New Address:
Lemley Yarling Management Co
309 W Johnson Street Apt 544
Madison, WI 53703
Toll free phone numbers:
Bud: 312-925-5248
Kathy: 630-323-8422
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Halloween 2007 Daily Comments
Thoughts
The following excerpt from realmoney.com explains the implications
of this morning’s Advance Quarter 3 GDP inflation numbers:
The GDP price index increased at a pace that matched its lowest since
1963, advancing at a meager 0.8% pace. The consensus forecast was for a pace of
2%. If the consensus had been met, GDP would have been reported to have
advanced at a 2.7% pace, not 3.9%, because of the 1.2-percentage-point
difference between the consensus and the actual.
Looked at differently, by expecting GDP to advance at a 3.1% pace and
for the price index to increase at a 2% pace, the consensus was also looking
for a 5.1% increase in nominal GDP, which represents the total amount of
spending. The actual increase was 4.7%, which is arrived at by adding the price
index to the change in real GDP (0.8% + 3.9%).
*****
Asian markets were mixed
overnight and European bourse indexes are higher at midday. Treasuries are flat as are Gold and Oil as the
markets await the Fed’s 1:15pm announcement.
*****
The major market measures opened
higher and at 11 am the DJIA is up
100 points. The anticipation of the rate cut means that if the rate cut doesn’t
occur the downside beckons.
*****
Alcatel Lucent had a larger loss than expected but is going to fire
another 5000 souls and so the market reaction to the news is benign.
*****
Dell finally filed its restated financials for the last five years.
*****
We sold WSM in
large/aggressive accounts for a trading profit and bought TLAB in those same
accounts.
*****
Oil is up $3.45 this afternoon at
$94.
*****
The Fed cut rates 25 bps and the
DJIA dropped from up 80 points to down 25 points in five minutes. The major
stock measures all pulled back on the announcement but now are recovering.
Treasuries were down on the day when the news was announced but are stable at
lower prices/slightly higher yields.
The next Fed meeting is December
11 so the talking heads are going to have to find a new subject for the next
few weeks.
*****
Oil closed on a new high at $9430
up $4.15. Gold was up $10 at 798. Treasuries finished lower with the two-year
at 3.91% and the ten-year at 4.47%.
European bourses closed higher on
the day and Mexico
was lower while Brazil
was up 1.7%.
The DJIA gained 150 points to
closes at 13950. The S&P 500 rose 20 points to 1550 and the NAZZ jumped 50
points to 2860.
Breadth was almost 2/1 positive
on the NYSE and 5/4 on the NAZZ and volume was moderate.
There were 190 new highs and 85
new lows.
The bulls won the day
and just barely won the month. The S&P 500 was up 1.3% in
October while the DJIA was unchanged. The NAZZ is at a 6 year high but still
miles form its all time high.
*****
30 October 2007 Daily Comments
Thoughts
Proctor & Gamble was conservative in its estimates going
forward even though its third quarter numbers were better than, and that negative forward look has cast a pall on the
markets. Also, traders want to lock in some gains ahead of the Fed announcement
tomorrow and the speculated takeover/news from Yahoo didn’t materialize and so
YHOO is also down 10% in the last two days after rallying 20% last week.
*****
Asian markets were mostly lower
overnight except Shanghai up 2.6%. European
bourse indexes are lower at midday
and Treasuries are flat while Gold is down $5 and Oil is off $1.60 with a $92
handle as Mexico
resumed production.
*****
Qwest disappointed this morning and we are going to have a down day
in that stock.
*****
We traded out of
HSY for a scratch loss because we want the funds for more aggressive purchases.
We added Ericsson and Yahoo to medium sized accounts and bought more Qwest down
a dollar on the day.
*****
Alcatel Lucent
earnings come tonight and we are going to exit the stock at $9/52 for 25
pennies to 50 pennies per share loss ahead of them.
If ALU fires Russo overnight the shares will
pop but that’s what makes a market.
*****
We sold NCC for a
trading profit in our large/aggressive accounts and bought shares of J Crew in some
accounts.
*****
Our personal bank analyst just
visited Florida and said the real
estate market is in a shambles down there. His analysis is the reason we sold
the National City since they have
been on an acquisition binge in Florida.
For that same reason we are going to sell our Fifth Third
Bank holdings for a plus scratch.
*****
Oil ended down $$3.50 at $90.03.
Gold dropped $5 to $787. Treasuries were flat with the two-year at 3.80%
ten-year at 4.39%.
European bourse indexes closed
lower across the continent and Mexico
and Brazil were
also lower.
*****
The DJIA lost 78 points to 13792.
The S&P 500 was down 10 points to 1531 and the NAZZ was unchanged to 2815.
Breadth was 3/2 negative on the
NYSE and the NAZZ and volume was active.
There were 118 new highs and 94
new lows on the NYSE.
The bears won the day
and evened the score for the week.
*****
29 October 2007 Daily Comments
Thoughts
Asian markets bubbled larger
overnight with Hong Kong and India
up over 3% and Shanghai up 2.8%. Japan
was up 1.8%. European indexes are higher at midday
and Gold is up $10 at $798 in the early NYC going. Mexico
has halted oil production and so Oil has a $93 handle this morning. Treasuries
are mixed.
