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31 October 2002
5:02am and we are getting an early start to the day because Katie is on her
way to Kentucky to spend Halloween with the grandchildren while their parents
head to Florida for a wedding and a weekend in the sun before basketball
season begins in earnest. Tyler is Spiderman and Abby is going to be the
princess she is every day of the year.
The stock futures are indicating a slightly higher opening but it is early.
Since this is the last day of the month and fiscal year for mutual funds it
should be interesting.
On the news front this morning, the NY Times is reporting that William
Webster, the newly appointed head of the accounting oversight board, told
Harvey Pitt, the clueless Chairman of the SEC that he, Webster, had been the
head of an audit committee for a company that was being sued for fraud and is
in the process of going belly up. Pitt neglected to tell any of the other
four SEC commissioners about Webster's position and assured Webster that the
SEC had investigated and found nothing wrong. The only problem is that the NY
Times reports that no one on the audit committee or at the company or suing
the company reports having been contacted by the SEC.
In the same train of thought, Citigroup announced that it is separating
investment banking from research by creating a separate division for research
and brokerage services. Come on folks, whom are we trying to kid here?
7:12am and Albertson's announced lower earnings than expected and the stock
is called down $4. We may go back into the stock which is known in the
Midwest for its Jewel/Osco stores. We like to trade ABS and since it is the
last day of the month the selling may be an opportunity.
7:31am and jobless claims are up 16000 and back to over 400,000 this week.
GDP is reported at up 3.1% for the third quarter versus 1.3% in the second
quarter. Treasuries are rallying and stocks are a bit weaker.
9:02am and stocks opened higher but now are moving lower. Today is likely to
be volatile. We have COP and BP and PNC and G for sale at higher prices. We
are also trading out of CSCO in larger accounts. And we are trying to buy ABS
around $22 down $5 from the close.
11:25am and we sold the BP, G, and COP for close to $2 per share for each
stock in all our remaining accounts. We used the DIA money from our sale last
week to buy those stocks so the switch worked. We also sold Cisco at $11.25
for a scratch profit in most accounts. We are buying more Goodyear Tire today
as mutual funds sell it. We have our remaining PNC in to sell at $41.
Trading volume is light, breadth is slightly positive and up volume exceeds
down volume 2/1 on the NYSE and 3/1 on the NASDAQ.
11:41am and Harvey Pitt has asked for an investigation of himself regarding
the Judge Webster story we told above. Far out!
1:36pm and we learn from the trading floor that today is the 666th day since
the Fed started cutting interest rates. 666 is a Fibonacci number and also
the sign of the devil in some societies. Happy Halloween.
We bought more GT at $7.20 for accounts and also picked up TXU the old Texas
Utilities for our broken down utility stocks portfolio at $14.25.
2:02pm and down volume exceeds up volume on the NYSE. NASDAQ volume is still
2/1 positive and Breadth is positive. Stocks are lower entering the final
3:02pm and the DJIA closed down 35 points at 8393. The S&P 500 lost 6 points
to 886 and the NASDAQ gained 3 points to close at 1330. Volume was moderate.
Breadth remained positive while down volume exceeded up volume 9/6 on the
NYSE. On the NASDAQ up volume exceeded down volume 8/6.
And tomorrow is another day.
30 October 2002
7:32am and as we start a little late on a beautiful fall morning the stock
futures are indicating a dull opening. There isn't much news out there but
two of our recent purchases had their ratings raised and both Gillette and BP
Amoco are higher in pre-opening trading. Unfortunately Morgan Stanley which
raised Gillette has also lowered its rating on Baxter. The left hand and the
right hand are often at odds.
CNBC announced yesterday that a well respected money manager had taken an 8%
position in Sears. No, they weren't referring to us. Anyway, that was the
reason for the pop in Sears yesterday. Finally Qwest reported a 14 cents per
share loss for the third quarter. Its report is subject to revision when it
files its 10Q sometime in the future. The stock is part of our package of
year end speculations. We think it will survive and that it will be a double
at year end and four bagger over time.
By the way we neglected to mention in yesterday's post that we sold some
Gillette in our aggressive trading accounts at a $1.50 per share loss. These
accounts have more Gillette and we wanted to keep our cash levels at 50% or
better when we purchased the BP Amoco in those accounts.
There are two days left till month end and since October 31 is fiscal year
end for many mutual funds anything is possible. The rally in the DJIA
yesterday afternoon was program and short covering related and the strength
didn't carry over to the majority of stocks. Today we may see the rally
extend to more issues.
8:35am and G opens $1.44 higher and BAX opens $1.44 lower. Now that is
symmetry. The DJIA is lower and tech stocks are being sold after trading
higher pre-opening. The short selling folks are back.
10:13am and we see on Reuters that Nicole Kidman is not yet ready for a new
relationship. That's important to know. The DJIA is up 1% and the S&P is up
over 1% with the NASDAQ up almost 3%. Breadth is 2/1 positive and up volume
exceeds down volume 3/1 on the NYSE and 10/1 on the NASDAQ. Can anyone say
fiscal year end for mutual funds?
11:44am and we are doing more buying of our speculative stocks. Two years ago
yesterday Corning Glass (GLW) sold for $104 per share. Today we are buying in
most accounts at $2.10 per share. They have big troubles but it is part of a
package. We are also adding AMR Corp, American Airlines, at $4.80 and
Goodyear Tire (GT) at $8.40 to many accounts. We have been waiting for the
earnings reports on GLW and GT, which both reported earnings today, before
buying. We re-established our trading position in Schering Plough at $21.50
and we bought a bit more Qwest at $3.10 for some accounts.
1:20pm and we sold Gillette in our trading accounts for a $2 per share
profit. And so on the loss yesterday and the profit today we make a scratch
profit. We sold 300 Gillette in our Model Portfolio to raise cash since it is
more invested than many accounts. We also sold Conoco Phillips in a few more
accounts for a $1.50 per share gain including 300 of 500 shares in the Model
Portfolio to raise cash.
2:16pm and we sold BP Amoco in our aggressive trading accounts and 300 of 500
in the Model for a one day $1.50 gain. The stock markets are rallying in the
last hour. If the rally continues into tomorrow we may sell some of our big
cap stocks in most accounts but we will wait to see what tomorrow brings.
3:02pm and the DJIA closed up 58 points at 8427. The S&P 500 gained 9 points
to close at 890 and the NASDAQ was higher by 26 points at 1326. Breadth was
1.5/1 positive and up volume exceeded down volume 2/1 on the NYSE and 5/1 on
the NASDAQ. New lows continue to exceed new highs and volume was light.
And tomorrow is another day.
29 October 2002
6:52am and the European Bourses are off about 1% while US futures are
indicating a continuation of yesterday's sell off. AOL Time Warner is
considering splitting off AOL. What a novel idea. And that spin-off will of
course provide fees for the folks who earned fees putting the two companies
together several years ago at much higher prices.
Campbell Soup was downgraded today to under perform by CFSB and BP Amoco had
less than expected earnings and plans to cut output. CPB is at an eight year
low so it has been underperforming for a while and BP is yielding 4%. We have
traded both before.
P&G came in with earnings 2 cents better than expected and the stock is up 2%
this morning. It was off 2% yesterday.
UBS Warburg is lowering earnings and sales estimates for Cisco so it may be
under pressure again today. Morgan Stanley cut the price target on Brocade,
the tech stock we purchased yesterday to $10 from $15. We'll be happy to sell
8:57am and the stock markets are mixed. We are trying to buy more Qwest as
the stock sells off on news that it will take a $40 billion write down of
assets. Yes, $40 billion. But then that's why the share price is at $3.30. We
also are buying BP at $36.60 which is down almost $3 from yesterday's close
on news that production will only increase 3% this year.
9:19am and consumer confidence was reported at 79.4 versus 96.1 in September.
That is quite a drop but war with Iraq, the Washington sniper and scads of
layoffs surely had some effect. Consumer confidence is at a nine year low.
That's when the last Bush was President.
10:02am and Treasury bonds are rallying strongly on rate cut speculation and
the stock market downturn.
12:09pm and in the how myopic can a bank be department we read in the Chicago
Tribune that State Street Bank which was appointed investment manager of the
United Airlines Employees ESOP in August has started selling 11 million
shares of the 50 million shares the ESOP owns because the ESOP is over
concentrated in UAL stock. The stock is selling at around $2.20 per share.
According to the Tribune, the bank decided that keeping the ESOP invested
totally in UAL stock was not consistent with laws pertaining to Employee
Stock Ownership Plans. Great thoughts by small minds are always amusing. So
the bank will save the Employees $22 million if the company goes bankrupt.
This is stock that no trustee had a problem holding when the shares sold at
$54 or $84 per share.
12:20pm and we added Qwest at $3.25 to some larger accounts. We are also
selling PNC Financial at $40.25 in many accounts where we purchased SPDR
Financial shares yesterday and today.
12:42pm and the DJIA has gained a bit but still remains lower. Breadth is 2/1
negative and down volume exceeds up volume by more than 4/1 on both the NYSE
1:24pm and Treasury bonds are sharply higher in price and lower in yield on
the terrible Consumer Confidence numbers. Bond yields are suggesting a
discount rate cut at the Fed meeting next week. A cut in the margin rate is
needed to get the stock markets going. A discount rate cut won't work for
more than a day.
2:01pm and entering the final hour the DJIA is trying to rally. We'll see.
2:48pm and GE in a 10Q filing reported that it has $4 billion in exposure to
UAL and US AIR. GE also has $800million in losses probable from telecom
blowups in the next year. We guess operating earning will be higher but oh
those special charges.
3:02pm and the DJIA closed higher for the day at 8372 up 4 points. Breadth
was almost 2/1 negative and down volume exceeded up volume by a 2/1 margin on
the NYSE and 3/1 on the NASDAQ. The S&P 500 lost 7 points to close at 882 and
the NASDAQ dropped 15 points to finish the day at 1300. The DJIA did rally
from down 190 points but the rally was narrow.
And tomorrow is another day.
28 October 2002
7:35am and as we get a late start this morning the stock futures are
indicating a 1% higher opening. The bulls are back in control. Lula won in
Brazil but the markets don't seem to care. The DAX and FTSE are higher and
all systems are go for the rallying to continue.
Echostar and Direct TV are back at the Justice Department offering to give up
satellite slots so that the merger may be completed. Whatever happens we
still like GMH.
The obfuscation of earnings continues. Newell announced higher earnings
excluding special charge of $50 million in the quarter. That betters last
year's earnings when special charges for the quarter were only $10 million.
Again we ask, why aren't yearly special charges considered operational
losses? Newell especially has been taking special charges for years.
9:11am and the stock markets opened up 1% but they are now pulling back
slightly. Investor psychology seems more bullish this morning and so the
rally may continue. We are buying some Brocade which had lousy numbers and is
off a bit, for a trade, but mostly we are going to watch. We own what we want
to own right now and think the markets are going to pull back sometime in
November, probably after the election.
10:37am and our website has been down for two days. There is some problem
with Microsoft and the server. Fatal Error messages and all that. Sorry about
the lack of visibility but we have no control. The website is now back up
We purchased SPDR Financials for a trade at $22.73. The financial markets
seem to be taking Lula's election and Wall Street layoffs in stride and so we
think there is upside potential. The XLU give us good diversification in the
financial sector in one stock. We are also buying more Tellabs at $7 for
trading accounts and Carpenter Technology, a high grade stainless steel
manufacturer at $10.75. Finally we bought Mercator for aggressive accounts at
70 cents per share ahead of tomorrows earnings. MCTR is a penny stock that
might make it.
