Bud's Poem Page

Halloween 2006 Daily Comment

Thoughts

Asia closed higher overnight and European bourses are mostly higher at midday. Treasuries are flat, Oil is down to $58 and Gold is off $6 at $602in the early going in NYC.

Ford is cutting production 12% in the first quarter of 2007. F cut production 21% in this fourth quarter of 2006.

The Employment Cost Index was up 1% last month. We have no idea what the Index measures nor do we care.
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The Chicago Purchasing Managers Index of Economic Activity was 53 in October versus 68 in September.

The Conference Board’s Consumer Confidence Index was basically unchanged at 105 and change.
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Qwest, the littlest Baby Bell still surviving, dropped 5% in price this morning when it announced earnings. We used the price reduction as an opportunity to pick up shares at $8.59 for accounts that own Ford. We have tepidly traded Q over the last few years but it now has its house in order and is worth a longer hold. We think.
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Credit Suisse began coverage of the cardiology sector with an underweight rating and judged Boston Scientific as outperform and St Jude as underperforms. Boo!
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Consumer debt has risen 77% since the end of 2000 according to CNBC.
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A couple of years ago Pier One was the darling of the retail industry. But the company has fallen out of fashion and its CEO is retiring/ being pushed in February of 2007. With $1.7 billion in sales and $150 million in debt and free cash flow of about $170 million the stock is attractively priced as a speculation at $6.70 which works out to just under $600 million for the whole company. There have been buyout rumors but nothing is in the fire. We are taking a small position in our large/aggressive accounts ahead of Thursday’s same store sales numbers which will probably be dreadful and earnings in a couple of weeks which will also be dreadful.
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We bought Alcoa after it dropped on an earnings disappointment and we thought it would bounce more than it has. But we have a $1 per share plus profit and we are going to take it.
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We may be too cute but we think SYMC is being marked up for month end and we are going to sell it and look to reenter during the correction in November. If we miss that opportunity we will miss that opportunity. We are getting out with a scratch profit.
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Treasuries are strong today and Oil has moved to the upside. Stocks are under pressure with 90 minutes of trading left.
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Oil ended up at $58.75 and Gold was $607. Treasuries closed firm with the two-year at 4.70% and the ten-year at 4.61%.

European bourses closed mixed.

Some of the big boys and girls tried to close the major measures higher but they began their buy programs too soon and couldn’t quite hold the major measures in positive territory. The DJIA closed down 8points at 12078. The S&P 500 lost 1 point to 1377 and the NAZZ gained 3 points to 2366.

Breadth was 5/4 negative and volume was moderate.

There were 370 new highs and 72 new lows.

And so October ends with no correction. The casino is open for business as usual tomorrow.
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30 October 2006 Daily Comment

Thoughts

Asia was mixed overnight with Japan and Taiwan both down over 1%. Europe is also lower at midday. Gold is higher at $604 and Oil is down almost $1 at $59.76 in the early going in NYC.
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Mother Merrill upgraded Yahoo to buy this morning. On that upgrade we are going to sell and take our one week $3 per share profit. Yahooo!
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Personal Income for September was up 0.5% and Personal Spending was up 0.1%. The PCE price index (inflation) was down 0.3% while the core PCE was up 0.2%. Year over year core PCE was up 2.4%.
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Fed member Lacker, who is the only member who wants to continue raising rates, said in Baltimore today that the economy is in a period of transition (for sure), the labor market is firm (enough folks are getting fired that they keep up demand for jobs to replace the ones they lost), and housing is returning to a more sustainable level (dropping in price and sales). Lacker also commented that capital spending will remain the key to growth (Nobel prize thought) and that he is uncomfortable with the level of inflation (aren’t we all?). He thinks that economy is resilient and can withstand Fed tightening and he personally would like to see a Fed inflation target.
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Wal-Mart had a 0.5% increase in same store sales for October.
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Citigroup is suggesting that the year end rally has occurred and that stocks may stall out for the rest of the year.
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With the market rise slowing we want to lock in the trading profit in Hershey and we sold it at $52.15 for a nice one week $2.50 per share gain.
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Oil closed down over $2 in NYC at $58.36. Gold was higher at $607 and Treasuries slipped with the two-year at 4.76% and the ten-year at 4.68%.

Europe closed lower

The DJIA lost 5 points to end the day at12085. The S&P 500 rose 1 point to 13278 and the NAZZ was up 12 points at 2363.

Breadth managed to close 5/4 positive and volume was Monday moderate.

There were 280 new highs and 60 new lows.

And the big boys and girls are focused on same store retail sales on Thursday, the Employment Report on Friday and the elections a week from tomorrow. And of course everyone is focused on Halloween tomorrow night.
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27 October 2006 Daily Comment

Thoughts

Asia was mixed overnight with Japan and Hong Kong both lower to end their trading week. Europe is mixed at midday. Treasuries are continuing to rally on the back of a benign and less than expected 3rd Quarter Advance GDP number of 1.6% when over 2% was expected.

Oil is higher in NYC at $60.67. Gold is off $3 at $596.
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Microsoft had good numbers last night and trade lower after hours but is higher this morning. The major measures are trading lower in the early going as Friday, exhaustion, the tepid GDP numbers and profits taking arise.
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We are trading out of the Treasury five-year at a 4.66% and purchasing the Treasury two-year at a 4.78% yield. We bought the five-year Treasury notes for our largest accounts at 4.60% and watched them drop 1% in value in a week. They have rallied back to where the loss is acceptable and we want to shorten up but maintain the investment in Treasuries. We are selling a 4.5% coupon and buying a 4.625% coupon. When one shortens the maturity it involves paying more money but we are reducing the investment risk over the term of the holding. And the slight 1/8% increase in coupon will recover the loss on the sale over the two year term as we earn 4.625% instead of 4.5% if we hold to maturity which is about as likely as the sun not rising tomorrow.
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Coalition naval forces have been placed on alert in the Persian Gulf. Why are we not surprised. Britain's Royal Navy said forces had been deployed to protect Saudi Arabia's oil installations against a "terrorist threat."
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Our thoughts are that the markets have priced in Dems taking control of the House. If they fail to do so stocks will probably rally after the election. If the Dems gain both houses, the sell off will ensue followed by a December rally.
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Goldman Sachs cut its forecast for computer motherboard shipment growth to 8.8% for the next quarter from this quarter. That is a drop from previous forecasts of 10.8% growth. On that news chip and chip related stocks are selling off. Also it is Friday after a few good weeks of strong gains in stocks and some folks are taking profits.
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Oil ended at $60.78 in NYC and Gold finished at $601. Treasuries held their gains into the close with the two-year at 4.75% and the ten-year at 4.65%.

European bourses ended mostly lower.

The DJIA closed down 80 points at 12083. The S&P 500 lost 12 points to 1376 and the NAZZ dropped 30 points to 2350.

Breadth was 2/1 negative and volume was brisk.

New highs contracted to 425 and new lows were 50.

