 points to close at 11235. The S&P 500 gained 5 points to 1386 and the NAZZ rose 7 points to 2413.

Breadth improved into the close and was 2/1 positive on the NYSE and 5/4 positive on the NAZZ and volume was moderate.

There were 200 new highs and 70 new lows.

There are three more fund days this week at the big casino.
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27 November 2006 Daily Comment

Thoughts

We are back in the saddle for the rest of the year. While we were away the markets mostly meandered. Overnight Asia was mixed with Japan up almost 1% and Hong Kong lower and at midday European bourses are taking a cue from U.S. stocks and are lower across the continent. Treasuries are a tad weaker and Oil is up a bit at $59.41 while Gold is $9 higher at $538 is the early morning going.

The CNBC talk is all of retail sales which, except for Wal-Mart, seem to have been good over the weekend. The media is overdoing the coverage but then that is now the mediaís modus operandi with everything.

Weíve noticed the last few weeks that good news is great news and bad news is no news when it comes to moving stock prices. We donít know how long this take on stocks will last but it is true for now, especially with the hot stocks that the big boys and girls like to play.

For example BankAmerica upgraded Loweís today while noting that fundamental problems (housing sales falling and competition increasing) havenít been resolved but expressing the hope that the rise in stock price suggests that the street is recognizing future potential.
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There was weakness in the dollar on Thursday and Friday. That weakness was met by strength in Treasuries and a yawn form stocks which makes no sense.

On Friday the dollar was lower and Treasuries gained which is counterintuitive and may have been a result of thin markets.

Normally a falling dollar would cause Treasuries to move lower in price and higher in yield. That is because foreigners who hold dollars need higher yields (lower prices on the bonds) to make up for the losses they experience in the exchange rate. A lower dollar means that it buys less yen. Treasuries pay in U.S. dollars and foreign investors have to convert that interest payment or proceeds of sale or redemption into their home currency with dollars that buy less of that currency.
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Two hours into the trading day and the major measures are over 1% lower in active trading. For the rally to gain steam a two week correction that creates a little fear would be beneficial.
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With the sell off today we are going to begin building positions for year end. Our guess is that there will be a resumption of the rally by year end and that the faster and deeper the correction the better the rally will be.

We are repurchasing Verizon at $34.75. VZ has spun off its yellow pages business. At present levels the shares yield over 4%.
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We bought Veeco at $19.40 for many accounts. We have traded this stock over the years. Recently the CEO resigned as CEO but will maintain his position as Chairman and the company is seeking a new CEO. The company is priced at 1.5 times revenues and is trading within two dollars of its low for the year with a high of $27 in May.

Veeco engages in the design, manufacture, marketing, and servicing of equipment used by manufacturers in the data storage, semiconductor, high brightness light emitting diode, and wireless telecommunications industries worldwide. Its process equipment products deposit or remove various materials in the manufacturing of thin film magnetic heads. The company operates through three segments: Ion Beam and Mechanical Process Equipment, Epitaxial Process Equipment, and Metrology. The Ion Beam and Mechanical Process Equipment segment deposits or etches thin film products, primarily used in the manufacture of data storage components, such as thin film magnetic heads and compound semiconductor/wireless devices. The Epitaxial Process Equipment segment provides molecular beam epitaxy and metal organic chemical vapor deposition products to high brightness light emitting diode and wireless telecommunications customers. The Metrology segment offers equipment that is used to provide critical surface measurements on products, such as semiconductor devices and thin film magnetic heads. It also includes atomic force microscopes, optical interferometers, and stylus profilers sold to semiconductor customers, data storage customers, and research facilities and scientific centers. The companyís solutions are also used as a key research instruments in universities and scientific laboratories, as well as in industrial applications.
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We added Fifth Third to some mid sized accounts that didnít own it and also added more shares of National City to our large accounts.
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We are also buying Starbucks and Walgreen in small amounts in our very large/aggressive accounts.
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Mother Merrill reports that there are $370 trillion in derivative financial contracts outstanding at the end of June 2006. That is a 25% increase over last year. Misreading the potential liabilities of certain derivative contracts is what caused the Long Term Capital hedge fund financial crisis in 1998. most of those trillions of dollars of futures contracts are properly hedged but as with the hedge fund that lost $5 billion in a week on improperly hedged natural gas contracts last September we would guess that there are more than anyone knows improperly hedged financial contracts in that $370 trillion number.