*****
The Fed meeting is Wednesday and
Uncle Ben may have some goodies in his trick or treat bags for the bulls- or
maybe some honey for the bears if he does nothing. Current wisdom, for what it
is worth, suggests a 25bps cut, the briars are hoping for nothing and the bulls
for 50bps.
*****
The CEO at Mother Merrill is out
with a nice going away present for losing $8 billion.
*****
Goldman Sachs placed Dell on its conviction list. That doesn’t
refer to the cooking of the books that Dell did for five years and still hasn’t
resolved. It refers to a buy recommendation.
*****
We took a trading
profit in St Jude and added to MOT in many accounts.
*****
Oil ended at $93.53 up $1.57.
Gold closed $5 higher at $793. Treasuries were mixed with the two-year at 4.79%
and the ten-year at 4.39%.
European bourses closed higher as
did Mexico and Brazil.
*****
The DJIA gained 60 points to
finish at 13870. The S&P 500 was up 5 points to 1540 and the NAZZ jumped 13
points to 2817.
Breadth was 5/4 positive on the
NYSE and slightly negative on the NAZZ and volume was moderate.
There were 285 new highs and 80
new lows on the NYSE.
The bulls won the day.
*****
26 October 2007 Daily Comments
Thoughts
Microsoft beat its numbers big
time last night and shorts were forced to cover forcing the price of the shares
up $4 in overnight trading. That up move has given a positive tone to overseas
markets and the U.S.
markets and tech stocks have a bid.
Asian markets closed higher with
most up over 1%. European bourses are mixed at midday
and Gold is up $10 to $780 with oil ticking above $92 in early NYC trading.
Treasuries are flat.
*****
Microsoft's profit jumped 23% and revenue reached $13.76 billion, up 27% from a
year ago -- its fastest quarterly growth since 1999. Sales of the company's
flagship Windows and Office products topped $8.2 billion in the quarter, fueled
by PC demand and "robust" uptake of its Vista
operating system. Revenue in the company's videogame division nearly doubled,
boosted by the launch of the blockbuster Halo 3 game. The company raised its
financial forecast for its fiscal year.
*****
European bourse indexes closed
higher as did Mexico
and Brazil. Gold
gained $17 to $777 and Oil closed up $1.17 at $91.33. Treasuries were mixed
with the two-year at 3.76% and the ten-year at 4.40%.
*****
We repurchased STJ
in our large/aggressive accounts and also added to our AMD, BSX, and MOT
holdings in those accounts.
*****
The stock markets rallied on
Friday on what the gurus ascribed to Friday short covering. The DJIA closed up
125 points at 13805. The S&P 500 gained 20 points at 1535 and the NAZZ
jumped 50 points to 2800.
Breadth was almost 3/1 positive
on the NYSE and volume was brisk.
There were 250 new highs and 100
new lows on the NYSE.
The bulls won the
day and the week.
*****
25 October 2007 Daily Comments
Thoughts
Sorry Ed but we have to say this. The Bush folks are nuts. The imposing of more sanctions on
Iran is a ploy to take the eye off the mess that is Iraq. The Bushies are trying to goad the Iranians into an act of
war so that they can then launch their war. The world does not need this type
of action. When will the Congress get the courage to act on behalf of the
citizens? It is so sad and so unnecessary. IRAQ
WASN’T’ A THREAT TO US AND NEITHER IS IRAN. We should leave both countries
alone to do as they wish to themselves and each
other. Reagan, Rumsfeld and Cheney thought that was a good idea in the 1980s and it is still a good idea.
*****
Oil and gold as both are up on
the war mongering. Oil is at $88.50 soon to be $90 and Gold is $770 soon to
surpass the $820 of the good old Hunt market cornering days. And because we already have Ed’s heart
fluttering we aren’t going to mention the Carlisle Group’ involvement with oil
and gold and the Bush family’s involvement with Carlisle.
Treasuries are higher on Fed rate
cut guessing as Durable Goods orders were 1.7% and Jobless clams exceeded
331,000.
Asian markets were mixed
overnight with Shanghai down a big-time
4.7% and Japan
lower and Hong Kong, India,
and Taiwan all
up over 1%.
European markets are mixed.
Motorola
beat on the bottom line and sales were as forecast. MOT
beat consensus EPS expectations on continuing operations by 2 cents and guided
fourth-quarter EPS 2-4 cents above consensus. Motorola exceeded 37 million
phone-units in sales in the third quarter. This is 1.7 million units more than
in the second quarter.
*****
We have been adding retailers as they move lower. We are
not in denial about the lousy consumer spending but the market caps of the
stocks we are buying are retreating to value territory. Unless one presumes
that there is going to be a depression for the next five years these stocks are
attractive. That doesn’t’ mean they won’t move lower since when the big boys
and girls want to get out they don’t care about the price. We are leaving room
and plan to add into year end.
*****
We re-purchased
Comcast today at $21.90. We sold it two weeks ago at $24.15 because
we didn’t want to hold it through earnings. Earnings came last night and
analysts were disappointed with the loss of subscribers to basic services. The shares
are on their 12 month low and it will be under pressure through the end of October.
We also
re-purchased Micron at $9.65 (sold at $10.35 two weeks ago) in accounts
that owned Rite Aid. We think it is a better speculation and the shares are now
on a three year low.