And the casino is closed for the weekend so the big boys and girls can concentrate on football spreads.
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26 October 2006 Daily Comment

Thoughts

Jobless claims moved back above the 300,000 level in the latest reporting period. Durable goods orders in September were up 7.8%. Ex defense the orders were up 6.8%. Ex transportation orders were up 0.1%. And on that last number Treasuries rallied.

Overseas Hong Kong saw some buying with the Hang Seng up over 1%. Japan was up large fraction and the rest of Asia was mixed.

Oil is off a bit after its large pop yesterday and is at $61.13 in early NYC trading with Gold higher at $593.
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Bristol Myers reported slight better than earnings and is worth another look now that earnings are out and CEO Dolan is gone.

Sprint’s numbers weren’t great but subscribers remain at about 51.8 million which is the number that interests us. Average bill was still above $60 and the churn rate moved to 2.4% from 2.1%. That we think has to do with the merger.
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New home sales were up a bit in September and up 5.5% month over month but median prices were down 9.7%.
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CNBC is running a banner at the bottom of the screen that says the Wall Street Rally for Real. So it must be time for the correction.
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We sold Washington Mutual for a $1 plus gain in our large/trading accounts.
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We bought Bristol Myers at $24.27 in accounts that own CAT. We bought to own for the longer term which is longer than two weeks and less than eternity.
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We also took a position in Fifth Third Bank in our larger accounts. If it moves lower we will buy more around. It has gone nowhere but down in the last two years and we have tried trading it before without much luck. But with a $4% plus dividend yield and third quarter earnings released we think it is worth a hold through year end and beyond.
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We added JDS Uniphase (see October 25 post) to accounts that own Caterpillar in that amount.
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The WSJ had a story about Wild Oats today and we bought a few shares in the company for our larger/aggressive accounts. We have traded the stock for years. Recently they ousted their CEO and last year Ron Burkle, who made his fortune buying and selling food stores, took a 15 % position in the company. That 15% position is chump change to Burkle. He placed his man on the board and something may happen. But it has been a soap opera for us over the years and so we are not buying around.
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Symantec is down $1.50 today at $19.30 and we are buying shares for a trade in accounts that own CAT. Fidelity owns a very large chunk of this stock and we think they might want it marked up for month end or at least by year end. We guessed wrong on last quarter’s earnings which surprised to the upside and the share price was up $3 before we could blink or reestablish our position.
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According to CNBC there are 9228 hedge funds with $1.6 trillion in assets. There are 6544 distinct mutual funds with $6.3 trillion in assets.

With a modest for hedge funds 4/1 leverage the assets of hedge funds equal the market moving power of all the mutual funds.
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Mother Merrill placed a sell on GM.
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In the big Ouch department Renovis dropped from $14 to $3 today because its experimental stroke medicine licensed to AstraZeneca failed to meet its goal in a late stage trial.  AstraZeneca also announced that it was discontinuing further development of the drug NXY-059, dealing a significant blow to Renovis which has no other products in clinical testing phases.
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Oil ended at $60.36 in NYC and Gold was $600. Treasuries closed strongly with the two-year at 4.79%, the five-year at 4.69% and the ten-year at 4.72%.

European bourses also closed higher

The DJIA closed up 28 points at 12163. The S&P 500 gained 7 points to 1389 and the NAZZ jumped 23 points to 2380.

Breadth was 2/1 positive and volume was active.

There were over 600 new highs and 60 new lows.

Microsoft earnings are announced after the close and those earnings will set the tone for trading tomorrow morning.

And the casino is open for one more day of fund games this week.
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25 October 2006 Daily Comment

Thoughts

We are back from our trip to Chicago. Not much occurred in our absence as stocks moved a bit higher and Treasuries remained under pressure. With the Fed concluding its two day meeting today with the 1:15pm announcement today some of the uncertainty with regard to interest rates may be resolved. And then the big boys and girls can concentrate on marking stocks up into the October 31 fiscal year end for many mutual funds.

Europe and Asia have also been quietly higher over the last few days. The world stocks markets are at levels where a pause seems justified. Also just regrouping after the nice rise is in order. But any news event could move stocks.

Oil was $59.63 and Gold $586 in the early going in NYC.

We don’t know whether the markets have priced in a Democratic victory but we presume that a Republican victory would give a little push to stocks. And given how wrong the polls were in the 2004 election our gut is telling us that Dem victory is anything but assured. Polls on a state by state and district by district basis are much closer and non predicative that the national polls.
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While we were away Tellabs reported earnings that were fine but revenues in key areas were less than the street wanted and the stock dropped a bit. TLAB didn’t drop enough to add to but we will under $10.

We also bought CAT in more accounts last Friday to go with our Hershey position of big cap stocks that missed.
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Existing home sales in September were down 1.9% to 6.16 million annual rate and housing inventories also fell to a 7.3 months supply. Median home prices were down 2.2% from one year ago to $220,000.
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We are taking a small position in JDS Uniphase for our larger accounts. JDSUD just completed a 1 for 8 reverse spit and the shares are trading on their low. We would guess the shares will be under pressure for a while as small odd lots that resulted for the reverse are worked off. Back in the tech boom JDSU was the stock to trade (it traded at a high of $750 if the share reversal is considered). The share price has fallen hard but the reverse split makes it an interesting trade. With a market cap of $2 billion and $1.2 billion in cash offset by $900 million in long term convertible debt they are going to earn money this year and may earn 80 pennies per share next year. We own for a trade. We would buy more around but earnings are on November 2 and we will wait for those.

JDS Uniphase Corporation provides communications test and measurement solutions, and optical products. The company operates in three segments: Optical Communications, Communications Test and Measurement, and Advanced Optical Technologies. The Optical Communications segment provides components, modules, and subsystems used by communications equipment providers for telecommunications, data communications, and cable television networks. Its products include transmitters, receivers, amplifiers, multiplexers and demultiplexers, add/drop modules, switches, optical performance monitors and couplers, splitters, and circulators that enable the transmission of video, audio, and text data over fiber optic cables. The Communications Test and Measurement segment provides a portfolio of equipment, systems, and services used to enable the design, deployment, and maintenance of communication equipment and networks. It offers test tools and platforms for optical transport networks, digital subscriber line services, data networks, cable networks, digital video broadcast, and fiber characterization services. The Advanced Optical Technologies segment provides coated optics document authentication, brand protection, and product differentiation solutions for a range of public and private sector markets. Its specific product applications include computer monitors and flat panel displays, projection systems, photocopiers, facsimile machines, scanners, security products, and decorative surface treatments. The company markets its products primarily to service and cable providers, network equipment manufacturers, original equipment manufacturers, distributors, and strategic partners in North America, Europe, and Asia-Pacific.
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A drop in crude oil inventories and gasoline inventories has oil higher at $61.80. The elections are over in ten days so it will be time to raise prices soon.
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Maybe the eighteenth time will be the charm. We keep dreaming of the home run plus we missed on Citigroup in the 1990s when we think of Ford. With the addition of Mullalay as CEO and now that Billy Ford is not making the decisions we are going to dip our toes in the water one more time and buy Ford at $8.45. We are taking a modest position in the stock in most accounts with a longer term time frame. And by that we mean more than a few weeks but less than eternity.
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We present below the Fed statement. Hope you are sitting down it is so exciting.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace. Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.
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The major measures rallied immediately after the minutes were released with the DJIA moving to the plus side but by 1:30pm they reversed and began moving lower as profit taking and other selling appeared. Treasuries were a few basis points lower in yield across the board.
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Oil ended at $61.50 in NYC and Gold was $590. Treasuries gained with the two-year at 4.85%, the five year at 4.75% and the ten-year at 4.77%.