The problem is that the improperly hedged label never applies until it is too late to do anything about it. To whom do they sell?
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Oil ended up over $1 at $60.32 as supply disruptions were expected from a mortar attack in Iraq. Gold also finished $11 higher at $647. Treasuries recovered to finish firm with the two-year at 4.72% and the ten-year at 4.54%.

European bourses lost ground in their afternoon trading as U.S. markets swooned and the indexes for most of Europe were down close to 2%.

There was not even the hint of a rally today as the markets sold off from the get go with the DJIA ending down 155 points at 12125. The S&P 500 dropped 18 points to 1382 and the NAZZ lost 54 points to 2405.

Breadth was 4/1 negative and volume was active.

There were 265 new highs and 75 new lows.

It should be an interesting week at the casino with retail sales and month end on Thursday.
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22 through 26 November 2006

We are traveling for the rest of the week and if you looking for an educative read we suggest that you visit our website http://www.lemleyletter.com/lemley_iraqiran.html that gives a chronological history of the of the worlds major religions, the occupation of Jerusalem over the years, and an Iran/Iraq timeline plus explains the difference between Sunnis and Shiites.
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21 November 2006 Daily Comment

Thoughts

Asia was higher overnight as is Europe at midday. The markets have been up six of the last seven days, and seven of the last eight weeks and that trend should hold through the end of this week. Thanksgiving week is usually (75%) positive for the markets.

Gold is up $3 at $625 and Oil is up a few pennies at $59.33. Treasuries are flat with a positive tone.
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We repurchased Palm in many accounts at $15.88. Palm has a ton of cash and is selling at about 1.2 times sales. Since last we owned the shares the same patent outfit that held up Research in Motion (which makes Blackberries) for $750 million for patent infringement has sued Palm. That caused a drop from $17 on the Palm shares and we are in for a trade through year end.
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We have created a tax plan for helping with the budget deficit.

Tax Plan 2007

There were $ 4 trillion in private defined benefit and defined contribution and $2.4 trillion in IRA and Keogh as of 2001 according to Employee Benefit Research Institute.
http://www.ebri.org/pdf/publications/facts/0902fact.pdf

That amount of money now must exceed $8 trillion and is probably closer to $10 trillion.

Set tax rate at 15% with credit for state income taxes. That will level the field for states that tax IRA distributions and those that donít.

If $2 trillion (25% of at least $8 trillion in 2006) is removed it would provide $200 billion to apply to deficit (10% effective tax rate net of state tax credit offsets).

Also the $1.7 trillion would then be taxable going forward. Assume a 5% taxable earnings rate on that money and that is $80 billion of taxable income at 25% tax rate is $20 billion per year to offset lost tax receipts from no withdrawals from the $2 trillion removed. But as that $1.7 trillion grows over time tax receipts will increase.

All money in these plans is from earned income. Many of those with large amounts of money in $1 million range and above were teachers and middle income folks.

This plan lowers the tax rate but provides future income offsets.

Drug companies and others were allowed to repatriate untaxed money from overseas in 2005 at 5% tax rate.
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Oil moved higher today ending at $60.17 up $1.37 in NYC. Gold also rose up $7 to 629. Treasuries were flat to better with the two-year at 4.77% and the ten-year at 4.58%.

European bourse indexes closed mostly small fractions higher.

The DJIA gained 5 points to end at 12321. The S&P 500 was up 2 points to 1402 and the NAZZ gained 2 points to 2455.