And we bought
Symantec at $18.65 which is off $3 today on cautious forward advice.
Earnings came last night and were above estimates as were revenues and backlog
but the cautious forward statements unnerved traders and the shares dropped. We
have traded SYMC before without much luck so hopefully this time will be the
charm. Symantec is the Norton anti virus that is on many computers.
*****
The NYT has some figures on the
potential fall out from the mortgage imbroglio. The NYT writes about the losses
from the Market collapse in 2000-2003 but doesn’t mention that all those losses
have been recovered. And home owners are much more likely to hold on to their
homes, if they can, than shareholders were to stocks. And not all stocks
recovered but the value stocks did.
At this juncture, economists say the troubles in the mortgage market
could, all told, cost financial firms and investors up to $400 billion.
That is far more than the roughly $240 billion cost, adjusted for
inflation, of the savings and loan crisis of the early 1990s, according to
estimates of the combined financial toll of that crisis on both the federal
government and private sector. The loss in total real estate wealth is expected
to range from $2 trillion to $4 trillion, depending on how far home prices
fall, according to several economists.
That would be significantly less than the losses suffered by investors
in the stock market collapse earlier this decade, which erased more than $7
trillion, or about 40 percent, of market value.
*****
New home sales were up because they were down.
The Commerce Department reported Thursday that sales of new homes rose
by 4.8 percent last month to a seasonally adjusted annual rate of 770,000
units. That level of activity was still 23.3 percent below a year ago,
indicating that housing remains in a steep downturn.
Analysts had been expecting sales would fall by 2.5 percent last month
from an August sales pace that had originally been reported as 795,000 homes.
However, that figure was revised sharply lower in the new report to show a
sales rate of just 735,000 in August, the slowest sales pace in 11 years.
In other words, last month new home sales were reported at 795,000, an
8.3% decline from the previous month's 867,000. Last month's number has been
revised down by another 8% or so, meaning that last month's decline was
actually 18%. So, yes, relative to the adjusted numbers this month's number is
up, but it's still lower than what was originally reported.
*****
As with Mother Merrill, BankAmerica takes the tack of firing
everyone but the boss.
Bank of America is poised to launch a major shakeup of its investment
bank, including layoffs and the forced ouster of the head of its Global
Corporate and Investment Banking unit, according to people familiar with the
plan. Last week, Bank of America disclosed disastrous results for the
investment bank. Losses in the unit's trading account totaled more than $1.45
billion, triggering a 32% decline in net income for the bank, compared with the
same quarter a year earlier.
*****
Oil ended at a new high of $90.46
up $3.36. Gold also gained closing at $771 up $6. Treasuries were mixed at the
close with the two-year at 3.74% and the ten-year at 4.35%.
European bourses closed before
the U.S.
markets retreated and so they were higher by 1% or more across the continent. Brazil
and Mexico
finished lower.
*****
The talking heads on CNBC are
apoplectic about Charlie Rangel’s new tax plan. Charlie actually wants to lower
the corporate tax rate by 5%. With all the caterwauling it must have some
merit. And have you noticed that CNBC has been trying to out America first and always and never wrong Fox
for the past two weeks since Fox began its new business network. CNBC should
stick with the business news.
*****
The DJIA again rallied in the last
hour but closed lower on the day. The program traders seem to come in on the
buy side in the last hour of trading for the past few days.
The DJIA closed down 3 points at
13672. The S&P 500 lost 2 points to 1514 and the NAZZ dropped 25 points to
2450.
Breadth was over 2/1 negative
most of the day but improved to 5/4 negative at the close. Volume was brisk.
There were 133 new highs made
mostly in the morning pop higher and 135 new lows made in the midday drop lower.
The bears won the day.
*****
24 October 2007 Daily Comments
Thoughts
Stocks are going to open lower
today on the back of Mother Merrill’s $8 billion write-down
of assets for the quarter. And the CEO is going to keep his job.
*****
National City
is increasing its loan loss reserve to $350 million from $100 million and will
be looking to adjust further as conditions warrant. It is carrying $1.2 billion
in non performing loans. Ouch, since most of those are going to be foreclosed. The
CEO who got them in this mess is gone but they should have taken a larger write-down.
Happily for them they sold the bulk of their junk mortgages to Mother Merrill
in January and those folks at Merrill who bought them are gone. Those mortgages
are the reason for the $8 billion write-down at Mother.
*****
Talbot’s announced that sales are gloomy and the outlook is gloomy.
They didn’t announce it but the gloomy outlooks are why the share price is so
gloomy. We knew sales were lousy going in and the share price is a function of
more committed sellers than buyers. We are going to wait to buy more shares but
will maintain positions.
*****
J Crew is under pressure again today. We think those selling are
the big boys and girls who bought in the $50 range and we are purchasing more
shares. The share price is also now below the level ($38) at which the company
and insiders sold stock in a secondary earlier in the year. The punk news from
other retailers isn’t helping.
*****
Asian markets were mixed
overnight with Shanghai up 1.2%.
European bourses are also mixed at midday.
Oil is lower and Gold is down $5. Treasuries have a bid.
*****
New home sales were down 8% and oil has popped higher on lower
inventory data releases at 10AM. On
that news the DJIA is down 130 points and taking no prisoners.