European bourses were mostly higher.

The DJIA ended the day up 6 points at 12132. The S&P 500 gained 5 points to 1382 and the NAZZ rose 10 points to 2355.

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

New highs were 460 and new lows were 50.

And there are two more casino days remaining this week for the big boys and girls to spin the wheels of fortune.
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20 October 2006 Daily Comment

We will be traveling on Monday and Tuesday and so our next post will be on Wednesday October 25.

Thoughts

Happy Medicare Birthday to our sister Barbara. You made it.
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Google reported great numbers and Mother Merrill raised its share price forecast to $530. With that GOOG is off to the races early this morning.

On the other side of the coin Caterpillar blew the quarter and lowered guidance for the fourth quarter and next year and is off 10% in the early going.

Overnight Asia was higher and European bourses are higher at midday. Gold is flat at $802 and Oil is up a bit at $58.75. OPEC set production cuts at 1.2 million barrels a day.

Treasuries are unched as the day begins. Today is Triple Witch but GOOG and CAT are the main movers today.
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The DJIA is down 30 pints in the first five minutes as CAT’s drop of $7 computes to a minus 60 Dow points.
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The street and most analysts have Google eating Yahoo for lunch with no chance for Yahoo to recover. That would suggest that most of the bad news is being included in the price of the stock. We are going to repurchase a portion of the Yahoo shares in our large/trading accounts that we sold a few weeks ago before earnings. Yahoo shares had stabilized after earnings but now are making new lows as the great Google quarter is encouraging some big boys and girls to yell Yahoo as they abandon the YHOO ship.
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Today Bear Stearns raised Hershey to outperform.
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Schering Plough announced higher earnings today for the third quarter in a row. They finally seem to have turned the corner and we are going to buy shares in large/trading accounts. If there is a pullback in the market and this stock we will ad more around.
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Oil is not paying attention to OPEC as it is now down $1.20 at $57.25 in NYC at noon.
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The Fed meets next Wednesday.
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We bought small amounts of CAT down 15% today and Molex down 10% in our very large accounts. These are buy the good companies down on earnings day trades.
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Oil ended down at $56.82 and Gold finished at $596 in NYC. Treasuries were flat.

European bourses ended higher on the day.

The DJIA lost 12 points to close at 12000. The S&P 500 rose 1 point to 1368 and the NAZZ rose 2 points to 2342.

Breadth was 5/4 negative and volume was tepid for a witching day.

New highs contracted to 320 and new lows were 50.

And the casino is closed for the week and we are off to Chicago to visit clients until our return on Wednesday in time for the Fed meeting with a post that night October 27.
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19 October 2006 Daily Comment

Thoughts

Asian markets were mostly lower overnight and European bourse indexes are lower at midday on the continent. Treasuries are a tad weaker in price as the day begins. Oil has bounced tepidly to $57.89 and Gold in unched at $592 in early NYC trading.

OPEC meets today to cut production.

Weekly jobless claims hit the 299,000 mark last week which is the lowest number for a while.

Boston Scientific has good numbers last night and the shares are up 50 pennies in early trading.

St Jude Medical had its ratings lowered to neutral from buy by Piper Jaffrey which is the brokerage in its home town. That has sent the share price lower but we are not buying more at this time.
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Apple Computer blew the number away and is up $4 on the day.
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Hershey disappointed and the shares are off $3.50 to $49.60. Under $50 has been a good price at which to buy the last few years and we are repurchasing the shares we sold at $53 a few weeks ago.

Hershey said profit rose to $183.7 million, or 77 cents a share, in the third quarter from $114.2 million, or 46 cents a share, a year earlier. Excluding one-time charges, earnings were 78 cents a share. Analysts had forecast 81 cents a share. Hershey has cut jobs and taken other measures to cut costs. Sales rose 3.3 percent to $1.41 billion. “We experienced a slowdown in consumer take-away and thus, a loss of market share," Richard Lenny, CEO said.

Around 10:30am Reuters reported that Credit Suisse raised its rating on Hershey Co. to "outperform" from "neutral.
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We are selling our Time Warner and Palm for nice $2 plus gains. We are also selling the pop in Boston Scientific today for a 60 pennies profit since we want to own only one medical device maker and we think St Jude is the better company. The major measures are having troubles at these levels and we are comfortable rotating to better quality names. Several times in the last ten years there has been a November sell off after mutual fund year end on October 31 that presented a good buying opportunity into late December. We are first of all traders and have taken losses when we though it made sense and we think banking a few profits right now is a good strategy. All the stocks we own are anchovies.
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National City has now set the share ratios for the takeover of the Harbor Bank and Fidelity Bankshares. Since the deals have been approved by the Fed, the merger share exchanges now become a pure arbitrage situation until the deal closes. That is the reason NCC has dropped $1 in the last two days since arbs are shorting NCC shares and buying harbor shares. If they force the shares below $35.50 we will be adding more shares to accounts.
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Washington Mutual is off $1.60 today and goes x-dividend 50 pennies on October 27. It yields 5% at its current price. It is down because earnings disappointed. We are buying shares in our large/aggressive trading accounts.
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Oil ended up at $58.50 in NYC. Gold was up $10 at $602. Treasuries were lower with the two-year t 4.86%, the five-year at 4.75% and the ten-year at 4.78%.

European bourses closed mixed.

The DJIA gained 15 points to final at 12008. The S&P 500 was up 1 point to 1367 and the NAZZ was up 3 points to 2340.

Breadth was 5/4 positive and volume was active.

New highs were 40and new lows were 50.

Triple Witching begins tonight and all the big boys and girls will be having hedge fun games tomorrow on the last day of the trading week.
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18 October 2006 Daily Comment

Thoughts

Asia was higher overnight and Europe is higher at midday. The CPI was down 0.5% which was more than expected but most of the other numbers were in line. The DJIA briefly exceeded 12000 in early trading before the inevitable pullback occurred.
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Oil is higher in the early going at $59.40 and Treasuries are weaker.
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Intel had better than expected numbers as did IBM.

Motorola disappointed and is off $1 today.

St Jude Medical is off $1 after announcing earnings that were better than expected at 41 pennies versus 37 pennies. The CEO of STJ said: "Our third quarter results reinforce our optimism that we are well positioned to return to stronger growth in 2007 and beyond.  We believe that we continued to gain market share in ICDs, pacemakers and atrial fibrillation products.”

We are buying shares in both MOT and STJ in many accounts. That is in keeping with buying drops after earnings are reported in stocks in which we have an interest.