Breadth was 5/4 positive on the NYSE and slightly negative on the NAZZ and volume was moderate.

New highs contracted to 390 and new lows were 65.

Bonds and commodities close early tomorrow and everyone is off for Turkey Day. Friday could be volatile. Weíll be back on Monday.
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20 November 2006 Daily Comment

Thoughts

We are back for two days before we head off to Chicago for Thanksgiving and client visits.

The week of Thanksgiving is usually kind to the markets although this morning stock futures are lower.

Overnight Asia was mostly lower with Japan down 2% and Hong Kong off 1% while Shanghai was 2% higher. Europe is lower and Gold is at $624 while Oil is off at $56.30. Treasuries are better.

Freeport-McMoRan wants to buy Phelps Dodge for $25 billion including $18 billion in borrowings. These are commodity companies tacking on huge debt. Thatís nuts.

Blackstone Group is going to buy Office Equity Properties REIT for $36 billion including debt. Sam Zell owns 2% of the company. He is from the buy low sell high school of real estate investing. All the other office REITS are up on hope.

The NAZZ wants to buy the London Stock Exchange for $5 billion.

In the buyout craze currently occurring too much money is chasing too few goods and these things always end badly at some point in time. We hope we are in cash when the denouement occurs. Stocks are running up on takeover rumors and those rumors are proving to be true and so more stocks run up. The markets are in a goldilocks phase.
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Schwab is selling its US Trust Division to BankAmerica for $3.3 billion. That used to be a lot of money but in todayís takeover world it is only the price of 30 Picassos.
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We sold our St Jude Medical position at $36.70 for a scratch. Given that the shares price dropped to $32 right after we purchased the stock we are happy with the sale.
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Two weeks ago we sold Williams Sonoma at $32.15 because we didnít want to hold the stock though what we thought would be lousy earnings. The share price ran up to $35 the day before earnings and we were feeling a little perturbed. But then earnings came and the share price dropped $3 to $32. We thought the shares would drop $3 but we expected the drop from the $33 level not the $35 level.

Whatever, today WSM shares are trading at $30.30 and we reestablished our position in the company. So all is well that end well. Actually this is again a beginning and we will hope this trade ends well.

We also added Qwest to larger accounts at $7.79 which is almost $1 lower than our first purchase. We will buy more in all accounts if it drops another $1 or at year end if it remains at this level.
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Europe closed higher.
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Oil ended off a bit at $58.78 and Gold was $622. Treasuries closed flat on the day.

The DJIA lost 30 points to finish at 12310. The S&P 500 was off 1 point to 1400 and the NAZZ gained 6 points to 2451.

Breadth was flat on the NYSE and 5/4 negative on the NAZZ and volume was moderate.

There were 500 new highs and 60 new lows.

And there are two more trading days till Turkey Day. The big boys and girls will begin flying the coop tomorrow night.
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15 November 2006 Daily Comment

We will be traveling on Thursday and Friday and so there will be no posts until Monday November 20.

Thoughts

Asia was higher overnight with Hong Kong and Shanghai both up over 1% and European bourses are also higher at midday. Gold is down $6 at $619 in NYC and Oil is higher by a bit at $58.40. Treasuries are flat.
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US Air is making an $8 billion bid for Delta. Delta is still in bankruptcy so the folks who run Delta havenít had a chance to get their new low priced stocks and options. Our guess is that Delta management will try and quash the deal.
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Micron has popped 10% in the last two days on the rally in the chip stocks and we are unloading our position for a scratch. We didnít want to buy any more when it was lower and that is an indication. Moreover, we are more comfortable with our Texas Instruments and Intel holdings more and we are happy to get out even.
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We are selling our Tiffany for a scratch in some accounts to a $2 profit in other accounts. We also sold our Pier One for 60 pennies per share profit. If a takeover comes in PIR it isnít going to be at much higher a price than $9 and if it doesnít occur the share price is probably going to $5 by year end.