1:26pm and we are saddened by the news that two University of Arizona Nursing
School professors have been killed by a disgruntled student. Since Katie has
been a professor we guess we feel a special sadness at this occurrence. We
know shootings and random killings have been occurring for eons, but the
omnipresent news media has a way of making the seldom seem common.
We completed our purchase of Brocade at $7.50 in accounts where we sold EMC
last week. The stock markets have been up or down 1% all day and the bias
seems to be to the upside. We'll see how things go in the final hour.
2:52pm and we bought a little more Brocade at $7 in smaller accounts. We
chuckled as we looked back several years when we noticed that on October 31,
2000 Brocade sold at $131 per share. We have taken a rather large speculative
position in BRCD but we believe that once the mutual fund selling is
get a nice bounce. The stock was crushed today trading 20% of the outstanding
3:02pm and the DJIA lost 76 points today to close at 8369. The S&P 500 close
down 7 points at 890 and the NASDAQ gave up 15 points to close at 1315.
And tomorrow is another day.
25 October 2002
6:25am and as we start the morning we learn in the NY Times that William
Webster, 78, former FBI and CIA director will become head of the new Public
Company Accounting Oversight Board. Mr. Biggs, the reformers candidate for
the job loses out although he still has his job on HBO (joke). And so the old
boys win again as they always do. And that's good for traders since we will
continue to have scandals and shenanigans. That's human nature after all.
Before we go too far on our cynical pill, we are relieved to learn of the
capture of the sniper in the Washington DC area...
The stock futures are indicating a continuation of yesterday's sell off. The
action today is probably important because if the markets head back down they
will have made a lower high than the recovery high of the July sell down.
Household International is under selling pressure and down $4 per share in
pre opening trading.
Cigna, the health insurer is off $16 to $47 which it last sold at in 1996
after it cut earnings estimates because of a big jump in health care costs.
Surprise? With this news coming at mutual fund year end of October 31 there
is going to be carnage in the health care stocks this morning.
Negative news is again being treated negatively. Amazon reported better
earnings last night and the stock dropped two dollars in after hours trading.
Good news is now being treated negatively. It's interesting how quickly
sentiment changed at midday yesterday. The fragility of the stock markets
recovery is evident in share price action the last 24 hours.
Boeing and Citigroup are going to be laying off people and Warren Buffet is
leaving the board at Gillette although Berkshire Hathaway will maintain its
Unilever, the Dutch conglomerate bought Dreyer's Ice Cream this year.
Dreyer's had purchased Ben & Jerry's a few years ago. Now B&J is announcing
its second round of layoffs. Where have all the flowers gone?
7:31am and durable goods orders were down 5.9% in September. Ex auto and
aircraft the number was down 1%. This is a volatile number or so say the
talking heads. Treasuries are rallying and stock futures are weaker.
7:53am and the stock futures didn't like the durable goods number and so it
looks like a lower opening is in the cards. We are off to get our locks
shorn. Hope we don't have the same bad luck as Sampson and lose our strength
to make prescient market calls. We shall see.
9:02am and the University of Michigan consumer sentiment number came in at 80
in October versus 86 in September. The markets opened lower and are now
10:53am and stocks are positive. We have been raising cash in our aggressive
trading accounts by selling all our EMC at $5.16 for a nice 15% profit in
three days. We also sold our BMY and SGP and COP for scratch profits and PNC
Financial for a $1.25 per share gain. We sold the PNC and COP only in our
aggressive trading accounts. In the aggressive accounts we also sold Cisco
for a $1 per share profit and our small position in HAIN for a $1.25 per
Yesterday's sell off reminded us of the risk/reward ratio and that we were
overly invested in our trading accounts. The one day $27 (40%) per share drop
in the price of Cigna stock has reaffirmed for us of the risk of stock
ownership. We are in the process of lightening up on our DIA positions and
may be out of DIA by the end of the day as an easy way to raise cash if the
An analyst at Lehman lowered his rating on Gap Stores today to sell on the
common stock. That same analyst suggested investors buy Gap bonds. That
recommendation doesn't make sense to us. It's too cute. We won't argue with
the sell recommendation on GPS although we are going to hold ours. But it
makes no sense to tell folks to sell the stock and then tell folks to buy
bonds that mature in six years in the company in place of the stock. In
effect the analyst is suggesting that the Gap will be able to pay the
interest on the bonds for the next six years and the principal at maturity
but won't be able to figure out how to make any money from selling clothes.
With a ten percent yield on the bond, buyers will double their money in seven
years. If the bonds are going to pay off we are betting that the shares of
Gap will double in half the time.
Alliant energy dropped ten percent in value today when they announced lousy
earnings and a lousy next year forecast. We thought the bad news was in the
stock but we forgot the myopia of Wall Street. We also think the drop is a
function of mutual fund year end approaching and we think the stock will
rally in November. LNT is part of a three stock package of Duke Energy (DUK),
Excel Energy (XEL), and Alliant Energy (LNT) that we have purchased in larger
accounts. There is a bit of speculation in any one of the stocks but we are
betting that two out of three will recover nicely and that one will probably
muddle along. The dividends on XEL and DUK have already been cut and we would
presume LNT will cut theirs. But even the reduced dividends yield over 5%.
12:58pm and news is on the tape that Senator Paul Wellstone and his wife and
a daughter several staff members and two pilots have died in a plane crash.
He was a good guy with guts. We are terribly saddened by the deaths.
On a more mundane note his death gives the Repubs a leg up on control of the
Senate and thus control of the government. The markets will rally on this
news. That may seem crass but the markets have no emotion, only the people
investing in the markets do. And folks will smell a Republican victory
2:46pm and we decided to sell all our DIA at $83.83 to raise cash on the
rally today. If the Dems nominate Mondale or Alan Page they have a chance of
carrying the state.
3:02pm and the DJIA closed up 127 points at 8444. The S&P 500 closed up 16
points at 897 and the NASDAQ was up 32 points at 1331.
For the year the DJIA is down 15%, the S&P 500 is off 21% and the NASDAQ is
The Model Portfolio is up 4.4% for the year and is 60% cash, 40% invested in stocks.
And tomorrow is another day.
24 October 2002
6:45am and walking through the first snow of the season we realize that warm
weather is gone and its time to fill the wood bin. The trees are lovely with
their shawls of white and happily the snow amount is just right. Not too deep
to have to shovel, but enough to frost the trees with that lovely look of new
The stock futures are indicating a slightly lower opening but the rally at
the end of the day yesterday should reassert itself within in an hour of the
opening. We are getting to the tag end of earnings now and with month end
approaching we continue to believe we will rally in fits and starts into
Election Day November 5.
We are going to add Delphi Corp, the auto parts folks, to the low priced list
today and keep picking at other low priced issues. Since the drug stocks were
over owned by mutual fund as were the retailers we may go back into BMY and
SGP for an after October bounce. We don't yet have the courage to buy
Abercrombie or American Eagle Outfitters, but we are thinking about it.
7:30am and jobless claims are down 35,000 to fewer than 400,000. The stock
futures have moved to plus territory on that news and Treasury bonds are
9:30am and the stock markets opened higher and then backed off. The DJIA is
currently down 37 points. A rest before the rally continuing is good.
10:30am and the stock markets are a bit higher while the bonds are also doing
better. We sold some Sears at 27.35 for a scratch after an interesting
journey with the stock over the past week. We only sold it in accounts that
had too large a position for our comfort level. We are buying Delphi Auto at
$7 in many accounts as part of our year end package. It is of better quality
than most of the stocks in the package.
We are also buying Duke Power at $19.35 in large accounts where we purchased
Alliant Energy early in the week. These are two broken down utility stocks
that used to be of the highest quality but now are suffering from unwise
moves into energy trading and overseas expansion. Since the markets have had
three months to digest the news we believe that the bad news is in the stock
price. If that is the case the selling pressure should abate in a few days.
We also may go back to a bit of Xcel Energy in these same accounts for the
We bought JP Morgan Chase again in our aggressive accounts at $20.25 and
we've also added more Qwest to larger accounts. Q still scares us because
they haven't filed audited returns for a while and how the markets react when
they do will be a function of the mood of the market and the share price at
which Qwest is selling. We are adding TLAB at $6.875 to aggressive accounts
and are still trying to buy Hain. We'll wait for earnings to decide on any
more JDS Uniphase. And we still have our eye on Gillette.
11:53am and Breadth is 2/1 positive, and so is up volume versus down volume.
The market measures are flat and volume is moderate. Most of the earnings
news is out and the markets are now just waiting to see who wins the last
hour, the bulls or the bears.
12:52 and the DJIA is down 1% while the S&P and NASDAQ are only down
slightly. Breadth remains positive as does up versus down volume.
1:52pm and the DJIA is now down 150 points. This is a bit more of a retreat
than we expected today. As would be expected breadth is now negative as is
up/down volume. We bought Gillette at 28 and Baxter Labs at $26.92 during the
sell off. We'll see what the final hour brings.
2:13pm and the screen of green colored up stocks has turned red as in down
and the DJIA is down 180 points. Will easy come be easy go?
3:12pm and we lightened up on our DIA position in our large and aggressive
accounts by selling half the position at $83.11. We don't like taking losses
but our higher by the close strategy didn't hold and we felt compelled to
lighten what is basically a trading position. Hopefully we are wrong and the
DIA rally tomorrow since we have a good chunk left.
The DJIA closed down 176 points at 8317. The S&P 500 lost 13 points to close
at 888 and the NASDAQ was down 21 points at 1298. Breadth at the close was
slightly negative and down volume exceeded up volume 10/6 on the NYSE and
10/8 on the NASDAQ.
And tomorrow is another day.
23 October 2002
6:34am and on a chilly morning the stock markets look to provide a chilly
opening for the bulls. The stock futures are off about 0.5%. New York
Attorney General Elliott Spitzer is going to question Sandy Weill the CEO of
Citicorp. The folks at CNBC are in lather that an elected official of New
York State could have the temerity to question an icon of the financial
establishment. It's OK to chase Martha Stewart all over the country about a
few dimes, but when it comes to going after the big boys who by their neglect
and avarice cost investors billion of dollars the talking heads at CNBC think
the AG has gone too far. We say not far enough.
Oops, Harvey Pitt the embattled head of the SEC is on CNBC right now
defending his record.
The earnings announcements over the last few days have not been stellar, or
even encouraging, but the stock markets have managed to hold their gains
during the onslaught of negative announcements and that is a positive. We are
viewing this period as we did last August and trying to catch the next 5% of
the rally by owning stocks we think will rise 10% to 25%. We do see a sell
off after the November elections no matter who wins but till then we think
the risk/reward ratio is right.
6:51am and the European bourses are all down about 2% to 3% which is adding
downside pressure to the US opening.
9:12am and the stock markets are lower as the Treasury market rebounds a bit.
The stock markets have been down 1% to back to even and are now down 1%
again. Periodic buy programs move the markets up but there doesn't seem to be
any sustained buying interest at these levels this morning.
10:42am and when scenarios don't unfold the way we think they will we take
some money off the table. And so we sold our Texas Instruments for a scratch
profit, Intel for a 10% profit, SPDR Utilities for a 5% to 10% profit, our
Burlington Resources for a scratch profit and our THQ for a scratch loss. We
sold the General Electric for a 70 cents per share loss. GE holds bad karma
for us and we promise never to trade it again.
We bought QQQ in our trading accounts at $23.92 before the last rally failed
and we also bought some more JDSU at $2.32 to add to a few accounts. We also
have a $27.50 bid in for Gillette which is under selling pressure because of
an analyst downgrade. That's $3 lower than last night's close.