We are also buying Urban Outfitters is small amounts in many accounts. This trendy retailer is at $19 down from a high of $33 this year and it bottomed (we hope) at $14 a month ago. We are buying ahead of November earnings because this one could have an upside surprise. URBN does not release monthly same store sales number so we get the whole enchilada with the earnings announcement on November 9.

Finally we added some shares of Micron at $14.53 to accounts that already own it.
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Crude oil supplies were up 5 million barrels while gasoline and heating oil stocks dropped by 4 million barrels each as refiners shut down refineries to create shortages and thus raise prices back to confiscatory price levels. Well that is not quite how refiners explain the drop in heating oil and gasoline inventories. They say they have closed refineries for scheduled maintenance.
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Investors’ Intelligence is at 52% Bulls, 30% Bears for the weak.
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The Compensation Committee at Verizon is worried that CEO Ivan Seidenberg does not have enough financial incentives to run the company well. Their thought is that VZ needs to make a lot of capital improvements which may hurt earnings and thus the stock price. And if the stock price doesn’t rise then Ivan doesn’t get to make millions on his options. Of course investors don’t make any money either.

The WSJ describes how a VZ official explains Ivan’s quandary: Other companies don't want to make the investment in rolling out fiber all the way to their customers' homes and they are applauded by Wall Street and they reward their executives more," said spokesman Eric Rabe. "If Mr. Seidenberg's compensation were based solely on the stock performance, he would have a disincentive to make the investment that we believe is necessary" for the fiber project. "This is not a provision to make up for poor stock performance, it's a provision to make sure we do the right thing for the long-term health of the company."  

Since Ivan is indispensable (unless he dies in which case another bozo who will work for $8 million a year will surely be available) the committee has decided that Ivan should be compensated for spending to improve the capital structure even if that hurts earnings and the share price doesn’t rise. Current investors will just have to be long long long term investors if they want to benefit.

By the way Mr. Seidenberg was paid $2.1 million in salary last year, plus a bonus of $4.1 million and $1.8 million in other compensation, for a total of $8 million, not including the long-term incentive grant. In 2004, he was paid $13 million, which included a long-term award of $6.3 million.
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Crude Oil ended at $57.65 down over $1 in NYC. Gold finished at $592. Treasuries were flat with the two-year at 4.86%, the five-year at 4.73% and the ten-year at 4.76%.

European bourse indexes finished higher.

The DJIA closed higher on the day with the help of a $3 jump in IBM. At the bell the DJIA was up 32 points to 11982. The S&P 500 gained 2 points to 1366 and the NAZZ was down 10 points at 2333.

Breadth was flat and volume was active.

There were 500 new highs and 50 new lows.

And there are two more hedge fun days at the casino this week.
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17 October 2006 Daily Comment

Thoughts

Asia was lower overnight and European bourse indexes are also fractionally lower at midday. Treasuries are better and Gold is $600 with Oil also higher at $60.50 in NYC.
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Ahead of PPI in a few minutes at 7:30am U.S. futures are lower.

Goldman downgraded Intel to neutral from buy ahead of earnings after the bell tonight. The share price is down 30 pennies in early trading.
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National City Bank had great numbers and should open higher.
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We have been thinking for the past few days about recent developments with Sprint and about the way stocks are reacting to negative news in the bullish environment. Our first mantra is not to avoid extensive risk. We want to own Sprint for the long term but we do think that over the short term the easy path for the share price is lower rather than higher. Given the recent management changes, the cell phone deals being offered and the general dislike of the company by the street our guess is that lousy earnings and retention numbers and new subscriber additions are going to be greeted negatively even though the street expects them. Earnings are to be announced on October 26 and today we are going sell half our position in most accounts. This will again involve a scratch loss in some accounts. But with a $2 downside risk versus limited short term upside potential we have decided to take some money off the table. The run-up in the share price last week to $18.50 was on takeover speculation but some of the folks propounding that potential in the press and on CNBC don’t even own a share of stock in their public portfolios. We think those who bought last week will head for the hills on any bad news causing selling pressure and we want to have room in accounts to add more shares at lower prices. Moreover, very few takeovers occur when stocks are on their lows and having earnings and other difficulties. For some reason related to job survival CEOs are more comfortable buying companies that are hitting on all cylinders even at higher prices.
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The Chicago Mercantile exchange is going to buy the Chicago Board of Trade for $8 billion. They trade Stocks futures at the CME and Bonds and commodities at the CBOT.
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PPI was down 1.3% month over month. Core was up 0.6 % ex food and energy. Year over year was up 0.9% while the core was up 1.2%.
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National City Bank opened lower and we bought shares in the same accounts where we purchased Alcoa yesterday.
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We reestablished small trading positions in URBN and TIF in our larger accounts.
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Among those companies due to report after the bell are: Yahoo! (YHOO), Intel (INTC), Motorola (MOT), IBM (IBM), Novellus (NVLS) and Linear Tech (LLTC).
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Oil ended at $58.93 down $1.01 in NYC. Gold was off closing at 593.50. Treasuries surrendered their early gains to close unchanged on the day.

European bourses closed lower on the day by 1% or more as they ended their trading day when the DJIA was at its worst level.
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The DJIA slogged all the way back from down 80 points to almost even but backed off to close down 25points at 11955. The S&P 500 ended down 5 points at 1364 after being down 12 points at midday. The NAZZ dropped 19 points to 2344.

Breadth was 2/1 negative and volume was active

New highs contracted to 305 but new lows remained under 50.

And September CPI visits the casino tomorrow for fund games for the big boys and girls.
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16 October 2006 Daily Comment

Thoughts

Asian markets were a better overnight and European markets are mixed as we begin the day and week. Gold is up at $596 and Oil is also higher at $58.78. Treasuries are unchanged.
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The S&P 500 is up 70% since May of 2003 (900 trading days) without a 10% correction. That has only occurred 5 times in the last 50 years. The corrections that follow such a move can occur swiftly but they will eventually occur. On one of the other occasions from October 1990 to May of 1996 the S&P 500 rose 131% over 1400 days. The current rise/without is the second longest of the five moves.

The 1990 low was a painful low and washout as was the 2003 low so this advance may have more to go.
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The word is that Intel has been hinting that this quarter is going well for the Company. Intel announces earnings after the close tomorrow as does Yahoo.
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Second quarter earnings continue to flow this week which is also includes a Triple witching day on Friday.

PPI for September is announced tomorrow and CPI for September is announced on Wednesday.

The Empire State Manufacturing Index was much stronger today at 22 then the 11 expected

The Fed meets next week but no change in interest rate policy is expected till the spring of next year at the earliest.
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European bourses closed higher on the day.
*****

Prudential raised Alcoa to accumulate this morning. We traded AA for a scratch last week in our larger trading accounts after is dropped $2 on record earnings that still disappointed the street. But we think the Prudential upgrade suggests the street may come back to the stock which is at 9 times earnings and so today we are going to buy it in accounts that owned Yahoo. We think stocks have more time to move higher. AA is the type of stock that the big boys and girls will latch on to catch a market breakout above 1370. And it is currently within 10% of its yearly low.
*****

Oil popped higher at the end of the trading day in NYC and closed at $59.95. Gold was also higher at $598.50. Treasuries were slightly better with the two-year at 4.85%, the five-year at 4.74% and the ten-year at 4.79%.
*****

We are heading out fifteen minutes early to try and get a bike ride in before it rains. At 2:45pm the DJIA was up 25 points at 11985. The S&P 500 was up 4 points to 1368 and the NAZZ had gained 8 points to 2365.