Our feel for retailers has been punk and they all seem too expensive to us.
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As the markets move higher here we are raising cash and putting off purchases. We are doing this as a discipline. The stock markets are not behaving as they usually do at this time of year. We will not sell all our holdings but we are mainly eliminating those stocks that made us uncomfortable on down days in the market which have admittedly been few recently.
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The Fed minutes from October 24-25 meeting were released today and the phrase "All members agreed that the risks to achieving the anticipated reduction in inflation remained of greatest concernĒ caused Treasuries to sell off.
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The Model Portfolio exceeds $600,000 in value tonight. When we began the Model Portfolio 23 years ago with $50,000 we had no idea we would be so successful. We have had two down years in those 23 years. We hope that the next 23 years are as kind to us and our clients as the last 23 have been.
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Oil ended at $58.76 in NYC and Gold closed at $624. Treasuries gave ground with the two-year at $4.80% and the ten-year at 4.61%.

European bourses closed higher across the continent

The DJIA gained 35 points to close at 11252. The S&P 500 gained 4 points to 1397 and the NAZZ was up 12 points at 2430.

Breadth was 3/2 positive and volume was active.

There were 660 new highs and 80 new lows.

And there are two more casino days this week with CPI tomorrow giving the big boys and girls a delicious number to trade off.

Keep the faith while we are gone. Weíll be back Monday for two more days before we leave for Turkey Day in the Windy City.
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Special Notice
Since we are going to be away for several days this week - and next - we present our compilation of events in the Middle East for folks who wish to refresh their minds and have an hour or two to spend.

 

14 November 2006 Daily Comment

Thoughts

Asia was higher overnight with Japan (which announced higher than expected GDP growth) and Shanghai both up over 1.5%. Hong Kong was timidly higher. European bourses are lower at midday and Treasuries are strong. Gold is flat and Oil is trading lower in NYC at $58.41.

The Producer Price Index was down 1.6% and the core PPI was down 0.6%. Year over year the core PPI was up 0.6%. That is what has given Treasuries a bid. Retail sales were down 0.2% and ex autos they were down 0.4%.
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Home Depot disappointed and Target and Saks pleased.

Wild Oats is closing 8 underperforming stores and taking a $25 million charge. That is a positive because the street will think that the Burkle boys are in charge now.
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AG Edwards downgraded Sprint. Boooo!
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The CEOs of GM, Ford and Chrysler are meeting with President Bush today.
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Supposedly a Danish fellow is preparing to bid for Pier One. The shares are up $1 on the rumor.
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Most European bourse indexes closed fractionally lower.
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We have to head off to a doctorís appointment today and as we leave at 1pm the major measures have inched into positive territory. Breadth is positive on the NYSE and slightly negative on the NAZZ and volume is active. Gold is at $625 while Oil is higher at $58.90. Treasuries are flat to slightly better

This week is option expiration week and the casino has three more days of fund games in store for participants.
*****

 

13 November 2006 Daily Comment

Thoughts

Asian markets were mixed to lower small amounts overnight and European bourses are the same this morning. Gold is down $7 at $623 and Oil is off 90 pennies at $58.69 in NYC. Treasuries are firm.

Citigroup upped chip stocks to buy and downgraded defensive stocks and retail.
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Wal-Mart reports earnings on Tuesday as does Target. Home Depot is also on tap and Starbucks will report. Hewlett Packard reports on Thursday as will Dell Computer. Those are the stocks that will be the focus.
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The Justice Deportment is looking into collusion on buyout front. And more talking heads are mentioning a bubble in what used to be called leveraged buyouts but now are called private equity deals. The term leveraged buyouts conjure up Drexel Burnham and all the bad stuff associated with that era.

This time around companies are taken private and immediately the companies borrow a ton of money and pay a huge dividend (taxed at 15%) to the folks who took them private which always includes former management. Those bonds are then sold to the public who assume the majority of the risk of the deal. Thatís the same old same old Wall Street formula for making oodles of money on the backs of ma and pa investor. So what else is new?
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Oil ended down at $58.58 in NYC and Gold was down at $526. Treasuries were slightly lower with the two-year at 4.76% and the ten-year at 4.60%.