11:09am and we are buying DIA at $83.15 in the accounts where we sold the GE.
The DIA are down $1.60 and we don't think we are going back to retest the
lows till after November.
11:39am and we sold MSFT at $51.50 for a 40 cents per share loss. We are using
the MSFT money for the DIA purchase. MSFT seems to hold bad karma for us
also and we are more comfortable with the money in the DIA. And so with the
70 cents loss in GE we still are 50 cents per share ahead on the DIA purchase
over where they closed last night. We know that's convoluted reasoning but
it's the way we think on these switches.
12:20pm and the stock markets have come back a bit. Breadth is negative as is
down/up volume but not by much in either case. Trading is moderate.
1:58pm and sometimes our fear is a signal that the market will improve. The
DJIA is now plus and our MSFT and GE sales look panicky. But our DIA buy
looks prescient. Happily most of our other stocks are on the plus side and we
are much more comfortable with the DIA and the cash we raised today.
We added Rite Aid at $1.95 to most accounts. On the rally we sold the QQQ at
$24.41 in our trading accounts. We also started buying Tellabs at $6.20,
Fleming at $5.90, CTS at $6.05, and Hain at $13 since we are approaching the
end of mutual fund selling. We weren't able to pick up very much at our limit
prices but we will be picking at them for the next few days. All except Hain
are part of our low priced stock package.
3:02pm and Tom Galvin, chief market strategist at CSFB First Boston and an
inveterate bull during the whole market rise and sell off has been fired by
CFSB. Bullish sentiment as measured by Investors Intelligence has risen to
38% from 28% last week and bearish sentiment fell to 35% from 43%. Those are
two conflicting signals.
The DJIA closed 44 points higher at 8495. The S&P 500 closed at 896 up 6
points and the NASDAQ closed up 27 points at 1320. Breadth was 2/1 positive
on the NYSE and NASDAQ and up volume exceeded down volume 2/1 on the NYSE and
4/1 on the NASDAQ. It looks like some folks who are short tech stocks are
getting caught in end of the month buying by mutual funds. On the MSFT/GE
sales we lost a total of $1.10 but our DIA purchase with the proceeds closed
$2 above our purchase price and so all is well that ends well. And a little
luck helps too.
And tomorrow is another day.
22 October 2002
8:02am and the stock futures are indicating a down opening of over 1%. Japan
and Europe are off this morning but Treasury bonds are also weak. Oil is
lower by about $1.50 per barrel. We detect a change in tone from the
President about Iraq and we would guess that the White House is going to let
the United Nations try its inspection routine first. Even with the drop in
oil prices, the fact that the US isn't going to get control of Iraqi oil in
the near future is a negative for the economy. Most of the talking heads who
were predicting a better economy in the near future were using the
availability of Iraqi oil as a catalyst for lower oil prices and thus a type
of egalitarian tax cut for Americans.
The stock markets have been rising on momentum buying and even with the
pullback today we expect stocks to move higher through month end. Mutual
funds will want to mark up their positions for their year end reports. The
lack of belief in this current rally by many folks has given it the
proverbial wall of worry needed for successful climbing. We do see a pullback
in November but November is two weeks away and we could have a pretty good
rally continuation till then. We have redeveloped a good size cash position
and will try to trade the DIA and some other big cap stocks into the end of
the month with that cash. We are gong to use today's pullback to establish
Texas Instruments is being destroyed this morning and we are picking at the
stock for our aggressive accounts. There is also a stock called THQ which
provides game software that disappointed big time last night and we are
picking up a few share of that stock for aggressive accounts. We are letting
a little Intel go even though it is down from last nights close because we
think the TXN news will be a negative and allow us to buy the stock lower.
8:25am and we are amused that the mighty SEC has sent a Wells letter to
Martha Stewart telling her she may be the subject go civil litigation for
insider trading where she made something like an extra $40,000. At the
instant time, Harvey Pitt the SEC Chairman is backing down from a commitment
to appoint a tough Chairman to the Accounting Oversight Board and the Bush
Administration is suggesting cutting the recently raised SEC budget by 27%.
The more things change the more they stay the same.
All of which bring to mind our main reason for suggesting the rally will
build into November and that is that it looks like the Republicans will gain
control of the Congress. And as we all know when Republicans are in control
the stock markets flourish, at least for a week or two.
9:17am and the markets are churning at lower levels. The major measures are
off 1% in moderate trading. Breadth is 2/1 negative as is down versus up
10:19 am and bought Texas Instruments at $13.88 and more AMD at $4.50 in
accounts where we sold Intel yesterday and at $14.82 today. We also bought
GE at $26.75 and Microsoft at $51.72 in many accounts for trading purposes.
With trading in mind we added DIA to accounts. We purchased SPY at $89.03 for
a day trade in aggressive accounts. We are buying Cisco at $10.75 for a one
to two week trade ahead of earnings November 6. We've started picking at oil
stocks and have added Burlington Resources at $39.25 in larger trading
accounts and Conoco Phillips at $47.35 in many accounts. We are also adding
PNC Financial to accounts at $38.80. Finally we repurchased Alliant Energy at
$18.25 in accounts where we sold the SPDR Utilities yesterday.
12:55pm and the stock markets remain lower as do Treasury bonds. Trading is
moderate and tired. We may be pushing a bit here with our purchases but we
think there is more upside before the election.
1:46pm and the stock markets are attempting to rally while the bonds are on
their lows for the day. We'll see what the final hour brings. At some point
the weakness in Treasury bonds is going to hurt some hedge fund folks who
were leaning the wrong way. By that we mean that folks who were long (owned)
bonds on margin have to be hurting from the sell off in the last two weeks.
If those folks were very bearish which being long bonds would suggest then
they also have to be hurting from their short positions in stocks.
We added BMY at $23.25 to our aggressive accounts that own SGP and we are
also buying Gillette as it sells down under $30 per share to aggressive
accounts. We bought BMY because we were watching a financial show last night
and a drug analyst who recommended buying BMY said in the disclosure that he
owned the stock. We have never heard an analyst recommending a stock that
they owned. And so we decided to start tiptoeing back into BMY.
2:35pm and we closed out our SPY trading position at $88.90 for a 20 cents per
share loss. We sold a portion of our DIA in aggressive accounts at $84.02 for
a 60 cents per share loss. And right after we sold the markets started
rallying. Bad luck, but since we own more DIA and the SPY was a day trade
we'll take the gains in the other stocks we bought lower today as a salve.
3:02pm and the DJIA closed down 94 points at 8443. The S&P 500 was down 10
points at 889 and the NASDAQ lost 17 points to close at 1292. Breadth was 2/1
negative and down volume exceeded up volume by a 2/1 margin on the NYSE.
And tomorrow is another day.
21 October 2002
7:02am and we begin the day with the thought that the final two weeks of
October will be crucial in setting the tone for the rest of the year. 3M
announced in line earnings this morning. Among stocks reporting earnings this
week are Ford and McDonalds, two stocks in which we have an interest. Over
the week end we were reading some financial stuff and three items peeked our
In the first, Beacon Hill advisors of Summit NJ announce that two of their
hedge funds with over $750 million in assets announced that they had lost 25%
of their value in September. Actually one of the funds, upon review, lost 54%
of its value. These were funds that invested money in the mortgaged back
market and used derivatives and other fancy hedges to seek higher returns.
In an article in Barron's, it was reported that, "From 1966-82, the Dow lost
an average of 1½% a year for over 16 years-in nominal terms. But in real
terms, prices of homes, gasoline, cars, and nearly everything else increased
by a factor of eight during this period of record-setting inflation; a dollar
put into the stock market in 1966 could buy only 12½ cents of goods by the
time it came out in 1982.
This 1.5% annual loss was, in real terms, a loss of 12% a year for 16 years.
That's a bear market. The downturns in 1987 and 1990 were not bear markets in
any meaningful sense. If you went to the Himalayas for a few months,
everything was fine when you got back. Those were bear markets like Grenada
was a war".
Finally, in the last four weeks just as it became the largest mutual fund
exceeding Vanguards Index 500 Fund, The Pimco Total Return fund which is
basically a bond fund lost 1.5% of its value. Sic transit gloria.
7:50am and the stock markets will be following the overseas markets by
opening lower. There doesn't seem to be any market moving news so today may
revolve around individual stocks and their own stories.
Treasury bonds are moving a bit higher this morning following on Friday's
rebound. In one week the long bond lost 7% of its value. Most talking heads
are ascribing the drop in bond prices and rise in the stock markets to asset
allocators selling bonds and buying stocks. And they say there are billions
more dollars to be moved which should have a positive effect on the stock
markets if they are correct.
8:48am and the stock markets are lower in light trading.
10:13am and the stock markets have finally turned positive. We are selling
AOL at $12.60 for a nice trading profit ahead of Wednesday's earnings. We
also have a 30% gain in AMD in a week and so we are selling it at $4.88. In
many of our larger accounts we are trading out of the SPDR Utility at $16.70
with the idea of getting back in at a lower price. We have noticed $1 plus
intra-week moves in this trust and so we are going to try and trade the
moves. We are selling with a 5% profit in two weeks which is all we would
earn in a year invested in this instrument if its price remained constant.
11:12am and the DJIA is up over 100 points. Breadth is slightly positive and
up volume exceeds down volume 3/1. Trading is light.
11:43am and we sold some Intel at $15.16 for a $1 per share profit in our
aggressive trading accounts. We are keeping INTC in many accounts because we
think it may go a bit further in the next few days. These are times when we
treat our trading accounts a little different because they have much larger
relative positions that we like to reduce on any rallies.
In the Model we sold our AMD with everyone else and reduced our INTC holding
to 300 shares and our SPDR Utilities holding to 500 shares.
12:27pm and Treasury bonds remain under pressure. The two-year Treasury has
jumped 10 basis points in yield today to 2.20%. Three weeks ago it yielded
1.70%. The rise in stocks continues to be ascribed to asset allocators who
are in turn putting pressure on the shorts to cover.
1:55pm and we notice that EMC has been lower all day. CFSB First Boston
lowered its rating on the stock and set a price target of $5. EMC is trading
at twice revenues and is going to earn a penny or two a share. EMC has no
debt, and has over $1 per share in cash. We are buying the stock in accounts
where we sold INTC today. We have been waiting to add EMC to accounts and a
large block of the stock traded in the third market today. Because it is the
end of the month, and EMC was a major mutual fund stock we are betting that
the selling in the stock is at the point of exhausting itself. We may add
more to our low priced portfolio for all accounts over the next few days.
2:06pm and entering the final hour of trading the DJIA has backed off a bit
but still remains up 146 points with the S&P and NASDAQ up similar
AMD is up $1. Even though we made a nice profit it's tough to give up the
extra gain on the same day. Our consolation in these cases is that we know we
would have sold at $4.90, and if not at $4.90 then $5 and if not at $5 then
at $5.10. The Intel and SPDR Utilities are higher but happily in those cases
we still have clients participating in the gain.
We also are buying Sun Micro at $2.58 equal to what we bought last week for
accounts. SUNW is also under October mutual fund selling pressure.
The retailers and drug companies remain under selling pressure today as
mutual funds and formerly fast money continue to sell them and move to stocks
that have already moved higher.
3:02pm and the DJIA closed up 215 points at 8550. The S&P 500 gained 16
points to close at 899 and the NASDAQ was up 22 points at 1309. The close on
the S&P was significant and means that this rally could take the S&P back to
the 950 area and the DJIA to the 9200 area reached in late August.
And tomorrow is another day.