Breadth was 2/1 positive and volume was good.

New highs were 590 and new lows were 40.

There are four more days of casino hedge fund this week. And the football Bears are on Monday night football. The last time the football Bears won it all was 1986. In 1987 the market bears won it all after a big scare through August.
*****

 

14 October 2006 Special Comment

Our good friend Dick Wagner was buried today in Beatrice, Nebraska. Following are some words from an essay by Steven Dietz, the author of the play Lonely Planet that we spoke at his funeral and an article from the Kentucky Post about his career. We will miss him very much.

In the midst of a world that is too big and too fast, a world where information rules like a dictator and news travels like a virus, it is easy to be overcome by the hopelessness of the world and the helplessness of we, its keepers. What impact can we hope to have? What traces will we leave behind?

History is not the story of grand acts and masterpieces. History, instead, is the inexorable accumulation of tiny events - footsteps and glances, hands in soil, broken promises, bursts of laughter, weapons and wounds, hands touching hair, the art of conversation, the rage of loss. Historians may focus on the famous familiar names - but history itself is made, day after day, by all those whose names are never known, all those who never made a proclamation or held an office, all those who were a handed a place on earth and quietly made a life out of it.

So what do we affect during our time on earth? What ultimately is our legacy? Our legacy is our friends, we write our history onto them, and they walk with us through our days like time capsules, filled with our mutual past, the fragments of our hearts and minds. Our friends get our uncensored questions and our yet to be reasoned opinions. Our friends grant us the chance to make our grand, embarrassing, contradictory pronouncements about the world. They get the best, and are stuck with the absolute worst, we have to offer. Our friends get our rough drafts. Over time, they both open our eyes and break our hearts.

Emerson wrote: “Make yourself necessary to someone.” In a chaotic world, friendship is the most elegant, the most lasting way to be useful. We are, each of us, a testament to our friends’ compassion and tolerance, humor and wisdom, patience and grit. Friendship, not technology, is the only thing capable of showing us the breadth of the world we live in.
*****

From the Kentucky Post:

Dick Wagner, known to Reds fans as the man who fired Sparky Anderson and let Pete Rose get away, has died.

Wagner, president and chief executive officer of the Cincinnati Reds from 1978 to 1983 and a lightning rod for criticism from fans, died Thursday at St. Joseph's Hospital in Phoenix, Ariz., from injuries sustained in a 1999 car crash, his wife, Gloria, said Friday. He was 78.

Among the moves he helped engineer with the Reds were the acquisition of pitcher Tom Seaver from the New York Mets in 1977, the firing of Anderson in 1979 and the trade of outfielder George Foster to the Mets in 1982. Wagner also dealt Seaver back to the Mets after the 1982 season.

It was on his watch that Rose, later to become baseball's all-time hits leader, became a free agent and signed with the Philadelphia Phillies in 1978. Rose returned to the Reds in 1984 after stints with the Phillies and Montreal Expos.

Anderson, fired by Wagner in a California hotel room in 1978, had nothing but good words about his former boss when informed of his death Friday night in a telephone call from The Post.

"I'll put it to you this way - just a real nice person," Anderson said from his home in Thousand Oaks, Calif. "No one understands that when you sign a contract, you sign it to be fired - you don't sign it to be hired. We have never lost our friendship, and that's what it's all about."

Anderson said he remained close to the Wagners, particularly after the 1999 crash that left Wagner with a broken ankle, six broken ribs, a punctured and collapsed lung, head injuries and a fractured cervical vertebra after his car was broadsided by another vehicle in Phoenix.

"I talked to him every week after that time," he said. "And Gloria, she's my girl. I called her 'Glo-worm.' "

"Dick Wagner dedicated his life to the game of baseball," commissioner Bud Selig said. "Baseball has lost another of its true gentlemen."

Born Oct. 19, 1927, in Central City, Neb., Wagner began his baseball career in 1946 when he left the U.S. Navy and was hired by the Detroit Tigers as general manager of their Thomasville farm team in the Georgia-Florida League. With the Tigers and Pittsburgh Pirates, he worked for teams in Flint, Mich., and Lincoln, Neb., and he was selected minor league executive of the year by the Sporting News in the late 1950s.

After leaving baseball for jobs with the Ice Capades and radio station KSAL in Salinas, Kan., he became general manager of the Forum in Inglewood, Calif.

He returned to baseball in 1964 as promotions director of the St. Louis Cardinals under Bob Howsam, and when Howsam moved to the Reds, Wagner followed him as his deputy in 1967.

Wagner helped build the Big Red Machine into a team that won consecutive World Series titles in 1975 and 1976, then took over from Howsam as team president in February 1978, a position he held until he was fired by then-owners James R. Williams and William J. Williams in July 1983.

An opponent of free agency, he allowed many of the Reds stars of the '70s - including Rose and Joe Morgan - to leave for higher salaries elsewhere. After putting together baseball's best record in the strike-interrupted 1981 season, the Reds wound up with the NL's worst record in 1982. When Marge Schott was a limited partner of the Reds, before she became controlling owner, she hired an airplane to pull banners over Riverfront Stadium urging the team to fire Wagner.

Wagner became the Houston Astros' president and general manager in September 1983, then resigned after the 1987 season when he lost a power struggle with manager Hal Lanier.

Two months later, he became a special assistant in the commissioner's office and worked closely with AL president Bobby Brown.

In February 1993, five months after Selig led the group of owners that forced commissioner Fay Vincent to resign, Selig hired Wagner to run the staff in New York. Wagner held the position until January 1994.

Wagner is his survived by his wife, the former Gloria Larsen; son Randy Wagner of Vancouver, Wash.; daughter Cynthia Weick of Stockton, Calif.; three grandchildren; and sister Kaye Wagner of Tarzana, Calif.

 

 

12 October 2006 Daily Comment

Thoughts

There will not be a post tomorrow Friday the 13th. We are driving to Nebraska for a memorial service for a dear friend. Our next post will be Monday October 16. The Model Portfolio will be updated as usual on Friday night.
*****

Oil is trading lower today at $57.38. Gold is higher at $579 and Treasuries have a bit of a bid in them as the day begins.