*****
Last week’s action tamed the Investors Intelligence bulls to 56% from
60%. Today’s action and earnings report from Merrill may chase more to the
bearish camp. Traders are suggesting that the punk news means a rate cut is
coming. Or at least they are hoping that is so.
*****
We are adding more
JCG and Talbot’s to accounts and we are selling LOW and UNFI for a scratch in
our large/aggressive accounts. We want the funds for the JCG and
Talbot’s purchases and other more aggressive/liquid stocks.
*****
St Jude is higher
this morning and since it the only stock we own that is up we are going to sell
it. It is a volatile stock and could be $2 lower tomorrow.
*****
The Federal Trade Commission is
trying to disrupt the Whole Foods/Wild
Oats merger after the deal has already been consummated. The FTC is asking
a Washington appellate court to
review a federal-district court ruling in August that allowed the $565 million
deal to proceed. The agency, which opposes the combination on antitrust
grounds, is asking for an expedited ruling.
With all the mergers that the FTC
has allowed there must be some bad blood for the tenacity with which the FTC is
going after this merger.
*****
We are going to
take our loss on Rite Aid. It is a 15% loss and our aggressive accounts had a
5% position and we are chagrined. We let the position for a
speculative stock get too large. And we didn’t purchase it with the idea of
averaging down although that is what we did. We shouldn’t have.
There are other much higher quality
stocks that have dropped more than RAD has and we want the funds available to
invest in them in the coming weeks. Talbot’s is one such stock. TLB is down 30%
in the last two weeks and we think the
downside from here in TLB is equal to that of RAD and the upside is two or three
times that of RAD. And the quality is much better.
*****
Oil closed up $1.86 a t$87.13.
Gold gained $3 to $765. Treasuries were strong with the two-year at 3.72% and
the ten-year at 4.33%.
European bourse indexes closed
lower as did Mexico
and Brazil.
*****
The DJIA rallied to the plus side
two times in the final trading hour but couldn’t hold but the third wave of
futures buying moved it positive. At the bell the DJIA was up 1 point at 13676.
The S&P 500 lost 4 points to 1515 and the NAZZ dropped 25 points to 2775.
Breadth was over 2/1 negative on
the NYSE and NAZZ and volume was active.
There were 50 new highs and 170
new lows on the NYSE.
With the negative
breadth figures and new lows number the bears won the day.
*****
23 October 2007 Daily Comments
Thoughts
Asian markets made up Monday’s
losses overnight as Hong Kong gained 3.5%, India
was up 5% and Shanghai rose 1.5%.
European bourses are higher at midday
by over 1% across the continent. Gold is $3 higher and Oil has an $86 handle. Treasuries
are firm in the early going in NYC.
*****
Apple did not disappoint last night and is up $13 in overnight
trading. While that is like a $16 stock being up an eighth of a point the
talking heads are ecstatic about the results. All the analysts are raising heir
price targets to the $250 area. AAPL now ahs a market cap of $125 billion on
revenues of $12 billion and earnings of $4 billion. That seems expensive to us.
*****
We are fully invested now and as
they say in poker we are all in for
the duration. There is still a week of trading before mutual fund year end and anything
can and will occur. We will be trading around positions by eliminating weaker ones
when stronger stocks appear.
Such is the case with NY Times which announced a penny more than expected earnings
this morning and jumped over $1.25 per share. We used the jump
to eliminate holdings for a scratch loss. Since we initiated that holding
more stocks have been added to portfolios and those added stocks seem like
better holds. NYT is cheap and will trade higher eventually but the shares of
other issues are more attractive to us at this juncture. Of course there is the
unknown buyer of that 10 million share block that traded last week and if it turns
out to be Icahn or Buffet we may rue our sale.
*****
We’ve been writing
that we are buying stocks that are lower than they were at the July highs. Texas Instruments was $39 in July, $37 yesterday, and we are buying at $31
today. SPDR Bank was $57 in July and is $50 now. Walgreen $48/$38, J Crew $56
and is now $39. Hershey $51/$41, Fifth Third $40/$29, Coldwater $22/$8, Rite
Aid $6/$4, Cott $16/$8, Alcatel $14/$9, Talbot’s $26/$16, CBS $35/28. Ericsson
was $45 last week; we bought yesterday at $29.
*****
We added Texas Instrument which is down $3 today and St. Jude Medical which is off
$10 in the last two months to accounts today. We also added more J Crew and AMD.
*****
European bourse indexes closed
higher but off their best levels. Oil ended down at $85.26. Gold gained $3 to
$763 and Treasuries were mixed with the two-year at 3.83% and the ten-year at
4.40%.
Mexico
and Brazil also
gained.
*****
There is an analyst from Lehman
Bros on CNBC right now recommending some solar stocks.
JA Solar has a market cap of $2.8 billion and sales of $185 million
with negative cash flow. The Lehman analyst expects the share price to double
form this level so that the company would have a market cap 200 times sales.
Sunpower has an $8 billion market cap and $400 million in sales and
is also expected to double in price. Cash flow is a negative $100 million.
First Solar has a $10 billion market cap and $300 million in
revenues with a positive $25 million cash flow.
Buy‘em now boys and girls b’fore they go lower.