18 October 2002
4:39am and as we sit down to work early on a drizzly fall morning we are
reflecting on the events of the past two weeks in the stock and bond markets.
In the last few days, Treasury bonds have given up about 30% of the gains
they have made over the past six months as the stock markets have rallied
strongly from the lows they tested for the third or fourth time last week.
We are up at this time because the action of Sears yesterday upset us and was
a complementary bookend to our troubles with Schering Plough right before the
beginning of the rally. There are times when we have to remember that Mr.
Market doesn't really care how smart or successful we have been. The Sears
news was not bullish, but we do believe that the piling on of short sellers
yesterday exacerbated the negative reaction to the news. We are comfortable
with our position in Sears and plan to ride out the storm. The lesson to be
learned is that we have to be ready for turmoil at this time of year. There
may continue to be a rush from stocks that disappoint like Sears because
mutual fund year end is at the end of this month. So there should also be
other opportunities that we may consider, but with a bit more caution.
Microsoft's earnings last night were received favorably but the stock futures
are currently indicating a flat opening. The rally seems to need a rest and
gap openings like Tuesday and Thursday with no follow through are not
encouraging. On the positive side gap down openings like Wednesday with no
follow through are encouraging. Thus one might posit that we are being
exposed to a cacophony of diverse signals.
We have been doing a lot of trading trying to position ourselves and that
trading will probably continue for the rest of the year. It's the only way we
know to assume the risk for reward while being flexible.
CPI comes at 7:30am and so we'll be back then.
6:06am and the world is becoming more interesting, if that is possible.
Brazilian elections are scheduled for October 27. North Korea has a bomb or
two of the nuclear type and so the question now is why the US doesn't go
after them since they are also part of the axis of evil. The NY times reports
that our new friends in Pakistan are the nice folks who gave North Korea the
crucial technology that allowed them to make the bomb. With friends like
Pakistan etc. As was reported yesterday Pakistan has pulled back from the
Indian border although they still are shooting off missiles. Israel/Palestine
has calmed a bit and Northern Ireland has its problems with the IRA. There
are bombings in the Philippines and Indonesia and Yemen and Finland,
inflation in Argentina, coke traffic in Columbia, and a leftist president in
Venezuela who the US State Dept is doing its best to get rid of. All in all,
a normal situation exists. We didn't mention Africa because the conflicts
there are too numerous to compile and the US government really isn't
interested in Africa anyway.
Our take on making war on Iraq rather than North Korea has to do with the
fact that the guys in the White House who couldn't find oil on their own in
their private lives are now intent on gaining control of Iraq's oil. The
second answer to every question about, "Why Iraq?" revolves to oil. Since the
US is the biggest kid on the block we guess the US gets to take the
6:21am and European stocks are lower. We bought some Eriksson at 55cents
yesterday in aggressive accounts and today ERICY announced less that expected
results with a big loss thrown in. The shares are off a few pennies.
Obviously the purchase is highly speculative.
6:55am and the stock futures are now suggesting a 1% or greater down opening.
7:30am September CPI was up 0.2% with core up 0.1%. The trade deficit was $38
billion which was greater than expected. Real average weekly earnings rose
0.7% in September.
9:02am and the DJIA is down 116 points with similar down moves in the S&P and
NASDAQ. We are buying PNC Banks under $37. The yield is over 5% and earnings
are out. We are also adding DIA as they drop for our trading accounts. The
trading pattern this week has been really strange. But that may be a symptom
of a bottoming market. Whatever it is we are adding stocks as they get beaten
up. We are being more careful given our Sears and SGP experiences.
11:02am and we were only able to buy enough PNC at $36.82 for our large
trading accounts. We also bought some Boeing at $28.82 in those accounts. The
Nucor share price got away from us and we weren't able to purchase any. We
sold Atlantic Coast Air for a $2.50 per share profit and UAL even and that
leaves us with AMR Corp in the airlines. We decided we didn't want to own
the UAL after all. And we repurchased SGP in some of our aggressive trading
accounts. We don't like owning it and we don't like not owning it. We also
purchased Sun Microsystems at $2.90 in most of our accounts as an addition to
our low priced stock package. SUNW announced less than stellar earnings last
night as did Siebel Systems which we bought more of yesterday, in fact they
both announced losses, but we think they both have enough cash to survive the
12:19pm and we sold the ERICY we purchased yesterday for a scratch profit
when they announced they were going to reverse split the stock. We don't like
2:30pm and the stock markets can't decide what to do. It looks like we are
going to meander into the close without any big move up or down. For the week
the DJIA is up 5% so there isn't a whole lot more that should be expected.
3:02pm and the DJIA closed up 48 points at 8322. The S&P 500 gained 5 points
to close at 884 and the NASDAQ was up 16 points at 1288. Volume for the day
was relatively light. Breadth was negative on the NYSE and positive on the
NASDAQ and up volume exceeded down volume on both.
The Model Portfolio closed the week up 2.6% for the year. The DJIA is down
17%, the S&P 500 is down 22% and the NASDAQ is down 33%. The Model is back to
75% cash. The stock markets seemed indecisive today, and they may decide to
take a rest for a week or two. Then again... We will post the updated
Model Portfolio over the weekend.
And tomorrow is another day.
17 October 2002
6:50am and as we sit down on a drizzly morning the futures are indicating a
very strong opening. The DJIA will be up over 200 points. We have a little
anguish because we closed out our trading positions in the SPY and DIA and
QQQ at the close. The rally is coming a little late for those positions but
our discipline required us to close out the positions. Our instincts were
correct we were just early and as the saying goes, timing is everything.
Luckily, the stocks we own will benefit from the rise.
The proximate cause of today's early merriment was IBM's earnings report last
night which Wall Street liked. Europe is very strong with the DAX and FTSE
both up 3% at the present time. The Treasury bond market continues to sell
off as the stock markets rally. Microsoft's earnings come tonight.
North Korea has nuclear capability. Guess they are the next target in the
axis of evil. On the positive side Pakistan has withdrawn troops from its
border with India.
7:30am and the jobless claims rose 22,000 to 410,000. The talking heads say
not to worry because the adjustments are skewing the report. Housing starts
in September were up 13%. Wow. And the talking heads aren't worried that this
number will be adjusted. By the way housing completion dropped 4%. The ten
year Treasury continues to sell off. In the last week the ten year has backed
up from 3.57% to 4.15% in yield. In dollar terms that represents a loss of 5%
of principal or 1½ year's interest.
We are buying Sears in the pre-market at $28 because they announced lousy
earnings. That's a drop of $6 from yesterday's close. On the opening we
bought Sears in most accounts. Our cost was $27.42 because we bought shares
OTC before the opening on the NYSE. We were surprised by the low opening and
bought an equal amount as we bought before the opening. Sears has fired the
folks who messed up on the credit cards and has taken reserves. In fact the
earnings miss was because they took more reserves than they had planned. GE
or Avon would have treated the charge as a special charge and Wall Street
would have applauded. With Sears down $10 today we are comfortable with the
holding. We also bought Intel up 50 cents from the close at $14.10 for many
accounts. INTC dropped several points yesterday and we think it will
participate in the tech rally. Remember all the stocks we own are anchovies
and we believe this rally is in the context of a bear market.
8:48am and the stock markets opened higher on big volume and are holding
their gains. We are in the process of buying Sears.
10:22am and we sold our trading positions in VECO at $10.93 for a $1 per
share profit, Advent at $12.85 for a $2.70 per share profit, Reuters for a $2
to $3 per share loss, Cisco for a 75 cents per share profit. Because we are
taking on a very large position in Sears we are selling our Disney for a
90 cents per share profit. We also are buying more Siebel Systems at $7.15 and
SPDR Utilities for more accounts at $16.
12:53pm and we bought more Sears for a trade in our aggressive trading
accounts at $24.73. We think the market will close on their highs and that S
will recover a couple of points by the close.
1:38pm and it is a negative that on Tuesday and today the DJIA isn't able to
move higher than its opening rise. We have been up 200 points most of the
day. We a need a strong move in the last hour or tomorrow could be a repeat
2:14pm and the markets are not rallying. We are going to have to live with
the Sears position which the short sellers have now taken control of. As a
result we are selling the BMY we bought yesterday for a scratch profit. The
Heinz we sold at $32 to buy the BMY is down $2 per share so we are doing OK
in that trade. And we are selling the Schering Plough we bought last week at
$19.20 for a $1.50 per share profit.
2:46pm and we closed out the Sears trade for a $1.53 per share loss. We kept
our investment position in which we now have a $4 per share loss in one day.
Ouch! These are the largest losses we have had for a while both on an initial
investment and on what we thought was a reasonable trade. We have made good
money in our trading and investment accounts in the last week but this trade
and investment hurts. It hurts enough that we will probably retreat to the
sidelines to lick our wounds for a few days. We now know the power of the
hedge funds when they decide to start shorting a stock. We would like to buy
PNC which is down $4 per share today but with the Sears experience under our
belt we will wait and see what happens tomorrow.
3:02pm and the DJIA closed up 238 points at 8274. The S&P 500 gained 19
points to close at 879 and the NASDAQ rose 39 points to close at 1272. These
closing prices showed little gain over the opening. That doesn't bode well
for tomorrow unless Microsoft comes in with gang buster numbers.
And tomorrow is another day.
16 October 2002
1:15pm and we are back in God's Country after what seems like days of
driving. We did a good bit of selling of the stuff we bought last week on
Monday and Tuesday. Right now we are trying to get our legs under us and so
we won't do much posting.
We have purchased some DIA at an average price of $81.12 off $1.50 from
yesterday's close for a trade this afternoon in our aggressive accounts. We
also purchased some QQQ at $22.80 for a day trade. We won't stay with them if
we don't get a rally in the last hour. With the market pull back of 200
points we think there will be an attempt to rally and we are playing that.
Our only disappointment today is Reuters which is off $4 on a lousy sales and
earnings outlook. RTRSY says it will keep the dividend and so the stock has
stopped going down for now. We haven't added any and we are going to wait a
day or two to make up our mind on what to do. We are selling Heinz at $32
since it has gone nowhere in the 1000 point rally. And we are going to place
the money in BMY at $23.14.
3:02pm and we sold the DIA for a 70 cents per share loss. We lost 20 cents per
share on the QQQ. We are a little to full of ourselves after our good trades
of the last week and so hopefully these losing trades will bring us back to
reality. The DJIA dropped 220 points to finish at 8036, the S&P 500 lost 21
points to close at 860 and the NASDAQ gave back 50 points to close at 1232.
And tomorrow is another day.
Columbus Day October 2002 (Observed)
We are travelling and so will not have a regular post until Wednesday
evening. We added more of the SPDR Uitlity Trust to larger accounts and also
bought the SPDR Finacial Trust for those same accounts. We bought Texas
Instruments at $16, and JP Morgan at $17.34 for our aggressive trading
accounts. We also bought Rite Aid Drug Stores at $2.10 in most accounts as
part of our low priced stock package. We completed the sale of BP Amoco at
$39.98 for a nice $2 per share profit in the rest of the accounts that held
We will be adding more of the SPDR Financial and Utility to all accounts in
the next week. The stock markets acted well today in the face of the big
gains the last three days.
And tomorrow is another day.
11 October 2002
6:46am and as we sit down this morning after a boom day in the stock markets
the question is, "Are we going higher?". Notice we are not asking if the bear
market is over. And we think very few folks are asking that question. No, all
we want to know is if the stock markets are going higher. We think the answer
is yes. Yesterday went a ways towards helping to reinforce our belief that a
rally was in the making which we emphasized on Wednesday by the buying we
did. We also think Wednesday was key because the stock markets didn't give up
all their gains that day by managing to close higher. Of course the next
question is how high? Yesterday was a mix of short covering and real buying.