European bourses ended mostly higher.

The DJIA gained 24 points to 12131. The S&P 500 was up 4 points to 1384 and the NAZZ rose 15 points to 2405.

Breadth was 5/4 positive and volume was active

New highs were 425 and new lows were 80.

And there are four more casino days left in the week. Tomorrow we get PPI and on Thursday we get CPI, Capacity Utilization and Industrial Production which will all be good numbers for the big boys and girls to pay their fund games.
*****

 

10 November 2006 Daily Comment

Thoughts

Asian markets were mostly lower overnight and European markets except Milan are lower at midday. Treasuries are firm and Gold at $634 and Oil at $60.39 are both lower in NYC as the trading day begins.
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The chip stocks have been taking it on the chin recently and Texas Instruments is under $29. We are buying shares in many accounts.
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We continue to expect a pullback but do see an up market into 2007 and so we continue to initiate ownership of companies that we think have relative value at present levels. Our approach has always been to trade distressed stocks and in the last two months of the year that strategy can lead to some gut wrenching decisions. Catching falling knives is never easy. Over time the rough spots have always smoothed but when purchases or sales go the wrong way we always suffer a period of self examination that hopefully leads to better results over the long term. And one truism that never fails is that we never own enough when a stock is rising and always own too much when it is falling.
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We repurchased Schering Plough in our larger accounts at $21.30. We think the bulk of the reaction to the Dems is over for Pharma.
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At 12:30pm the DJIA is lower but there are more stocks up than down today. We are going to begin the week-end early by taking a walk in a beautiful snow.

The casino will be open for business a usual on Monday.
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9 November 2006 Daily Comment

Thoughts

Asia markets were mixed overnight as are European bourses at midday. Gold is up to $620 in NYC and Oil is also higher at $60.50. Treasuries are unchanged.

Cisco had good earnings last night and was positive on its outlook and the share price is higher this morning. That may give the major market measures a boost in the early going.

Jobless claims were down 20,000 to 308,000.
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The Bank of England raised its key interest rate to 5%.
*****

We are awaiting a correction before taking more action. We donít think the markets have factored in or reacted to the change in government that has occurred. It has been fourteen years since the Dems controlled the Congress and many of the folks trading big money these days were in highs school or college at that time.
*****

Oil ended up $1.33 at $61.16 in NYC. Gold jumped $17 to $637. Treasuries were unchanged with the two-year at 4.75% and the ten-year at 4.63%.

European bourses ended mixed.
*****

The DJIA lost 73 points to close at 12103. The S&P 500 dropped 7 points at 1378 and the NAZZ lost 9 points to 2375.

Breadth was 2/1 negative and volume was brisk.

There were 350 new highs and 75 new lows.

And the casino is open one more day for the big boys and girls to play their games.
*****

 

8 November 2006 Daily Comment

Thoughts

Overnight Asia was lower and European bourses are lower at their midday. Gold is off a few dollars to $623 and Oil is up to $59.94.

The Dems win the House and probably the Senate. The talking heads are talking about the election results but not saying much. The TV political gurus canít bring themselves to admit that the Dems probably have the Senate to go with the House. The Dem win was greater than the markets expected and there may be correction and rotation over the next few days as the street comes to grips with reality.

We do think that budget discipline will reappear (although the street and pundits will deny this until it occurs) and that drug companies will suffer for a while or longer as it becomes clear how aggressive the House will be in going after the Medicare drug boondoggle.

We know Bush has veto power but the Dems now have a say in the agenda which they havenít since 2000.