*****
We are reducing
our Walgreen holdings by half and taking a $3 loss (or $1 loss depending
on whether you consider the sold shares the $41 purchase or the $39 purchase). We have added other earnings dropped issues to accounts after we doubled our position
in WAG a few weeks ago when it disappointed on earnings. Since we have been
able to spread our risk we would rather have the cash in accounts available for
other investments in stocks that may falter because of earnings disappointments.
*****
The DJIA gained 115 points to end
at 13680. The S&P 500 rose 13 p0ints to 1520 and the NAZZ jumped 45 pins to
2800.
Breadth was 3/2 positive on the NYSE
and 5/4 on the NAZZ and volume was moderate.
There were 70 new highs and 100
new lows on the NYSE.
The bulls won the day.
*****
22 October 2007 Daily Comments
Thoughts
Asia
was 2% lower overnight on most indexes and European bourses are following suit
at midday. Gold is down $13 and Oil
is off $2 in the early going in NYC.
*****
The
DJIA opened lower by about 80 points then moved higher on dip buying. But 2
hours into the session the DJIA is now down over 100 points again. Actually
that is what occurred in 1987 but back then 100 points were worth a lot more than
they are now. But the DJIA closed down 500 points that day and even today a 500
point drop would awaken the sleeping bears.
*****
On Friday as the markets sold
off we did some buying. We have been writing that we expected a down move in
October and we think this is it. The proximate cause is the lousy bank reports
which were expected but still are sobering. And on Friday Caterpillar and 3M
disappointed and sold off and that opened the flood gates a bit. This morning
the selling is beginning again in earnest and we are using the opportunity to
add stocks that are on their yearly and in most cases multi-year lows.
As markets sell off in October
the mutual funds take losses to offset gains realized earlier in the year. And
so stocks that are lower usually move much lower. And we use that movement to
pick up stocks that we think are attractive.
On Friday we purchased Fifth
Third and we are adding more shares today and we are taking the same action
with the SPDR money center bank index. Both these issues yield over 5%. We also
repurchased AMD and Motorola. We had just traded out of both but AMD
reported earnings and suggested a break even next quarter. The share price was
up 80 cents Friday morning but moved lower in the afternoon and we bought. Motorola
held well all day and we decided to get back in
many accounts. We are leaving some room to buy more if earnings disappoint.
Dell acted well on Friday and
we bought shares. Dell held most of the day but sold off in the last half hour
and so this morning we purchased more shares. We added shares of J Crew which
was down on Friday.
This morning we bought CBS, Boston Scientific and Qwest in accounts that own AMD.
We also bought Yahoo, Micron, Comcast, United Natural Foods, Williams Sonoma, Lowes, Intel,
Ericsson, Wintrust Financial (reported lousy earnings
this morning) and the SPDR Financial Sector Trust in our large/ aggressive
accounts.
Yahoo and Intel booth had
excellent earnings reports and YHOO has actually gone up in the market sell off.
*****
Morgan Stanley upgraded Walgreen from equal weight to over
weight and moved its price target to $45.
*****
Price target on BSX was cut to $18 from $20 by Goldman.
Goldman said Q3 results were mixed, but showed stabilizing trends in stents and defibrillators. Management guidance was
disappointing. Goldman maintained Buy rating.
*****
Oil ended down $1.04 at $87.56. Gold dropped $8 to $760. Treasuries were off with
the two-year at 3.82% and the ten-year at 4.40%.
European
bourse indexes were lower as were Mexico
and Brazil.
*****
The
DJIA was down then up then down then up then down and closed up 50 points at
13570. The S&P 500 rose 6 points to 1506 and the NAZZ gained 30 points to
2754.
Breadth
was 5/4 negative on the NYSE and 5/4 to the good on the NAZZ and volume was
active.
There
were 30 new highs and 200 new lows on the NYSE.
Today
was a draw between the bulls and the bears.
*****
18 October 2007 Daily Comments
Thoughts
Before we began our journey this morning
we made a few trades to improve the quality of the portfolios and reposition
just a bit.
We sold Micron
which we owned for a trade at a scratch loss and bought J Crew
with part of the proceeds. J Crew has been hitting on all cylinders and is down
$10 in the last two weeks and $16 from its July high as retail stocks have been
under pressure. It is volatile but we are comfortable trading or owning the shares.
We also bought
Hershey in many accounts as the share price is off $1.50 today at a
four year low on lousy earnings announced this morning. Several outfits bid on
HSY in the spring and with the dollar at a low we would guess that Cadbury and
Nestle are again looking at the company. The Hershey Charitable Trust that
controls the voting shares has been against sale but several years of sub par performance
may be weakening their resolve. They obviously don’t know how to pick CEOs to
run the company.
Finally, on the off chance that
the Fed announces a surprise rate cut before the next Fed meeting we are re-purchasing
the position in JP Morgan that we traded in August for a nice trading gain. JPM
announced better than earnings a few days ago and offered to help Citi with
Citi’s sub prime SIV problems (JPM did not create any SIVs). That is a bit of
hubris from Jamie Dimon, the CEO of JPM who was fired by Citi ten years ago.
We are also looking at National City and Fifth Third which are down 15% and 20% from where we sold a few weeks ago.