Today there will be more short covering but will the buying continue?
After we posted yesterday we bought more GMH when it broke to $8.15 per share
on news that the merger with Echostar was not going to occur. And we
repurchased Schering Plough in many accounts. We just didn't like not owning
it. Hope we like owning it, if not... And we were not able to complete our
purchase of UAL. We didn't want to pay up for the stock and so were left with
only enough for some of our aggressive accounts. And that is probably
fitting. We also added a few more shares of Reuters to accounts at $17.50.
Lehman is upping its rating on IBM and saying that IT spending is going to
increase in 2003. Lehman's trading department must have gotten long IBM stock
over the past few days. We know that's cynical, and we have no problem with
them recommending IBM. But we think the rational should be a valuation call
not a "pie in the sky" next year guess.
7:30am and retail sales were down 1.2% but ex autos they were up 0.1%. PPI
was up 0.1%. Stock futures are higher
8:02am and Jimmy Carter won the Nobel Peace Prize. Cheers! He's been a great
ex-president and seems to be a true man of peace.
8:50am and the Michigan Consumer Sentiment number came in at 80 down from 86
last month. On that news the DJIA started selling off after being up over 200
points. It is now up 143. We think this is the pause that refreshes and
hopefully we will pick up a few stocks we want to own. We bought Home Depot
at $25.44, Gap Stores at $9.75, Disney at $15.50, more AOL Time Warner at
$11.45, and small amounts of Cisco at $9.95, Seibel at $6.60, Mondavi at
$28.75, and Ionics at $20.10.
10:01am and another sniper shooting has occurred. The sniper seems to be
visiting Civil War sites to do the shootings.
10:45am and with as much as the stocks have moved in the last three days, we
are taking some money of the table. We sold our trading position in COX,
Nucor, Talbots, DIA, SPY, American Express, GM and GE. We know GE is going
higher but we made a small profit and we are never comfortable owning that
stock. The other stocks had had 10% to 20% moves in 36 hours and all are
anchovies. There is a method to our trading. On Wednesday we bought the big
caps that we thought would move first on any reflex rally off the lows.
Because we want to keep our cash position high we are now selling some of
those and adding the depressed stocks we think will play catch up. We are
going with the flow.
12:15pm and our screen is green as the DJIA is up over 300 points. There are
screams of pain coming from the shorts. Maybe this time folks are going to
buy the lead up to war and sell the war as in buy the rumor sell the news.
There is some sense to that since after the war starts everyone's mind will
then focus on the punk economy or Martha Stewart's trial. Jim Cramer reminded
on his website that the low in 1990 was made on October 11. But we don't
remember such a strong push off that low although we were dealing with much
smaller numbers back then since the DJIA was at 2400. We do remember making a
ton of money in 1991 after suffering through our only down year in 1990. But
in 1990 no one knew how the war would come out. This time most folks seem to
think it's going to last ten minutes and have no American casualties.
1:51pm and we traded some QQQ in aggressive accounts for a 50 cents per share
profit. As we enter the final hour the stock markets give every indication of
wanting to hold their gains. We shall see. We sold some of our BP Amoco
position in larger accounts.
3:02pm and the DJIA closed up 316 points at 7850. The S&P 500 gained 31
points to close at 835. And the NASDAQ was up 47 points at 1210.
For the year ended today the return on the Model Portfolio is up 1%. The DJIA
is down 21%, the S&P 500 is down 27%, and the NASDAQ is down 37%. We will
post the Model Portfolio over the weekend.
And tomorrow is another day.
10 October 2002
6:52am and as we begin on a rainy day in Wisconsin the stock futures are
suggesting a higher opening. We think yesterday's action was a continuation
of the October wash out. Why then did we buy some stocks yesterday? We did
that because those issues had reached what for us was true investment value.
That doesn't mean they won't go lower. But the stock markets are in the
process of establishing at least an intermediate if not final low. Markets
don't go straight up and they don't go straight down. We may very well be in
a three to ten year bear market but even bear markets have significant
rallies and we think that a tradable rally is in the cards.
We have learned over the years that when rumors of bankruptcy fill the air,
when major companies like Ford and JP Morgan are rumored to face imminent
bankruptcy that the markets are probably approaching a tradable low. Ford and
JP Morgan may very well go belly up but we will be betting that not all the
current bankruptcy candidates will. And when panic is created by rumor, lows
are usually made.
Stanley Works announced lower earnings and that stock perks our interest for
a trade today and as a longer term buy. Merrill Lynch has gone from a buy to
a neutral on GE. Aetna is predicting higher than expected earnings but as
with Abbott Aetna has special charges which will help it make its numbers.
Yahoo came in with better numbers last night and the stock is trading at
$10.95 and we are going to let our trading position go at that price. We
bought for a trade at $10.50 in September and are glad to let it go because
we are buying much higher quality and/or totally washed out stocks with our
We will be leaving early today to spend some time with our youngest daughter
as she pursues her PhD on the back roads of Wisconsin with yours truly as
chauffeur. Of course we will remain in contact with the markets through the
magic of AT&T Wireless.
7:30am and jobless claims for the week ended 10/5 dropped 40000 to 384000
which is a positive for the stock markets.
Today's numbers to watch on the S&P 500 are 774.50 on the downside (badddddd)
and 793.50 on the upside (gooddddddddd).
Short Ford paper is under pressure.
Sales at retail stores were punk. Abercrombie and American Eagle are going to
get hit today. Gap is talking and earnings hit from dock strike in the fourth
quarter. Target Stores sales were down 1% and this morning the company
lowered expectations for sales and earnings. Target says it is comfortable
with credit card operations. Sears is getting to the level that even with the
bad credit numbers we are starting to look.
9:23am and the stock markets have no direction. Right now they are rallying
after being down earlier. We are trying to buy some Stanley Works, the tool
maker and Dow Jones at $29.80 both stock being down $3 per share on
disappointing earnings news and at eight year lows. We weren't able to get
much stock so we placed the shares in our aggressive accounts. We also are
trying some Talbots in the retailing group which is down $7 per share for a
trade. We sold the SWK for a nice day trading profit of $1.50 per share. We
are doing this because SWK wasn't on our radar screen this morning and we
were only trading the price drop. The Talbots is a dicier situation but we
may try and hold because the drop is more pronounced. We have traded TLB many
times over the past ten years with mixed results. We may trade or hold the
DJ. We have owned DJ before and the specialist in the stock makes it hard to
9:30am and we are going to take a highly speculative flyer on UAL in accounts
where we bought AMR and DAL yesterday. UAL faces imminent bankruptcy but we
think the unions may not want to chance bankruptcy with a Republican
administration in Washington. At $1.70 per share we are basically buying a
10:43am and we bought the XLU which is an exchange traded fund for utility
stocks. It is listed in the papers as SPDR Utility. It is listed on the AMEX.
The DJ Utility Average has dropped from 370 to 170 over the past two years.
Utility stocks have big problems and so we don't want to buy one or two
stocks we would rather buy a package. That spreads our risk. We also added
some Cox at $22.90 and Nucor at $38 to our aggressive trading accounts.
That's it for today as we are off to Madison Wisconsin.
And tomorrow is another day.
09 October 2002
6:31am and as we walked under a starlit sky to our office we thought about our less than stellar trading activity of the last week. We just missed some nice gains in Verizon and Pepsi while avoiding losses in the DIA. While we didn't lose money on the trades we didn't have the confidence to hold the positions. The loss in Schering Plough affected our thinking but we think the main reason for our skittishness is that we still were not sure that the upside potential was greater than the downside risk on the stocks we bought and the market in general.
We are still in a bull market frame of mind. Our fear of losing money has enabled us to avoid much of the disaster of the last few years, but at some point as stocks approach investment or speculative value we are going to have to begin to assume risk. That's what we tried to do last week but after we bought the few stocks our trading mentality reasserted itself and we blew the positions out.
Even for those of us who have survived the turmoil of the last few years, this is a difficult market to game. We think we are approaching a denouement in the sell off and that a 30% rebound is in the cards but whether it occurs from 7000 on the DJIA or 7800 is the difference between a rational risk/reward scenario and a less than optimum one. And so we will continue to muddle along and hopefully catch the next up move.
Abbott Laboratories announced improved earnings today. As the story reads, "excluding special charges..." and for the next quarter the story reads, "Excluding a special charge of $100 million...". When is this special charge exclusion stuff going to end? How are investors to consider earnings when two quarters in a row of special charges help the company show 15% growth? Last year Abbott had special charges of 89cents per share which were more than twice the earning per share growth for the year. This year the $100 million charge next quarter and $40 million charge this quarter coupled with a $15 million special charge earlier in the year go a long way to reducing any earnings gains for the year.
General Motors is arriving at our buy level and a multi year low. The company is now selling at for $18 billion. Sales at GM are over $140 billion. The dividend will probably be cut and so maybe we will be a bit early, but at $32 we are going to hold our nose and buy. Our number on Ford is under $7. With all the stock the Ford family owns we think the risk of the common shares being wiped out is less than the potential gain. Right now there are myriad bankruptcy rumors flying as the shorts press their case but we will probably take a flyer soon.
7:02am and the West Coast port lockout has ended. The WSJ is beginning to run stories of hedge funds losing big bucks on bad bets. Morgan Stanley has cut GE's price target to $27 from $36 which they had previously cut to $36 from $52. The stock futures are suggesting a lower opening today. Since we don't have any stocks we want to own but continue to think a trading rally is near, we may go back to the DIA in size in accounts on a scale down. We are just thinking in writing but in July our scale started at $74. Maybe we shouldn't try to be smarter now than we were then. We were leery then because the time of the year wasn't right. Now the time of year is correct. But in July the markets were in free fall the two days of the low and this month there haven't been any free falls, just a spike higher day. And a spike higher day in a falling market is classic bear trap.
The Wall Street Journal has an interesting table showing the requirements for borrowing for individuals ten years ago versus now. There has been a lot of talk of a housing bubble. We don't know whether it is a bubble but we do know prices seem too high in relation to the ability of folks to pay.
From the Wall Street Journal 10/9/2002THEN vs NOW
Here are the rules for borrowing today, versus ten years ago:
- Lenders said the combination of principal, interest, tax, homeowners insurance and other debt should not exceed 36% of a gross income. For a household earning $100,000 annually, that would be $3,000 in payments monthly.
- Some payments approach 50% of gross income. For a household with $100,000 in annual income, that's $4,166 monthly.
- Many lenders expected a 20% down payment before writing a mortgage. So a buyer of a $100,000 home needed $20,000 cash in hand.
- With mortgage insurance, some buyers can get a mortgage with a 3% down payment or less, that's $3,000 on a $100,000 home.
- Borrowers financed 90% of the value of a new car and paid the rest out of pocket. That means they came up with $2,000 toward a $20,000 car.
- Borrowers finance up to 96% of the value of a car. That means they come up with $2,000 toward a $50,000 car.
- The average car loan value was $14,315.
- The average car loan value is $26,208.
- The average interest rate on a new car loan was 9%.
- Average interest rate on a new car is 2%.
Sources: Federal Reserve Board, HSH Associates
7:32am and Wilshire Associates reports that losses in the stock markets from the high amount to $8.4 trillion.