And the uncertainty that currently exists is why we raised cash into the rally of the last few days which made no sense to us.
*****

We repurchased Intel is in the same amount in accounts in which we sold BMY yesterday. Over the week-end we questioned our decision to eliminate our entire Intel position last week. It was overly large in relation to our other holdings. We did so to raise cash going into the election. Upon reflection we concluded we wanted to own some shares. We are not buying back our entire position but we are picking up shares for many accounts in a more proportional percentage to the other stocks position in those accounts.
*****

We are going to add a few shares of Evergreen Solar to some aggressive accounts today. We think the stock will get some play in the days ahead because of the Dem victory.
*****

We are taking the afternoon off for a bike ride. Indian summer is upon us and we are going to enjoy the last few hours and days of warm weather.

As we leave the DJIA is down 25 points and oil is up at $59.85. Treasuries are a bit higher.
*****

 

7 November Election Day 2006 Daily Comment

Thoughts

Asia closed small mixed overnight and European bourses are the same at midday. Gold is at $628 and Oil is off a bit at $59.94. Treasuries are unchanged.

Bristol Myers is going to give its interim CEO $2.3 million in cash and stock options to stay on for a while. The BMY Board of directors has been free with shareholder money for a long time. We are even on the stock and we are going to sell BMY today.
*****

Wild Oats increased sales and earnings and is trading a little higher in the early going.
*****

Urban Outfitters reported a 10% drop in same store sales but an increase in overall sales because it has 24% more stores in operation. The shares are trading up. So what do we know? We now know that we are too old to be involved with this stock at these levels.
*****

We are selling Schering Plough ahead of the vote count tonight. We have a scratch loss in it and we would rather be out than in at this point. As with BMY we were hoping for a better rally at the end of October than occurred in these two stocks.
*****

Oil ended lower at $58.93 in NYC. Gold finished at $627. Treasuries rallied and the two-year was 4.77% and the ten-year was 4.66%.

European bourses were higher across the continent.

The DJIA closed up 50 points at 12155. The S&P 500 gained 3 points to 1382 and the NAZZ was up 10 points to 2375.

Breadth was 5/4 positive and volume was brisk.

There were 460 new highs and 50 new lows.

And tonight the votes will be counted and the big boys and girls will render their judgment tomorrow with fund games at the casino.
*****

 

6 November 2006 Daily Comment

Thoughts

Asia was mixed overnight with Japan up a little and Hong Kong higher by 1%. European bourses are higher at midday. Oil opened lower in NYC at $58.89 and Gold is off a little at $629. Treasuries are lower again this morning and higher in yield as more Fed members speak of inflation and the odds of a rate hike again enter the market place.
*****

As we drove through Iowa over the week-end we decided that Whole Foods was a bit too dicey for us to own now at a P/E still over 30 with sales forecast by management to grow at around 8% next year. We sold this morning for a scratch.
*****

We are interested in the Wild Oats which is off again today on a downgrade by Citigroup with earnings expected tomorrow. Citigroup said Wild Oats' shares are less compelling after a 31 percent rise year to date(after todayís drop in price the rise is now only 15%) and 160 percent rise(now130%) since its trough in early 2005. (That trough in early 2005 was when the shares collapsed from $12 to $5 and occurred before Burkle began buying shares in January of this year at the $9 to $13 range. Burkle owns about 17% of the shares through his private equity firm Yucaipa.)

--Citigroup said the natural and organic foods retailer has made great progress but the management change could lead to some disruption in the near-term. (The current CEO Odak is retiring/out in March of 2007 and we take that as an indication the Burkle is now in control of the company and that the new CEO will be a Burkle person).

--However, Citigroup said the increased stake by Yucaipa, a private equity firm owned by billionaire grocery magnate Ronald Burkle, could lead to even greater shareholder value. See
http://www.latimes.com/business/la-fi-wildoats21oct21,1,5203857.story

With the stock down 15% today we are adding more shares to large/trading accounts and will be buying more around on any further drop. OATS is at the level where Burkle last bought shares. There is a large short interest in the stock with more shorts piling on today but that short interest is latent buying when the share price moves higher again.