Asia was higher overnight as is Europe at midday.
*****

Matrix Advisors upped Palm to a strong buy. Thanks much, we can use the boost.
*****

The budget deficit for the fiscal year ended September 2006 came in at $250 billion for instead of that was forecast. The non hosanna reaction is similar to a parent when the child tells the parent they only charged $2000 on the credit card instead of $3000.
*****

Jobless claims for the last week were 308,000.
*****

Stocks are higher out of the gate as the S&P 500 tested and held the 1350 level yesterday and is now above it today. Other tech gurus are using the 1340 level as support.
*****

Romania's leu reached a new three-week high against the euro on Thursday.
*****

Oil inventories rose 2.4 million barrel in the week ended Oct. 6, compared with forecasts for a gain of 1.5 million. Distillates fell 1.5 million compared with forecasts for a small decline. Gasoline inventories rose 300,000 barrels compared with forecasts for a decrease if 450,000.
*****

The indexes of European bourses ended large fractions higher for the day.
*****

The Fed Beige Book released at 1pm today was middle of the road in regards to interest rates. The Fed doesn’t see wage pressures but does see a tight labor market and increased consumer spending in four of the seven districts. The service sector is tight. There are few signs of pricing pressure and auto and home sales are sluggish while commercial construction is gaining. Treasuries have given up today’s gains on the news but most major stock measures are higher.
*****

The U.S. government posted a $56.03 billion budget surplus in September as record outlays were more than offset by record tax receipts. That makes dad happy but it only occurs four times a year while eight months a year he is sad.
*****

CEO Ed Colligan said Palm is not pursuing a sale of the company. Answering speculation that Palm, maker of the Treo smart phone, was a takeover target, Colligan said that chatter likely comes because the company's stock price and cash position have created a perception that it is a ‘good value’. “The company is not for sale. We have not been out pursuing (a deal). Our strategy is to execute against our plan."
*****

DJIA hit an all time high today. The Lemley Model Portfolio is also at an all time high and 60% higher than the DJIA was the last time the DJIA hit an all time high in 2000. the DJIA is 2% higher than its all time high made in 2000.
*****

Gold closed up at $580 in NYC and Oil ended at $57.86. Treasuries finished better but below their best levels with the two-year at 4.84%, the five year at 4.74% and the ten-year at 4.75%.
*****

The DJIA gained 97 points 11948. The S&P 500 was up 13 points to 1363 and the NAZZ jumped 38 points to 2346.

Proctor & Gamble, CitiGroup, 3M, Coke, Disney and Johnson & Johnson were down on the day.

Breadth was 3/1 positive and volume was brisk.

There were 375 new highs and 40 new lows. The low number of new highs is the only negative for the bulls today.

Tomorrow is Friday the 13th so be careful. The casino will be open but we’ll be away.
*****

 

11 October 2006 Daily Comment

Thoughts

The WSJ has a front page story on the woes of Sprint/Nextel. The executive Chairman, who was the CEO at Nextel, has resigned effective January and according to the WSJ that is a large negative. The reality is that when two companies merge one of the CEOs has to go for the merger to work.

The WSJ also lists a myriad of problems with integration of the Sprint and Nextel workforces and equipment. Again that is not news and the sharp drop in the share price over the last year is evidence that the difficulties are known.

But the story is interesting as a listing of all the things Sprint need to fix. And we are guessing they will. That is why CEO types make the big bucks- or so we are told.
*****

Overnight Asia was mixed and at midday the indexes of most European bourses are lower. Treasuries have a slight bid after the slaughter of the last two trading days and Oil is down at $58.49 even though OPEC has agreed to cut production by 1 million barrels a day. Gold is also slightly lower at $575.
*****

In the first large company earnings reports of the quarter Alcoa disappointed and is trading $2 lower in early trading and Genentech had good numbers and is also a couple of dollars lower.

Of course earnings are a matter of perception. Take Alcoa as an example. From the reaction this morning one would guess that AA had a loss. Au contraire friends: Alcoa Inc. posted sharply higher earnings Tuesday on strong demand from aircraft, truck and train producers, overcoming weak prices and a seasonal downturn. But the aluminum maker's 86 percent profit rise disappointed analysts. AA earned $537 million, or 61 cents per share, during the three months ended Sept. 30 versus $289 million, or 33 cents per share, a year ago. Revenue jumped 19 percent to $7.63 billion from $6.40 billion.
*****

McAfee, the internet security folks, said CEO and Chairman George Samenuk plans to retire and President Kevin Weiss was terminated from the company in the wake of findings of its stock-options probe. The software maker named Dale Fuller as interim chief executive officer and president. The CEO of CNET also resigned.
*****

Mortgage applications fell 5.5% in the latest period and were down 13% compared to the same week one year ago.
*****

BankAmerica says it is going to offer 30 free trades a month with a $25,000 deposit at the bank. Soon some outfit will be paying folks to trade. By the by those trades aren’t free and some authority should call BankAmerica on the advertising, but they won’t.
*****

Yahoo has traded lower the last two days on news of Google’s buy of YouTube and their difficulty buying Facebook. Both YouTube and Facebook are websites that have tremendous viewership and participation. We have visited YouTube a few times but never Facebook which is oriented to college folks. We don’t know the value of either but we do know that the celebration by Google holders and the sell off in Yahoo shares are symptomatic of markets that are getting frothy in the hands of momentum players with the big boys and girls swept up in the frenzy. That doesn’t mean the end of the rally is at hand. It just means that more newbie money is coming in and that the momentum folks are abandoning Yahoo.

Yahoo is going to overpay for Facebook but then in our book anything over $100 million would be overpaying and the final price is probably going to be north of $1 billion.

Before last night we were comfortable holding YHOO through their earnings announcement. But with the way Genentech acted on a slight revenue miss and very good earnings we have changed our minds. With Yahoo earnings coming on October 17 we are going to trade out of the stock and look to reenter after earnings. The Facebook talk just makes us nervous and reminds of the-to us- excessive valuations on these internet companies. Our other stocks are doing well and are more understandable from a valuation basis. This again is a stock we had to live with few days to decide we didn’t want to continue owning it.
*****

Investors Intelligence bullish sentiment is now over 50% while bearish sentiment has dropped to 30%.
*****

The Fed minutes say the Fed is still concerned about inflation. Inflation is expected to decline in the spring and this decision to do nothing was easier than the last decision.

At the same time Fed Member Lacker was giving a speech in which he was more hawkish than the Fed minutes and so the double hawk talk whammy stock markets are moving lower.
*****

Short term Treasuries are getting mashed again after the Fed Minutes release. The two-year is now at 4.87% and the five-year is at 4.75%. There must be a few hedge funds that are in deep pain from this latest move.
*****

Oil ended at $57.70 in NYC (election anyone?) and Gold closed at $576. Treasuries were weaker with the two-year finishing in Chicago at 4.87%, the five-year at 4.74% and the ten-year at 4.75%, Ouch!
*****

European bourse indexes ended fractionally better but they closed before the Fed minutes came out.
*****

About 2pm a small plane crashed into a building in NYC which gave a pause to stocks and a push to bonds. As the story unfolds it seems to be an accident but the memories triggered in New Yorkers must be substantial. Stocks have rallied back a bit from the initial sell off but remain under water.
*****

The way the major measures hung in there today was impressive but they all still closed lower. At the bell the DJIA was down 15 points at 11853. The S&P 500 lost 3 points to 1350 and the NAZZ dropped 7 points to 2308.

Breadth was 5/4 negative at the bell and volume was brisk.

New highs contracted to 290 and new lows were 55.