A large part of the reason for Sears drop from $60 in the spring to $30 now has been caused by bad credit card debt. Sears earns 60% of its profits by extending credit. Now the easy credit has hit home. We can attest to Sears easy credit policy. We had a family that we were trying to help out after they ran into financial trouble. The father had filed personal bankruptcy twice. And he still had his Sears credit card. Bad credit is sinking Spiegel as they try to sell their finance bank that no one wants. As we remember that's why Merry Go Round went belly up.
The chief credit officer of Sears was asked to leave because of "credibility problems" that had nothing to do with receivables, or so the company line goes. What other retailers with credit problems are lurking out there?
7:48am and Abby Joseph Cohen, the now not listened to market guru at Goldman Sachs has lowered her price targets for the next 12-18 months on the DJIA to10800 from 13000 and on the S&P 500 to 1150 from 1300. That would still be a wonderful return.
8:21am and the opening will be lower, then who knows? London is slightly higher, for now, Germany and France are lower while Japan closed lower just above 8500. CFS First Boston is cutting AMR (American Airlines) to neutral from accumulate. The share price is at $4. Thanks a lot. CFSB is also reducing it weighting in airline stocks. Hasn't the stock market done that for them?
8:35am and the DJIA is down 150 points and we are starting to buy our DIA on a scale down. 775 is the important level again today on the S&P 500.
8:49am and the German Dax is now down 3.38% and over 50% for the year.
9:04am and since it is our 59th birthday today we have decided to begin investing our money. Investors Intelligence bullish readings are down to 31% which is a low level that merits placing funds in investment situations. Stocks are reaching our buy levels and we aren't going to second guess.
12:39pm and we bought Albertson's the grocery store chain including Jewel/Osco at $23.93 with 3.2% yield. We have owned ABS at this price before. We bought Heinz at $32.632 for its 5% yield. We bought GE at $22.25 with a 3.2% yield at a four year low. We bought BP/Amoco at $38 yielding 4.2%. We bought AMR at $3.60 and Delta at $6.82 on a bet that not all the airlines will go bankrupt. We bought GM on a ten year low at $32 with a 5% yield if they don't cut the dividend. And we bought AOL at $10.34. We bought in smaller amounts than last week because we bought to own not trade. We have no idea where the bottom is but with stocks 50% or more off their highs and being in the month of October we felt it was time to begin investing.
2:01pm and it is crunch time. Hopefully the markets will stay down to set up the blow off for the rest of the week. We are buying good stuff at investment prices. And we have a lot of buying powder left.
We also bought Advent Systems (ADVS) at $10, Atlantic Coast Airlines (ACAI) at $8.75 and Veeco Instruments (VECO) at $9.83 in our aggressive accounts in small amounts. This is a continuation of building our package of washed out stocks. We repurchased AT&T Wireless at $3.25 in most accounts. AWE is now selling for less than revenues even if debt is included.
JP Morgan Chase is again under pressure as its ratings have been lowered. We think it is too big to fail but we aren't yet interested.
3:02pm and there was carnage at the close. Not quite blood in the streets but there is always tomorrow for that. It was interesting listening to Maria the mouth attack a lawyer from Florida who had the temerity to sue Merrill Lynch on behalf of clients who lost 90% of their money in a Merrill Lynch mutual fund. CNBC isn't having any NASDAQ 1000 celebrations for the bears like they did at NASDAQ 5000 for the bulls.
What is happening now in the stock markets is what we expected last year. Hopefully the world is not going into depression. This is the kind of market where the "old stockbroker" used to cry out, "Buy 'em now boys 'fore they go lower". At the levels we are buying stocks there is risk that they will go lower, but the risk/reward ratio is finally in the buyers favor.
The DJIA closed down 215 points at 7286. The S&P 500 was down 21 points at 776 and the NASDAQ lost 16 points to close at 1116. There were actually up stocks in tech land today while all the blue chips were hit. Breadth was negative on the NYSE by a 6/1 margin while on the NASDAQ breadth was negative by a 3/1 margin. Down volume exceeded up volume by a 6/1 margin on the NYSE and was about even on the NASDAQ. Total volume was about 1.7billion shares both places. That volume is respectable but not bottom making.
And tomorrow is another day.
08 October 2002
6:53am and on a rainy windy day stock futures give no indication of what will
happen today. The sell off into the close yesterday was a negative. Pepsi
announced in line earnings today and the stock will probably rise if the
stock markets do. Happily, we sold the stock two dollars higher yesterday
than it closed so if we wanted to get back in we could.
The late day action yesterday in Pepsi leads us to question the wisdom of
holding National City Corp ahead of earnings due October 24. One reason is
that NCC pays a dividend tomorrow and yields over 4.5% which should offer
some downside protection. But since we think the markets are still going to
have a few collapse days we may use any strength today to let that position
A week and one half ago we thought the markets might stage a spike rally
which they did on the next Tuesday. That's why we bought the four stocks we
did on the Thursday before. Unfortunately when we decided to sell the RBOCs
we were a few hours early although we made a profit, and we were taken to the
cleaners by insider trading in SGP.
This hasn't left us gun-shy but it has demonstrated the dangers in the
current markets. Of course we could hold the stocks and wait till the other
side of the bear market. But the same could have been said several months and
1000 points higher ago. So we are back to mostly cash and picking at sold out
tech and telecom stocks priced at one times sales and less than cash for our
ten stock speculative portfolio and awaiting a crescendo day.
8:06am and it looks like we will have a higher opening. Byron Wien and Barton
Biggs of Morgan Stanley both issued buy recommendations this morning. They
are old time gurus who pooh poohed the tech bubble several years ago and so
have some credibility left. It seems like a lot of gurus are issuing "buy,
but" opinions. That means buy but there may be a big whoosh down that an
investor may have to endure before the move higher.
8:41am and Pepsi opens at $39.70 up $3 per share. So we were wrong about
getting back in today. We'll have to wait for next week. Far out! We are in a
bear market. What is the rush? The DJIA is up 102 points which is what it
lost yesterday. The NASDAQ and S&P 500 have regained about 60% of yesterday's
loss. Sell the rally. We have NCC in to sell at $25.45.
8:51am and Germany is down another 2% today. Folks are starting to receive
their mutual fund statements now and judging from a phone call received
yesterday they are now losing their own money not the houses money i.e. the
profits. That should lead to liquidation.
9:25am and then comes the payoff. Senator Phil Gramm, whose wife Wendy served
as a director of Enron after being Chair of The Commodities Futures Trading
Commission, has taken a job with UBS Warburg an investment banking firm.
Gramm said he hopes the firm is hiring him for what he know not who he knows.
And bananas grow on orange trees too.
Oops, Bush is on TV live. There goes the rally.
10:39am and the stock markets are now lower. The selling is persistent but
Breadth is negative and down volume exceeds up volume by a 3/1 margin.
11:54am and the DJIA is back to even. Up 100 points, down 100 points, and
then back to even. And nothing seems to be happening. These days make the
floor traders happy if they catch the moves correctly.
Electric utility stocks are getting crushed. These companies took on massive
amounts of debt because deregulation was going to open the markets of the
world to electric utilities. Many of these companies borrowed to buy foreign
production plants. More pipe dreams to be paid for by investors. Texas
Utilities had its debt downgraded to junk today. The stock is off 50% and
trading has been halted. Allegheny Energy had its debt downgraded yesterday.
The DJ Utility average has dropped from a high of 370 in 2001 to 180 today.
And the stock markets are yawning.
12:39pm and what the heck is Pakistan doing test firing missiles as war with
1:22pm and it is rally time. Bush is going to order the striking dockworkers
back to work and so the stores will have clothes to sell at Christmas.
Breadth is negative while up volume exceeds down volume on the NYSE and the
reverse on the NASDAQ. The DJIA is up 144 points; the NASDAQ is up 18 points
as is the S&P 500.
1:45pm and it looks like Tuesday is the day for rallies. The DJIA is
expanding its gain as shorts rush to cover and so we'll see how the final
hour goes. We sold our trading position in NCC for a 70 cents gain for stock
bought yesterday and a 50 cents loss for stock bought earlier. We added Qwest
at $2 to accounts that didn't own it and to accounts that needed a few more
shares to make the speculation interesting. Breadth remains negative even
with the rally.
2:46pm and President Bush is on TV again. The stock markets are up 130
3:02pm and the DJIA closed up 78 points. The S&P 500 was up 13 points, and
the NASDAQ was up 10 points. All three regained about half of what they lost
yesterday. Breadth was negative all day long and at the close declining
issues outnumbered advancing is issues 1700 to 1500 on both the NYSE and the
NASDAQ. Up volume exceeded down volume by and 11 to 8 margin on the NYSE and
was the reverse of that on the NASDAQ.
And tomorrow is another day.
07 October 2002
6:58am and the winds have flown, the sky is brightening, frost is in the
pumpkins and the stock markets look like they will keep sinking today. It
looks like Lula won in Brazil, and we have the feeling that he won't be one
of G.W. Bush's favorite presidents. He also won't be Wall Street's favorite.
Lulu faces a runoff with Jose Serra since he only won 47% of the vote. Good
thing they don't have the 50% plus one rule in this country. JP Morgan Chase
is going to cut 4000 folks and G.W. will deliver his Iraq destruction case
tonight in prime time. The Nikkei continues under pressure losing 3.8% last
8:04am and the stock futures have improved a bit so the opening looks to be
flat. We would guess that the day will be volatile.
8:31am and we don't want to excite or depress you but the days of the month
for this October are the same as they were for October 1929.
8:45am and the DJIA is up 45 points while the NASDAQ and S&P are slightly
lower. President Bush is going to intervene in the West Coast dock strike
with a board of inquiry which will issue a report in a few days and allow him
to intervene and thus open the ports up for the next few months. By then
we'll be at war with Iraq and the ports will have to stay open.
10:01am and the stock markets are slightly lower. The Brazilian Bovespa is
down 2.83% in response to Lula's lead in the first round. Breadth is 3/1 on
the downside as is down volume versus up volume. We are buying a bit more
National City Corp. We are also considering letting Pepsi go ahead of
tomorrow's earnings and revisiting the stock in the big downdraft that is
coming. That may be too cute but better than expected earnings don't merit
much in this market while worse than expected earnings are a disaster.
12:25pm and the markets continue to vacillate. We sold our Pepsi position at
$37.65 for a scratch profit and we have purchased GMH at $8.88 in all the
accounts that own Qwest. We are also purchasing JDS Uniphase in all accounts
at $1.66. We are going to be adding one or two low priced stocks every couple
of days for our package of depressed techs to hold till after year end at
least. We are much more comfortable buying these stocks because they are
cheap and if the big blow off comes we won't have the time to be picking at
them. And most of them are sold out anyway. None of them are a big
commitment, but in total they will make a nice package. JDSU is selling below
the cash in the company. Hughes Electronics (GMH) which is Direct TV is
selling at 75% of revenues. It is cheap because the merger with Echostar is
going to be rejected by both the Justice Department and the FCC. News Corp
will then come along and make an offer. For the life of us we can't figure
out why General Motors wants to sell this subsidiary since it will eventually
be a very profitable company. We are buying because it is cheap and selling
at a ten year low. The nice thing about these two stocks is that they are
reasonable speculations at the prices at which they are selling and are
potential doubles to home runs in a few years.
2:02pm and we are in the last hour of trading with the stock markets turning
lower. The proximate cause is that consumer debt only expanded $4 billion
when $11 billion was expected. It's not good for the stock markets if the
consumers start pulling back on their spending. Of course it is good for the
The retail stocks are also getting hit on the news and with the
over-ownership of those stocks by institutions and mutual funds there is
still more on the downside. Sears is down $5 per share. When Gary Comer sold
his company Lands End to Sears, Sears' share price was at $55. He took cash
and paid the taxes. That strategy looks pretty smart now.