Their earnings come tomorrow (FITB) and next Wednesday (NCC) and we want to
wait to see the charges they take and how the markets react. NCC is priced at
$13 billion in the market while BankAmerica is paying $20 billion for LaSalle
Bank in Chicago. That doesn’t make
sense to us but we are guessing the markets want to see NCC’s write-down which
may approach $500 million on ht sub prime garbage they still own. Until they
write that stuff down they are going to be on the avoid list.
This is an options expiration
week and so anything can happen today and tomorrow and Monday but we think
these actions have repositioned the portfolios with high quality stocks and of
course a good cash reserve of over 50% in most of our large accounts.
The last two weeks of October are
usually dicey and it is hard to maintain a philosophy in the face of volatile countervailing
trends. But we do think that the markets are not going to succumb, yet.
*****
17 October 2007 Daily Comments
Thoughts
We will be
traveling tomorrow and Friday and so the next post will be on Monday night
October 22.
*****
Asian markets were mixed
overnight with India
and Japan lower
and Hong Kong and Shanghai
higher. India was down 9% regulators said they may
impose controls on overseas investment. European bourse indexes are higher
at midday and Gold is up another $6
in the early going while Oil in unchanged. Treasuries have a bid.
CPI was up 0.3% with core CPI up 0.2%. Both numbers were as
expected. Housing starts and permits were both down about 10%.
*****
The DJIA was up 90 points to
begin the day but faded after the first half hour of trading as folks who
haven’t been able to sell the last few days did so.
*****
Intel and IBM announced
better earnings and Intel announced improved operating margins and guidance and
that gave a boost to stocks in after hours trading yesterday which carried over
into this morning’s opening. By the way
Intel says sales are so good it is going to fire another 2000 workers which
brings the total number of workers fired since April 2006 to 14500.
*****
Yahoo disappointed us and reported better than expected but less
than last year earnings and traders took the news as good and popped the stock.
We would have sold the pop but as always this is humbling business.
*****
JP Morgan reported better than
expected earnings with billions in write downs. John Mack, the CEO of Morgan
Stanley, said on CNBC yesterday that he didn’t understand some of the
underlying assets in products his company held and sold. And we would guess
that is the case at JP Morgan and so who knows whether the write-offs were
sufficient to recognize the decrease in value of the assets held.
The reporting season for banks is
going to be a season of who knows if the earnings are real and the set asides
for losses are enough. The $100 billion bailout fund is having a slow beginning
as many banks are questioning the purpose. Our question is why the fund is
going to pay more than market value for the assets it buys. Are banks that have
no exposure really going to buy assets at more than they could in the market?
Announcing a fund of this type
without knowing or being able to explain how it will operate smacks of
desperation to us.
The sub prime mess has a way of
reasserting itself in the marketplace every few days and until bank earnings
season is complete the markets may have trouble making any headway. Since that time
period also coincides with mutual fund year end our thought is that the rally
won’t resume until November.
*****
Investors Intelligence has 62% bulls and 20% bears.
*****
A 10 million share block of New York Times was crossed today and so
that may mark a temporary bottom on the shares. The WSJ reported on the sale
with this comment: the sale, which comes
as New York Times stock is trading at a 52-week low at $18.46, is a signal of
how negative investor sentiment in the newspaper industry has become.
That’s an interesting comment because it suggests the 10 million share block
disappeared into thin air. Some one or some group bought that block of stock
and we would guess the buyers don’t share the WSJ sentiment.
*****
We sold Comcast on
the bounce higher this morning. We bought for a trade but with the market turn
we would rather have the cash. We had a scratch profit.
*****
Can you say $89 oil? The oil
market did at 11am.
*****
There is no inflation. As proof
we offer the news that Apple is going to lower the cost of iTunes downloads to
99 pennies from $1.29.
*****
At 1pm
the DJIA is now down 125 points and Treasuries have rallied on the lousy stock
markets.
*****
With the markets
failing today we are going to take our profit in Motorola and a scratch profit
in Dell and a $2 per share loss on our SPDR bank trust.
Turkey
is moving more troops into Iraq
and the administration hasn’t backed off its bomb Iran
song. With the Crash anniversary on Friday and the sub prime mess at the fore
again more cash on hand will be comforting.
*****
European bourses closed higher. They
closed before the U.S.
markets reversed. Treasuries gained today with the two-year at 3.99% and the
ten-year at 4.55%. Oil ended at $87.13 down 48 pennies and Gold was up $1 at
$763. Mexico
and Brazil both
closed higher.
*****
To totally confuse the matter the
bulls rallied stocks in the last hour.
*****
At the bell the DJIA was down 20
points at 13895. The S&P 500 gained 3 points to end at 1542 and the NAZZ,
which stayed positive all day, rose 27 points to 2790.
Breadth was 5/4 negative on the
NYSE and on the NAZZ and volume was moderate.
There were 125 new highs and 125
new lows on the NYSE.
The bears and bulls tied for the
day as Tech gainers were negated by financial losers.
*****
16 October 2007 Daily Comments
Thoughts
Asian markets were mostly lower
overnight with Japan
and Hong Kong both lower by over 1.5%. Shanghai
was of course higher by 1%. European bourses are lower at midday as Uncle Ben said last night that the housing
crisis in the U.S.
will be a drag on the U.S.
economy. Treasuries are higher on those comments and oil has a new high $87
handle with Gold up $3 at $765.