And there are two more days left for the big boys and girls to play their fund games.
*****

 

10 October 2006 Daily Comment

Thoughts

Asia was mixed and boring as is Europe at midday. Treasuries are taking it on the chin again today as the markets await the latest Fed minutes to be released tomorrow afternoon.
*****

Google is buying YouTube for $1.65 billion in stock. YouTube has 67 employees and 72 million viewers. Synergy is the new old word.
*****

Many gurus are predicting a decent correction from these levels. Some think such an event is necessary to breathe new life into the turning stale rally. And others believe it will be the first leg of a large down move.

We are agnostic on the subject. There seems to be latent buying interest that is more determined that the selling interest. The bears are licking their wounds and the bulls who have been long for this move are in a greedy frame of mind.
*****

Upon reflection last night while pondering the markets we decided that we were being too aggressive buying Sony and Quest Diagnostics ahead of their earnings later this month. The last time we bought Sony at this price ahead of earnings we were blindsided by a $5 share price drop that eventually became a $10 drop. Given that the markets could use a rest even if they are going higher we are going to take a 60 pennies loss in DGX and a 30 pennies loss in SNE and await a hopefully lower re-entry point later in the month. We are doing this because these stocks are anchovy trades, unlike Sprint and Time Warner and a few others.

We also sold Tiffany for a $1.30 gain, Lowe’s for a $1.40 gain and St. Jude for a $2.50 gain in the same trading accounts.
*****

Dallas Fed President Richard Fisher said on Tuesday "I'm very comfortable with the policy of where we are today …..(but) if it appears that we haven't done enough to quell inflation, then obviously I would be in favor of additional measures."
*****

We are buying Rite Aid again in many accounts. We have traded this stock in many accounts over the past few years. RAD is buying a slew of drug stores which will place them on a footing with CVS and Walgreen when it comes to floor space. RAD has way too much debt but it has been able to manage the debt and survive thanks in part to Fed fostered low interest rates. RAD survived the past year’s tightening cycle in interest rates. We are buying to own for a while.
*****

Oil has trended back down to the $59 level in afternoon trading. Shares of oil companies are higher. Treasuries continue under pressure. One guru opined that the big boys and girls are selling Treasuries to place more money to work in stocks.
*****

Most European exchanges closed better by more than ½%.
*****

The U.S. is moving the Eisenhower aircraft carrier group to the waters off Iran. This task force will meet up with other minesweepers and destroyers. The group is supposed to replace the Enterprise carrier group which is due for rotation back to port. If that rotation is delayed by a few weeks there will be a lot of firepower in the area. The Eisenhower group will be in place by the end of next week. that is one reason we are taking some profits.
*****

There are rumors floating around that Anheuser Busch (BUD) is going to be taken private in a leveraged buyout. That would be a $50 billion plus deal. The fat lady may not be singing on LBOs but she surely is beginning to hum.
*****

Oil closed at $58.52 in NYC and Gold was also lower at $576. Treasuries ended on their lows for the day with the two-year at 4.81%, the five-year at 4.70% and the ten-year at 4.75%.
*****

The DJIA closed up 10 points at 11868. The S&P 500 gained 3 points to 1353 and the NAZZ was up 5 points at 2314.

Breadth was flat and volume was moderate.

There were 375 new highs and 70 new lows.

And the Casino is open for three more days of fund games.
*****

 

9 October 2006 Daily Comment

Thoughts

Asia was lower overnight with Hong Kong off over 1% and Japan down small. European bourses are mixed small fractions at midday. Gold is up at $582 and Oil is also higher at $60.50. Treasuries are closed today for Columbus Day celebrated.
*****

Google buying You-Tube, the Dolan family taking Cablevision private and PNC Financial buying Mercantile Bancshares are the big deals of the week-end.
*****

The nuclear test by North Korea is supposedly affecting market sentiment this morning.
*****

Trading is slow today and the only action is in oil related stocks which are seeing some buying after their recent sell off.

We are adding Walgreen, Timken, Quest Diagnostics and Sony to our larger aggressive accounts. The first two are down 15% from recent 12 month highs on bad earnings reports this quarter. Quest, which does diagnostic testing for hospitals and HMOs, is off 20% because it lost a large contract with United Health. And Sony is having trouble competing with its computer games and quarterly earnings will also suffer because of the portable computer battery recalls. All are institutional stocks and so all are part of the fall house cleaning that usually occurs among disappointing stocks at this time of year.
*****

Oil traded as high at $61.30 today but closed at $59.90 in NYC. Gold finished at $582.

European bourses were mostly one half per cent or less higher at the close and Brazil gained 1.5% while Mexico was up 0.5%.

The DJIA closed up 11 points at 11860. The NAZZ rose 12 points to 2311 and the S&P 500 was up 1 at 1350. Our tech guru thinks that the break of 1355 on Friday was a negative.

Breadth was 5/4 positive and volume was light.

New highs were 330 and new lows were 60.
*****

 

6 October 2006 Daily Comment

Thoughts

Asia was fractionally lower overnight and Europe is relatively unchanged at midday. Gold is flat and oil is trying to stay above $60 as the trading day begins in NYC.

The Employment Report this morning showed a large drop in jobs added. Only 51,000 were added in September when 121,000 were expected. That should cause Treasuries to rise in price but instead they sold off. That’s because the prior month was adjusted upwards by 60,000 to 180,000 which negates the negativity of this month’s number. And year over year wages rose by 4% which is good for workers but bad for bonds. Finally the unemployment rate fell to 4.6% from 4.7% not because of more jobs but because 400,000 plus folks quit looking for jobs.
*****

On the pop up in yields we added five-year Treasuries to our very large accounts. The Note has a 4.5% coupon and we are locking in that rate with the cash we don’t plan on investing in stocks unless there is a market collapse. We think rates are going to move lower over the next year.
*****

Sprint has begun to act better and we are selling our Hershey holding for a slight profit and reinvesting part of the funds in S which we think will give us more bangs for the buck. We want to build a significant position in Sprint over the next few months.
*****

We added shares of Yahoo at $25.35 to accounts that didn’t own it and also repurchased Tellabs in some of our larger accounts.
*****

Micron Technology is down over $2 per share today on disappointing earnings and we are adding shares at $15.36 to our larger/aggressive accounts. This is an example of the buy the bad earnings scenario we have been mentioning. We are leaving room to buy more.
*****

We are taking the rest of the afternoon off. As we leave at 12:20pm the DJIA is down 35 points and the S&P 500 is off 5 points with the NAZZ down 10 points. Breadth is negative and volume is brisk. With the weekend approaching we would guess that traders are going to lock in some profits and take a new look on Monday.

Treasuries are on their lows in the throws of a nasty two day sell off with the two-year at 4.75% and the five-year at 4.65% (we bought at a 4.60% yield). Oil is under $60 and Gold is $573.

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

 

5 October 2006 Daily Comment

Thoughts

Asia was higher overnight with Japan up over 2% and Hong Kong over 1% better. European bourses are joining the party and Gold is up to $576.

Oil is over $60 on the closing of a Valero refinery in Texas and words from OPEC that they cut production by 1 million barrels a day and more to come in December if needed. That is the first time since 2004 that OPEC ahs cut production. Treasuries are a tad weaker.