3:02pm and The DJIA closed down 104 points at 742. The S&P 500 was down 15
points at 785. The important number on the S&P is now 775. The NASDAQ closed
at 1120 down 20 points. Breadth was more than 3/1 negative, and down volume
exceeded up volume by the same margin.
And tomorrow is another day.
04 October 2002
7:01am and today is the anniversary of the 100th birthday of the "old
stockbroker in the sky". Much of what we know we learned from him and as we
take our sauna tonight we will think of all the saunas and sit ups at Gus
Clem's Health Club in the 1960s and 1970s and the nightly German dinners of
ox tails and bratwurst and knackwurst and fresh thuringer sausage and
strawberry crepes at The Red Star Inn where we were regaled with stories of
"bucket shops" and Stewart and Borg Warner underwritings and surviving the
Great Depression. We'll remember the success we shared riding the New York
New Haven bonds to big profits after years of worry and wonder. Penn Central,
Palm Beach, Commerce Group, Bethlehem Steel, Consumers Power preferred A, the
1974 package of ten REITs, and all the other successes and failures were part
of our learning experience from the master. Immortality is living on in
others and the "old stockbroker in the sky" is certainly immortal. He came
from nothing, an orphan at 9, and died rich in friends and family. And he
lived life to the fullest. R.I.P.
7:09am and as we ploughed through a rain storm today to get the 100 yards to
our office we had no idea that we were also going to also be ploughed under
by Schering Plough. Late last night SGP warned and lowered earnings
expectations for the foreseeable future. Bummer. Now we know how all the tech
stock holders feel. At least we didn't buy SGP until it was off 60% form its
high and maybe we deserve some credit for profitable trading of the stock in
the $30 to $40 range the last few years. But our eagerness to catch the
bottom in the stock has left us less smug. Obviously whoever was selling knew
more than we did. That's called inside information but we have to live with
our decisions. We knew SGP was in a transition period and the sell off in the
stock is a function of the transition. We thought the sell off the last few
days was a function of the "get me out" at any cost year end mutual fund
But it is not the end of the world since our only other stock positions in
most account are Qwest which is at $2.35 and so can only lose that much and
Pepsi. And we made a small profit in Verizon and a scratch profit in SBC
while exiting the DIA even. A busy week and we will have to try and do better
SGP has always had the feel of Syntex to us. Syntex was a drug stock we
bought in the early 1990s at above $30 per share and rode all the way down to
$13. Syntex dropped because its main drug to treat inflammation went off
patent. Eventually Proctor& Gamble bought Syntex, remarketed the off patent
drug, which was called Naprosyn, as "Aleve" and Aleve has been a very
successful over the counter drug for PG.
If Schering gets much cheaper we think it is an acquisition candidate. And
no matter what happens we think a good marketing campaign ala Aleve with
Claritin can create the same kind of consumer product. We will see how the
stock opens and trades and have further comments then. We don't think all of
this news is in the stock but we hope much of it is. We expect it to open
around $14 or down $3.50 from the close.
7:31pm and the employment report for September was released. Non farm
payrolls dropped 43,000. The unemployment rate dropped to 5.6%. There was an
upward revision in the August payroll numbers to up 107,000 from up 39,000.
Supposedly payrolls have increased by 217,000 in the last six months. Is
employment up or down? Who knows? But the markets will tell us. Treasuries
are dropping as no intermediate rate cut is in the cards. Stock futures are
higher. It will be an interesting day.
EMC reported bad news last night and the tech stocks will be hit again today
after the initial surge higher by the markets...
8:40pm and Schering Plough opened at $16.50 and we sold 75000 shares. That's
about half our position and a $2 loss on the last stock we bought. That loss
is offset somewhat by the gain in VZ. But we are still sitting on a six point
loss on the original purchase last week. We dislike taking losses but the
company wasn't up front with us and obviously some folks knew what the
announcement was going to be. It's always difficult to work out of these
positions but we are now waiting to decide what to do with the rest of the
The rest of the stock markets are a bit higher but there is no gang busters
rally occurring. Slow but sure is much better than a 300 point pop. A slow
rise will bring investors in.
8:55am and as stocks are beginning to roll over and head south. We sold the
rest of our Schering Plough so we received an average $16.62. That is a
painful loss in one short week. But we think we will see this stock cheaper
later this year. Whether we will buy it is open to question. We don't trust
9:02 am and the stock markets turned negative. We want to get 50% invested
but the last week has not been a good start. Hopefully we will do better. The
cross currents in this market don't provide many comfortable stock options
that don't have significant downside risk. This bear market is different from
any other, and it is the same.
We read this morning that as of today the five year total return on the S&P
500 is a cumulative negative (15%). The average annual return is a negative
(3%). For our Model Portfolio the total cumulative return for the five years
is plus 86%. Thus we have outperformed the S&P 500 including fees and
commissions by a plus 100%. Our average annual return for the five years
ended today is over 12%. Past performance is no indication of future
And that is why we have quickly taken our loss on the SGP. That is what we
have done for the last five years and as painful as it is taking losses on
stocks that don't say or do what we think they are saying has been the right
course of action. That doesn't mean we won't continue to buy out of favor
stocks. It means that we take our lumps when we are fooled by management or
our own inability to comprehend a problem.
10:31am and the White House has announced that President Bush is giving a
speech on Iraq on Monday night at 8pm EDT. The DJIA is down 120 points as
that news is disseminated. We would expect a further sell off this afternoon
on this news
10:50am and James Grant the original bear is on CNBC saying that US
Treasuries are too expensive. For once we agree with him.
12:08pm and we are beginning to add National City Corp to trading accounts at
$25.80. National City is a multi-state banking company in the Midwest with
offices in KY, IL, IN, OH, MI and PA. NCC was originally a Cleveland Ohio
bank. The stock yields 4.7% from a recently raised dividend and has been
making new lows as all bank stock have sold off. We also bought Reuters RTRSY
back in our aggressive accounts under $20 per share.
12:38pm and the S&P 500 just broke through the 800 level to the downside. If
it closes below 800 that will be a new closing low. The NASDAQ is at a new
low of 1138 on its way to 1000. The DJIA is down 226 points. It's starting to
12:40pm and several folks have asked why we didn't hold Schering. Our first
reason is that we think it will go lower. Our second reason is that it is
obvious from their pre-announcement that they don't have a handle on the
Claritin patent expiration and how to handle it. The only reason the stock
will rise is if it is taken over and strange as it seems companies are rarely
taken over at premiums when they are having problems. So SGP is dead money
for a while and there are other fish to fry in this bear market. We have
found it is usually best to put our mistakes behind us and move on.
Philip Morris just had a $ 28 billion judgment handed down against it.
1:51pm and stocks are DJIA has rallied from the 7500 level where it was down
230 to down 130 in the last ten minutes. Breadth remains 3/1 negative and
down volume exceeds up volume by 4/1. There is no panic and the selling is
2:04pm and the DJIA is only down 90 points. We are hearing that the rally was
occasioned by a rumor that the west coast dock strike was settled. Or maybe
the bulls caught the bears napping.
3:02pm and the DJIA closed down 188 points at 7528. The NASDAQ lost 25 points
to close at 1139 and the S&P 500 lost 18 points to close at its July 24
closing low of 800. We think that makes a triple bottom and that's not good.
For the year the Model Portfolio is down 1% because of the quarterly fee and
our SGP misadventure. The Model is 94% cash and has 500 shares each of Pepsi,
Qwest and Wild Oats. We will post the updated Model Portfolio on Monday.
For the year the DJIA is down 25%, the S&P 500 is down 30%, and the NASDAQ
is off 42%. Those are really unbelievable numbers.
And tomorrow is another day, and next week should be very interesting.
03 October 2002
6:34am and on a grey and drizzly day we sit down to screens that suggest a
lower opening even with the supposed sell program error last night. The NYSE
reported that Bear Stearns entered orders to sell $4 billion in S&P stocks
when the order was to sell $4 million in S&P stocks. By 5pm all but $622
million of that order had been canceled and Bear Stearns said they were able
to hedge most of the $622 million. Bulls were hoping that the reversal of the
sells would lead to a strong opening this morning. Unfortunately, The Bank of
New York issued an earning's warnings last night and the shares are off $3.50
this morning. That warning is having a negative effect on other bank stocks
and the general stock markets.
7:17am and AMD announced that it's going to lose a bundle of money for the
quarter. Also revenues will be $500 million versus expectations of $600
million. Today Schering Plough is meeting with analysts and so hopefully we
may reach an end in the sell off in the stock. Marriott missed its numbers.
Avon announced that earnings will be in line after a $36 million special
charge for severance payments. We love those "earnings in line with special
charges excluded" announcements. Avon has had special charges in the years:
1988,89,91,92,93,94,95,98,99 and 2001. Now we can add 2002 to the list. Do we
detect a pattern? The special charges for Avon add up to a total of $5.40 per
share over those years. Over those years the total earnings per share for
Avon were $17.75.
The railroad stocks have been dropping on fears that the west coast dock
strike will affect third quarter earnings. For the life of us we can't
understand why one time events should cause folks to flee stocks when it is
obvious that when the strike/lockout is settled there will be a lot of cargo
to ship. The rails were pricey to our way of thinking and have given up a lot
of gains but are not yet cheap. But we are looking.
7:32am and new claims for unemployment for 9/28 were up 5000 to 417000. The
week of 9/21 was revised higher. What else is new?
8:35am and the Markets opened slightly higher but are now heading to the
downside. We used the opportunity of the higher DJIA to sell SBC for a
scratch profit. We know it is on its low but we had buyer's remorse after we
purchased it and it is our belief that the mutual funds will be selling SBC
and BLS through the month and that we may get back in much lower. It wasn't
able to pierce $21 on the big 350 point rally even though it is part of the
DJIA. We admit that the ebbs and flows of this market are difficult to read
and we are trying to game the volatility and establish positions in stocks
that will rally through year end. No seller in Schering Plough yet, though
the day is early.
9:12am and we are in the middle of the error covering rally from the
misguided sell program of yesterday. The DJIA is up 143 points and the S&P
500 is up 10 points. The NASDAQ is also better by 10 points which is the clue
that it is a buy cover program. The seller is back in SGP although the buy
programs are keeping SGP to the plus side. The ISM data said the service
sector was growing at 53.9, up from 50.9 last month. The expectation had been
51.4 and that's a positive for the markets. Layoffs increased last month for
the 19th consecutive month. Factory orders were flat. Those are two
10:42am and after being up 150 points the DJIA is now even for the day with
the NASDAQ down 1%.
12:01pm and timing is everything. Right after we sold the SBC, Goldman Sachs
upped its recommendation on the big Telcos saying the worst was over. Goldman
must be going to do some financing for them. Much of the buying seems to be
short covering. Ah well, we made a few dollars and we still think we'll buy
them again at lower prices before the month is over. Stocks remain mixed.
Breadth is negative and down volume exceeds up volume by 2/1.
12:50pm and the DJIA is slightly positive while the S&P and NASDAQ remain
negative. Martha Stewart has resigned as a governor of the NYSE.
2:02pm and entering the final hour the DJIA is up but breadth remains
negative and down volume still exceeds up volume. Most traders will want to
go home flat in front of tomorrow's unemployment number. Also, the UN is
delaying sending inspectors which will give the US time to go to war when the
Senate passes the war resolution next week. That fact is also a damper on any
rally. We completed buying Schering Plough at $17.87 for accounts that didn't
own it and for accounts where we wanted to add more and hadn't done so yet.