Oats sells at 50% of sales and WFMI is priced at 200% of sales. The reason for the disparity is that OATS has failed to deliver performance and WFMI has over delivered. But WFMI has run in to a slowdown and Burkleís track record suggests that he will be able to turn OATS around or sell it.
*****

We are selling Urban Outfitters. The shares sell at 3 times revenues and it is a broken momentum stock and we violated our rules trying to trade it. We are uncertain of the markets for the next month and with earnings on 11/9 we want to be out ahead of them. When we bought URBN a few weeks ago we thought we would get a couple of points pop higher into month end and instead we got a two dollar drop. Ugh!
*****

As a play on the election results we bought a small amount of Evergreen Solar in our large/trading accounts. ESLR makes solar power products.
*****

We have reconsidered our comments of last Friday on the Williams Sonoma downgrade and decided today to go to the sidelines ahead of earnings later this month. The rally today doesnít make sense to us if the Dems are going to win one of the Houses of Congress. If they donít then the stocks we continue to hold will do well.

We are selling WSM at a $1 plus per share loss. A few weeks ago we had a $1 per share gain profit and in the woulda coulda marketÖ..
*****

Oil closed higher in NYC at $60.02. Gold ended at $628. Treasuries closed unchanged with the two-year at 4.82% and the ten-year at 4.71%.

European bourses ended higher by 1% or more across the continent.
*****

The DJIA staged a nice comeback rally after 6 down days recovering most of the loss to end up 117 points at 11202. The S&P 500 gained 15 points to 1380 and the NAZZ rose 35 points at 2365.

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

There were 320 new highs and 70 new lows.

And tomorrow is Election Day. The casino will be open for business as usual.
*****

 

3 November 2006 Daily Comment

Thoughts

Asia was fractionally higher overnight on most exchanges and Europe is the opposite at mid-day. Treasuries are weaker and Oil in NYC is down to$60.36 with Gold at $598.
*****

Mother Merrill upped St. Jude and downed Boston Scientific so that is good and bad news for us. But BSX has been in the doghouse and we think this is just one more switch of analystsí sentiment that will help the stock make a low from which to bounce.
*****

Oil is almost $2 lower at $59.06 and that is giving some legs to stocks at 10:30am.
*****

Most European bourses closed fractionally lower.
*****

We took a few hours off to go bike riding on a gorgeous fall day. We also wanted to keep our powder dry by holding what we own and not buying more and we thought getting out of the office would do the trick, which it did.
*****

Urban Outfitters didnít participate in todayís rally and we decided to take our 50 pennies loss in our large/trading accounts and look at the stocks after November 9 earnings unless it sell off before.
*****

Oil closed down over $2 in NYC at $58.68. Gold also closed lower by $20 at $581 and Treasuries were a teeny weenie weaker with the two-year t 4.66% and the ten-year at 4.61%.
*****

The DJIA gained 57 points to finish at 11727.The S&P 500 rose 3 points to 1334 and the NAZZ gained 6 points to 2243.

Breadth turned positive in the last three hours on the NYSE but was neagative on the NAZZ at the close. Volume was brisk.

New highs contracted to 200 and new lows expanded to 121. That is not a good sign for the bulls.

And there are three more casino days left for fund games.
*****

 

Poor Souls Day 2006 Daily Comment

Thoughts

Asia was mixed overnight as is Europe at midday. Oil is lower at $58.34 and Gold is at $618.

Treasuries have given back a tick or two of their strong gains of yesterday.
*****

Mother Merrill has gone from buy to neutral on Intel. Goldman has moved from sell to neutral on Dell.
*****

Jobless claims were up 18,000 to 327,000 for the prior week.
*****

Unit Labor Costs increases 3.8% on a year over year basis while there was now growth in Productivity which was flat in October. Productivity on a year over year basis was up 1.3% which is the slowest growth rate since 1997.
*****

To raise a little cash and have more money available for our longer time frame holdings we are selling CAT at $60.60. That represents a $1 per share gain in a week. CAT is going higher if the markets do but the percentage gain potential is in our other stocks. We bought CAT for the bounce after a $10 per share drop and there was a $3 bounce that we were too greedy to take. That is spilled milk.
*****

Oil closed down at $57.88. Gold was higher at $627. Treasuries gave up a few ticks with the two-year at 4.67% and the ten-year at 4.60%.