Jobless claims for last week were down too 302,000.

Same store sales for specialty retailers are in line to better and those stocks are off a bit in early morning trade after large percentage gains yesterday.
*****

The European Central Bank raised its key interest rate to 3.25% today while the Bank of England left its key rate unchanged at 4.75%.
*****

Fed Vice Chairman Donald Kohn spoke last night and suggested that no rate cut is in the cards anytime soon. He suggested that inflation remains the major worry and that the slowdown in housing will reduce economic activity to a more sustainable pace. His speech is the reason Treasuries are backing off from a very strong run the last two days.

He said in part, "I am surprised at how little market participants seem to share my sense that the uncertainties around these paths and their implications for the stance of policy are fairly sizeable at this point….In the current circumstances, the upside risks to inflation are of greater concern."
*****

Tomorrow brings the Monthly Employment Report and that is going to set the tone for stock and bond trading for the next few days.
*****

Gold ended at $575 and Oil was up at $60.05. Treasuries gave ground in the face of tow Fed governors talking up inflation fighting. The two-year ended at 4.65% and the ten-year at 4.61%.

The DJIA closed up 16 points at 11866. The S&P 500 gained 3 points to 1353 and the NAZZ rose 15 points at 2306.

Breadth was 2/1 positive and volume was active.

New highs expanded again today to 450 and new lows contracted to 76.

And tomorrow is the last casino day for the week.
*****

 

4 October 2006 Daily Comment

Thoughts

Today is the old stockbroker’s 102nd birthday. We are continually reminded of all he taught us even 22 years after he crossed the river.

Asia was mixed overnight with Japan down almost 1% and the Hang Seng in Hong Kong a small fraction higher. European bourses are mostly higher and Oil is up a bit at $59.15 with Gold at $584.

Treasuries are better.
*****

Crude oil inventories were up 3.5 million barrels versus and expected decline of 1.1 million. Oil is lower now on the news at $57.88.
*****

The Institute for Supply Management's non-manufacturing index, which measures the services sector, fell to 52.9 in September from August's 57.0. It was the lowest reading since April 2003.

Stocks are taking this as positive that the Fed won’t raise rates and Treasuries are also rallying on the news on the notion that the Fed will cut rates next year. Eventually this tandem rallying will have to diverge.
*****

We sold Deutsch Telecom for a scratch loss because, upon reflection, we would rather use the funds elsewhere later this month.
*****

We will continue fine tuning our portfolios as we build them this month and through year end. We don’t know how the month or year will work out but we have added stocks recently because the major measures don’t seem to want to do their usual September /October swoon.

The fact that the major stock measures have not yet had a significant correction of 10% or more over the last three years is causing us to move cautiously at what usually is a good time of year to pick up bargains. But the fact that the major measures have not corrected does not mean that individual stocks have not. In fact all the stocks that we bought recently are down much more than 20% from their highs over the last three years.

But so far many of the stocks that have blown up on earnings or revenue misses have just gone from being way over priced to overpriced and that isn’t yet enough to tempt us. We would rather have cash and certainty that own a falling knife.
*****

Oil ended the day in NYC up at $59.41 and Gold was down again today at $566. Treasuries rallied with the two-year at 4.58% and the ten-year at 4.56%.

The bears were routed today.

The DJIA closed up 123 points at 11850. The S&P 500 gained 16 points to 1350 and the NAZZ rose 40 points to 2285.

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

New highs expanded to 340 and there were 150 new lows.

And there are two more days at the casino before the bifurcated Columbus Day week-end when on Monday the Feds and banks are closed and stocks are open for play.

As the old stockbroker used to yell on day’s like today, “Buy’em now boys for they go lower!”
*****

 

3 October 2006 Daily Comment

Thoughts

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

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

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

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

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

Urban Outfitters didn’t participate in today’s rally and we decided to take our 50 pennies loss in our large/trading accounts and look at the stocks after November 9 earnings unless it sell off before.
*****

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

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

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

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

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

 

2 October 2006 Daily Comment

Thoughts

Asia was fractionally higher overnight with Hong Kong closed for holiday. European bourses are trading small fractions higher and lower. As trading begins Gold is higher at $607 and oil is off a bit at $62.49. Treasuries are flat to a bit weaker.

With today being Yom Kippur and the uncertainty of recent market action the stocks markets may not do much since the trading will be light. Or maybe the big boys and girls who are working may decide to have some fun. Amaranth Hedge fund may have finished unwinding a good portion of the positions it needed to raise cash and coupled with the completion of the third quarter window dressing a truer trend for the stock markets may be come evident.

We saw a couple of investor sentiment readings which showed a good number of bulls and that have us nervous. We are expecting a down October but not a collapse. Time will tell.
*****

The Institute of Supply Managements Manufacturing Index for September was 52.9 when 53.6 were expected; ISM Prices Paid Index was 67 versus 61 expected. Some of the internal ISM numbers were under 50 which mean contraction. And the bond markets are focusing on them as Treasuries are rallying.
*****

From Tony Crescenzi at www.realmonmoney.com :

Pending home sales, a predictor of future existing-home sales based on contract signings (sales are based on closings) rose 4.3% in August, the largest increase since March 2004 and a sign that sales picked up in August. Recent data on mortgage applications support these data, with applications for purchasing having increased of late. If sales have picked up, inventory levels might be peaking, especially now that sale offering prices are being lowered and spec activity has simmered down.

Also important was the gain in construction spending. It rose 0.3% in August, six-tenths more than expected, and the prior month was revised upward by 0.2%. The story here was that nonresidential construction spending increased by more than the decrease in residential construction. This continues a pattern that has thus far helped to ward off decreases in construction jobs.
*****

Oil closed at $61.88 in NYC and Gold was $603. Treasuries were firm into the close with the two-year at 4.65% and the ten-year at 4.60%.

The DJIA closed down 9 points at 11670. The S&P 500 lost 5 points to 1331 and the NAZZ dropped 20 points to 2237.

Breadth was negative all day and trading was moderate.

New highs were 240 and new lows were 95.

And tomorrow all the boys and girls will be back at the tables in the big casino.
*****

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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Website Information

For those folks who have accounts with us, you may now go to: https://eview.mesirowfinancial.com and fill out the account information and view your accounts online. If you have trouble filling out the form, or in getting online, call and we will help you with the process. NASD regulations require the eview site to be secure. Thus your password must be changed every ninety days. You will be prompted to make this change when needed.

For information on Mesirow SIPC and Excess SIPC protection SIPCmesirow.pdf.

For those clients of LY& Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
For Quarter Ending 09/30/2002 For Quarter Ending 12/31/2002 For Quarter Ending 03/31/2003
For Quarter Ending 06/30/2003 For Quarter Ending 09/30/2003 For Quarter Ending 12/31/2003
For Quarter Ending 03/31/2004
All future SEC Rule11Ac1-6 Quarterly reports may be found by visiting the diclosures at LY& Co Clearing Broker Mesirow Financial at: http://www.marketsystems.com/reports/1-6/msro/.


Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.


Summary of Business Continuity Plan

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