Hopefully the seller will finish up today.
2:38pm and David Faber is on CNBC making nice for Goldman Sachs. Goldman
Sachs is under pressure for favoring investment banking clients with hot IPO
allocations. Meg Whitman the CEO of E-Bay received allocations on over 100
IPOs. Faber says Whitman only made $1.8 million on IPO allocations.
Supposedly Whitman has an account worth $500 million at Goldman, probably all
E-Bay stock which she isn't selling. Give us a break, David. Apologizing for
Goldman Sachs is not your job. Goldman gave the IPOs to Whitman because they
wanted to keep her happy to get E-Bay investment banking business. And if
that's the case the profits as small as they were belong to E-Bay not
Whitman. What all the brouhaha is about is that CEOs of public companies are
treating their companies like they are private enterprises and the CEOs of
public companies are using the public companies' resources for their private
benefit. Actually small private companies couldn't get away with giving their
owners (the private company owners) the perks that public companies have
given to their CEOs ala Jack Welch.
3:02pm and the DJIA closed down 38 points at 7717. The S&P 500 close off 9
points at 819 and the NASDAQ lost 21 points to close at 1166. Breadth was
negative and down volume exceeded up volume by a 2/1 margin on both the NYSE
And tomorrow is another day.
02 October 2002
6:31am and as we sit down to work we are happy to report that we were not
visited by our olfactory affecting friend last night. It looks like Trapper
Russ has skunked the skunk and this recent episode will add luster to his
already lustrous reputation as the Kickapoo Valley's premier trapper.
Back in the unreal world, the stock futures are suggesting a slightly lower
opening. This action would be logical given the big pop yesterday. We think
yesterday was a rally in a bear market, but time will tell. Japan closed
lower over night with the Nikkei at its lowest level since 1983. 1983 was the
beginning of U S bull market. The London FTSE is up 3% in trading this
morning on the back of yesterday's big US stock markets move. The overnight
move is said to be based on the UN/Iraq agreement on inspections and the good
news from Dell of slightly better than expected sales and the meeting of
reduced earnings numbers.
Stocks had a one day pop like yesterday a few weeks ago and then made new
lows and so the proof of a real turn is yet to come.
We still have seen no news to account for the drop in Schering Plough
yesterday. Volume was four times normal and since it was the first day of the
last quarter and also with only thirty days for mutual funds to take losses
the answer may be that a mutual fund or mutual fund family wanted to exit the
stock and needed a strong market like yesterday to accomplish the sale. At
the end of March, Magellan Fund owned 13 million shares and the Fidelity
funds family (FMR Research) which includes Magellan's shares owned 73 million
shares. Supposedly Magellan is low on cash and with the mailing of third
quarter statements this week, which will show Magellan down 28% for the year,
it may just have been a case of Magellan raising cash by selling what for
them was a small (less than 1%) position. Sometimes stock sell offs are as
simple as that. And the sell off in the stock makes the point that when the
elephants need to sell, taking a 10% haircut may be the cost to get out of a
7:56am and after spending a few minutes getting the horses in for their six
week hoof trimming, (Question to farmer: How often do you trim a horses feet?
Answer from farmer: As often as it needs it.), the stock markets still look
to open a bit lower.
Guidant, a stock we have owned, but don't now, is having problems with the
coated stent it has perfected. The drug that coats the stent was licensed
from Cook Inc. Boston Scientific which also is preparing to sell a stent
coated with the same drug sought an injunction to keep GDT from using the
same drug. When the judge said the license was no good, Guidant said it would
buy Cook. The judge said no to that yesterday. Guidant is going to open lower
today but not low enough. Stents are about 40% of GDT's profits and they have
been the leader in uncoated stents for years. But Johnson & Johnson already
has a drug coated stent that has done well in trials, and the judge's ruling
is going to give Boston Scientific the second leg up. Guidant may have to
find another drug that works and conduct new trials which will effectively
make it an also ran in the coated stent market. It is an interesting
situation and if GDT gets under $20 this month as institutional holders
abandon the stock we may buy some.
8:11am and Dow Chemical has warned of lower earnings.
8:32am and NTT DoCoMo, the Japanese investment company is writing down its
1.2 trillion yen investment in AT&T Wireless to 200 billion yen. That's a
kewl 1 trillion yen loss.
8:37am and the stock markets are slightly lower in light trading. We'll see
if the seller comes back in SGP. We think he'll wait for a higher market if
that happens. If not and it is Fidelity, they may push the stock lower again
today. Fidelity did the same thing to Abercrombie & Fitch several years ago
when we started buying at $20 per share and bought our last stock at $8 per
share when they finally finished selling.
9:33am and the markets seem to be turning higher after absorbing a good deal
of selling. We sold Verizon at $30.42 for a $2 per share profit. We may be a
little quick on the trigger selling VZ but the telecoms are anchovies to us
and we are only trying to scalp gains with them.
Our sale of VZ today leaves us with Qwest, SBC, Pepsi, and Schering Plough.
We do think there is an institution selling SGP and it is just a matter of
them getting rid of their shares in a tough market. That they have been
selling as the markets dropped tells us they don't care what price they
receive, they just want out. Their actions are also obvious to other
potential buyers like us and so everyone is standing back letting the shares
drop to their price. We are adding SGP to some accounts at $18.58.
10:35am and lack of follow through on yesterday's big rally is a negative for
continued up movement.
11:11am and Doug Faneuil the Merrill Lynch assistant broker pleaded guilty to
lying. He was released without bail and all he has to do is testify against
Martha and he is home free. Well, not free, the two lawyers by his side
probably cost someone $100,000 for today's walk with more bills to come.
Supposedly Martha's broker offered Faneuil one week's extra vacation, a round trip
plane ticket and $1000 to lie. If that is true, Martha's broker is not only
dumb, he is a cheapskate.
2:25pm and we are back in the office after spending a few hours with the
farrier and the horses. The stock markets are not able to continue the rally
and several other drug stocks like Bristol Myers and Baxter are under selling
pressure. We'll see if stocks can stage a rally in the last one half hour.
Right now the DJIA is down 136 points.
3:02pm and the DJIA closed down 183 points. There is a rumor that a sell
program in a large basket of stocks of one million shares of each stock hit
the floor in the last hour of trading and that it was an error. There was a
program, whether it was an error is another question. The rumor says the sell
was to be for $1 million of each stock, not 1 million shares. So the sell off
may be reversed in the morning as the error is covered. The error may have
skewed today's closing. We'll know tomorrow.
The NASDAQ lost 26 points to close at 1187 and the S&P 500 gave up 20 points
to close at 827. Breadth was negative by a 2/1 margin and down volume
exceeded up volume by a 4/1 margin on the NYSE and 3/1 on the NASDAQ.
And tomorrow is another day.
01 October 2002
7:38am and as turn on the tube Rick Santelli is on CNBC telling us that
Fannie Mae has shortened its duration gap from 14 months to ten months. That
makes things right with the world and also is a reason for Treasuries to sell
off a bit. Dell is having an analysts meeting and is going to make its
numbers. European markets are up 1% and the big number today is the ISM
manufacturing index which is expected to be 51. If the number is below 50
folks think the Fed may do a surprise 50 basis point rate cut. Many bulls are
hoping for a bad number so that the rate cut will stimulate the stock market.
We'll see. Wal-Mart reported this morning that September sales were below
On the SKUNK front we are happy to report that there was no activity last
night although our olfactory senses remain on high alert. Trapper Russ
Gilbert, the King of Kickapoo Trappers stopped by last night to build a
beautiful trap, if a trap can be called beautiful. We baited the trap,
covered it, and this morning-nada. We presume that word went out last night
among the animals of the forest that Shalom Farm meant business and that the
back porch on the farmhouse on the hill should be avoided if one valued one's
well being. One day does not a victory make, as our President may soon
realize, and so the trap will remain in place for a few more days. In keeping
with the spirit of The Yellow Alert, future reports will be issued on a need
to know basis.
7:54am and the stock futures are indicating a weak but higher opening. The
ISM number is due out in an hour and will certainly affect the days trading.
Merrill Lynch sees stock earnings remaining under pressure and suggests
maintaining stock exposure at 50%. Lehman has lowered price targets on GM and
Ford due to pension under funding. Morgan Stanley is lowering earnings
estimates on many banks and financials.
9:02am and construction spending was down 0.4% in September. The number for
August was revised downward to down 0.1% so the September figure is even
worse than expected. The ISM number was 49.5 when 51 was expected. Challenger
and Grey reported that announced job layoffs were less than half of what they
were the month before. Unfortunately one million folks have lost their jobs
JP Morgan initiated coverage of retail stocks this morning with a buy on
Abercrombie & Fitch. ANF is an old favorite that was a very painful but
profitable trade for us a few years ago. The stock is off $2 today to $17.85,
even with the buy recommendation. We mention not because we are going to buy
here, but to show how lousy retailers are acting. Retailers were the darlings
of the investment folks in the spring, but when autumn came the institutions
have fled that area.
9:20am and the DJIA is fractionally higher as is the S&P 500 while the NASDAQ
is off almost 1%. The markets seem to be heading lower. Auto sales are
announced this afternoon but the next big number is not till the employment
report on Friday.
9:29 and the Gay Winnick former CEO of Global Crossing has begun his woe is
me with my $500 million nest egg testimony before Congress. Time for
11:12am and the stock markets remain fractionally higher in non-descript
trading. We sold a small amount of Verizon in accounts where we decided we
had purchased too much. It cost clients about 40 cents per share but it gave
us better distribution among the stocks we purchased. We are also adding
Schering Plough (SGP) to accounts where we didn't purchase them last Friday
and in which we purchased Verizon.
12:22pm and the stock markets are rallying. The DJIA is up 2% while the
NASDAQ and S&P 500 are up about 1.5%. We don't know of any reason for the
rally except that maybe the markets were tired of going down. With a bit more
of a pop we are going to let our DIA go to get back to just stock positions.
The DIA involve a lot of money for the bang. We bought BGEN back for our
trading accounts at $29.20 a bit earlier before the rally started.
12:29pm and the UN and Iraq have agreed on an inspection formula. That may be
the reason for the pop in stocks. Breadth is positive 12/7 on the NYSE and
negative by the same amount on the NASDAQ. Up volume exceeds down volume by
2/1 on both markets.
2:01pm and the DJIA is up 220 points. We sold our DIA position at $78.25 for
a scratch to 25 cents per share loss. When we bought the DIA on Thursday we
were betting that the DJIA was putting in its low and we wanted to get some
money to work quickly. Since The DJIA went to a new low yesterday almost $3
lower than where we purchased the DIA we are glad today's rally has allowed
us to take that money off the table and let our individual stock positions
ride. We think this is a short covering rally and want to have the funds
raised available for other stocks in the next sell off. We are in the final
hour and it will be interesting to see how the markets end the day.
3:02pm and in the shoulda market if we had waited half an hour we coulda made
a $1 profit on the DIA we sold. But if the rally had failed we woulda been
stuck in a position we didn't want to hold..
The DJIA closed 346 points higher at 7938, the S&P 500 gained 32 points to
close at 848, and the NASDAQ rose 41 points to close at 1213.
And tomorrow is another day.
September 2002 Thoughts
August 2002 Thoughts
July 2002 Thoughts
June 2002 Thoughts
May 2002 Thoughts
April 2002 Thoughts
March 2002 Thoughts
February 2002 Thoughts
January 2002 Thoughts
December 2001 Thoughts
November 2001 Thoughts
October 2001 Thoughts