*****
There is an interesting
commentary on Goldman Sachs earnings at:
http://money.cnn.com/.
*****
Yahoo announces earnings tonight and the shares are off $1 in early
trading. That is a sea change form last week when stocks about to report earnings
were higher. The sub prime mess is back on the front page big time and that has
cast a pall on stocks. Also, the markets are at new highs and the negative news
is a good excuse to take profits. On down days we always wish we had taken more.
*****
Bear Stearns downgraded General Motors to under perform.
*****
Yahoo bounced back
a bit and we sold our position. We are losing about $1 per share.
With the change of the tenor in the markets we would rather be out of Yahoo
tonight. We are also adding Talbot’s to accounts that don’t own
it.
*****
Closing the barn doors, can anyone say Katrina?
Treasury Secretary Henry Paulson
called for an aggressive response to deal with the U.S.
housing crisis, which he called "the most significant current risk to our
economy." In the Bush administration's most detailed reaction to the
housing slump, Paulson said the government and financial industry should
provide immediate help for homeowners trying to refinance current mortgages
before they reset at much higher rates. He also said policy makers should
consider developing a uniform national licensing and monitoring system for
mortgage brokers.
*****
We have had 40 inches of rain in
the land of milk and honey since July 1. And in the southeast:
For the first time in more than 100 years, much of the Southeast has
reached the most severe category of drought, climatologists said Monday,
creating an emergency so serious that some cities are just months away from
running out of water.
Officials in the central North Carolina town of Siler City estimate
that without rain, they are 80 days from draining the Lower Rocky River
Reservoir, which supplies water for the town’s 8,200 people.
In the Atlanta metropolitan area, which has more than four million
people, worst-case analyses show that the city’s main source of water, Lake
Lanier, could be drained dry in 90 to 121 days.
*****
When markets begin to trend lower
after a move higher it is prudent to raise some cash. We are not surprised by
the pull back and expect it may continue into month end.
But the beginning of a pull back
is the time to sell those stocks which we wouldn’t add to at lower prices or
which we bought for a specific trading purpose. Palm is
that kind of stock. With Erickson missing on its revenues and earnings
overnight we are inclined to reduce our cell phone exposure to Motorola which has
been acting well. The same cannot be said of Palm. And so we are
going to take a loss on the shares. This is our second loss this
year on Palm and so we won’t be revisiting this stock again.
*****
Oil gained $1.48 to end at
$87.68. Gold rose $2 to $764. Treasuries were better with the two-year at 4.13%
and the ten-year at 4.65%.
European bourses closed lower as
did Mexico and Brazil.
*****
The DJIA lost 73 points to 13913.
The S&P 500 dropped 10 points to 1538 and the NAZZ was down 16 points at
2763.
Breadth was over 3/1 negative on
the NYSE but volume was light.
There were 75 new highs and 100
new lows on the NYSE. This is the first cross of new lows over new highs in a while.
We’ll see if it holds tomorrow.
The bears that are
left won the day.
*****
15 October 2007 Daily Comments
Thoughts
Today the talking heads and financial
print folks are beginning the celebration of the anniversary of the 1987 Crash
which occurred twenty years ago this Friday. In honor of that day the DJIA is
down 120 points two hours into the trading session.
*****
Asian markets were higher
overnight with Honk Kong up 2.4%, India
up over 3% and Shanghai at a new
high up over 25. European bourses are mixed at midday.
Oil has an $85 handle and Gold is at $760 up $7. Treasuries are lower in the
early going.
*****
The Treasury and the major banks
Citi, and JP Morgan and BankAmerica have concocted a plan to place $100 billion
of what supposedly is AAA and AA Mortgages in a pool
that would then issue debt in return. The idea is to get the supposedly good
stuff off the books of the banks. But if the stuff is so good why would they
want to get rid of them? The WSJ reports that:
Under the proposed rescue package Citigroup, J.P. Morgan Chase
& Co. and Bank of America
Corp. will set up a fund, or "superconduit," to act as a buyer of
last resort. It will pay market prices for SIV assets in an effort to prevent
dumping.
J.P. Morgan and Bank of America don't have SIVs, ( structured
investment vehicles, or SIVs, which Citigroup and others set up as a way to
make money without taking the risk involved onto their balance sheets. Such
vehicles are formally independent of the banks that create them. They issue
their own short-term debt, usually at relatively low rates that reflects their
high credit rating. Then, they use the proceeds to buy higher-yielding assets
such as securities tied to mortgages or receivables from midsize businesses
seeking to raise cash.)
JP Morgan and BankAmerica to participate because they would earn fees
for helping arrange the superconduit, whose lifespan, according to people
briefed on the plan, is expected to be about a year. The superconduit can buy
assets from any bank or fund around the world.
Details are still being worked out but the oversight committee of the
three banks will set criteria for what the new fund, to be called the
Master-Liquidity Enhancement Conduit, will buy. For now, it is unlikely the
fund will buy assets underpinned by subprime mortgages due to concern that they
would constrain it, people familiar with the matter said. Subprime mortgages
are those aimed at borrowers with shaky credit.
The plan means that some banks now stand to profit from the problems
their industry helped create. Citigroup, J.P. Morgan and Bank of America, for
example, will be paid fees for providing the financial backstop to the fund. In
addition, the broker-dealer arms of the banks could be paid for helping the new
structure raise capital. Bank of America highlighted the opportunity to
generate fees in discussions leading up to the final plans, people familiar
with the matter said.