European bourses closed mostly lower.

The DJIA lost 13 points to end at 12018. The S&P 500 dropped 1 point to 1367 and the NAZZ gave up 1 point to 2333.

Breadth was 5/4 negative and volume was active

New highs contracted to 160 and new lows expanded a bit to 90.

And tomorrow morning the Employment Report for October is announced and the big boys and girls are all atwitter in the casino ready for fund games with the number.
*****

 

1 November 2006 Daily Comment

Thoughts

The new month began in Asia with most markets higher except Japan with the Nikkei slightly lower. European bourses are fractionally higher at midday. Oil is off pennies at $58.42 and Gold is up $5 at $612 in NYC trading. Treasuries are continuing yesterdayís rally with the two-year at 4.61% and the ten-year at 4.59%.
*****

DreamWorks had better than numbers and is trading $1 higher in the early going. The price rise is just in time for Paul Allen of Microsoft fame and fortune who wants to sell his very large DreamWorks position in a secondary. And right on cue several brokerages have raised their recommendations on the company. Collusion? Of course not.
*****

Time Warner had good add numbers for its cable and internet business and continues to have 15 million AOL subscribers which is down 2.5 million from last quarter.
*****

ADP announced a strong jobs gain number of 128,000 which ahs placed the brakes on the bond rally. Of course ADP has been more wrong than right in the last few months.
*****

We sold DreamWorks at $28.70 for a one week $3 per share profit.
*****

October pending home sales were down 1.1% and year over year they were down 11%.
*****

Construction spending was down 0.1% in October. ISM Manufacturing Index was 51 versus 53 in September.
*****

Ford said today that U.S. October vehicle sales rose 8.1 percent compared to a year ago when demand fell after a summer of showroom discounts. Ford sold 215,985 vehicles in the United States last month, compared with 199,847 vehicles a year earlier. Results for Ford include its import brands and some medium-and heavy-duty trucks and are not adjusted for the extra selling day in October 2005. Adjusting for selling days sales were up 12% when 10% was expected.Ford also estimated its inventory levels of Ford, Lincoln and Mercury brands at 622,000 units -- down 107,000 units from a year ago.
*****

Walgreen is off $1.50 on news that CVS and Caremark may merge. Supposedly the merger will hurt Walgreen. We bought a few shares of WAG for a trade in our large/trading accounts in which we sold DWA this morning.

We also repurchased shares of Time Warner a few pennies higher than where we sold it last week but down 50 pennies on the day after the initial reaction to their earnings report this morning was negative. We thought the report was positive which is why we reestablished the position in many of the accounts that owned it before we sold ahead of earnings.
*****

From the WSJ : The New York Stock Exchange, in a symbolic decision that underscores the decline of floor trading amid the rising popularity of electronic trading, plans to shut about 20% of its floor-trading space in the next 18 months.
*****

Investors Intelligence was 52% bulls and 28% bears.
*****

The Walgreen trade was a bust and we decided not to carry it overnight because the CVS/Caremark news is going to be more than a one day event. We sold it for a 50 pennies loss.
*****

Oil ended lower in NYC at $58.71. Gold gained closing at $612. Treasuries were higher with the two-year going out at 4.64% and the ten-year at 4.56%.

European bourses closed higher on the day.

The DJIA dropped 50 points to 12030. The S&P 500 lost 10 points to 1368 and the NAZZ was off 33 points to 2333.

Breadth was more than 2/1 negative and volume was brisk.

There were 340 new highs and 75 new lows.

And the big boys and girls have two more days left for fund games this week.
*****

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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