*****
In the 1970s the taxpayers rescued
the money center banks from the Argentinean loan debacle. In the 1980s it was
the Penn Square Bank fiasco and the saving and loan collapse. The 1990s it was
the Long term capital blowup which caused the Fed to lower interest rates which
led to the dot.com bubble. And now it is the sub prime mess. We guess
capitalism only matters on the upside not the downside.
*****
We are buying more
Micron in our large accounts and also repurchasing the SPDR Major Bank Index in
those accounts. The KBE is back to where we bought it a month ago
and with a 5.5% yield we want to begin rebuilding that positing.
The major banks are all lower on
Citi’s earnings report today with Citi itself down $1.50 per share.
*****
We are inching
back into Whole Foods in our large/aggressive accounts. As we have
noted before we have been whipsawed by this stock. But we want to own it. They
will report earnings and sales in a few weeks and we think they will be bad.
But the street may give them a pass
because of the Wild Oats merger. We think
the year ahead will show growth in same store sales better than they have been reporting
the past year. That’s because as they remodel and close Wild Oats stores the
sales of the kept stores will improve. The folks who ran Wild Oats had no clue
and WFMI knows how to do it right. Also closing stores will remove bad
performing stores from the same store sales reporting while improving the sales
of WFMI stores that were competing with Wild Oats. We are taking our time and hope
for a further pull back in the stock.
*****
Motorola is up on talk that Carl Icahn is going to begin agitating
again.
*****
Coldwater Creek is bouncing up a bit today on decent volume in a
down market. We hope that is a good sign.
*****
realmoney.com has an analysis of Citi’s horrendous quarter:
The bigger story is that Citigroup's earnings declined by 57%, to 47
cents per share from last year's $1.06 per share, due to writedowns in Citi's
fixed-income business and higher credit costs in its global consumer segment.
On a more detailed level, Japan, credit losses and leveraged finance
writedowns proved to be the bank's undoing. Revenue increased by 6%, to $22.6
billion from $21.4 billion last year. The news led to a 2.34% decline in Citi
stock, to $46.75 on last posting.
Decomposing Citigroup's loss this quarter, the bank revealed that
writedowns in leveraged finance commitments decreased earnings by 26 cents per
share pre-tax. Increases in credit costs, composed of $278 million in net
credit losses and a $1.3 billion credit charge-off due to increased
delinquencies on mortgages and unsecured debt, decreased earnings by 56 cents
per share. Finally, losses in the value of warehoused assets destined for
future collateralized debt obligations led to a 31-cent-per-share decline in
earnings. (All of these figures are pre-tax). The sale of Citi's Brazilian Visa
franchise, Redecard, increased earnings by 14 cents per share.
Examining credit losses in further detail, Citi revealed that the
number of 90 days past due second mortgages almost doubled to 1.1% of average
loans. An increase in loan loss reserves by $2.2 billion, especially in the U.S. markets, accounted for most of the $2.9
billion increase in the cost of credit. Consequently, Citi's return on equity
declined precipitously to 7.4% from 18.9% last year. Its NIM declined slightly
by 3 basis points, to 2.37%.
*****
TLAB is up 8%
today on takeover rumors and offering us a chance to get out even. We are
selling at $9.45. Since we
were nervous about the stock last week when it traded as low at $8.50 and the
volume on the jump today represents only about $60 million we are going to
trade out of this position. If a takeover comes, so be it. TLAB is going to
announce punk earnings next week and we are guessing this is short covering.
Since foreign interests seem to
have no qualms about trading on inside information there could be a takeover by
Alcatel Lucent or Northern Telecom in the works. We shall see.
*****
European indexes closed lower as
the U.S.
markets sold off. the UK
closed down over 1%.
*****
We repurchased the
J Crew we sold last week $3 lower than where we sold.
*****
We were watching 60 Minutes last night and they had a
story on Dubai and all the
construction to the tune of hundreds of billions of dollars that is occurring
there. And the 60 Minutes folks showed
a map of the region and right across the water was Iran.
We were struck by the fact that American companies are locating in Dubai
and it is hoping to become a vacation and gambling spa for the world. And then
we thought of Lebanon
and what happened to it.
If the Bushies do bomb Iran
we would guess that one of the first places to feel reprisals would be Dubai.
*****
Fear not:
Presidential hopeful Rudy
Giuliani yesterday said preparedness will be key for all crises, even an attack
from outer space.
During a town hall meeting in Exeter,
a young questioner asked the former New York
mayor about his plan to protect Earth.
"If (there's) something
living on another planet and it's bad and it comes over here, what would you
do?" the boy asked.
Giuliani, grin on his face, said
it was the first time he's been asked about an intergalactic attack.
"Of all the things that can
happen in this world, we'll be prepared for that, yes we will. We'll be
prepared for anything that happens," said Giuliani, who spent the day
campaigning in the key early voting state.
*****
Oil ended at a new all time high
of $86.15 up $2.46. Gold jumped $11 to $765. Treasuries closed with a gain as
stocks lost ground with the two-year at 4.22% and the ten-year at 4.67%.
Brazil
was up slightly and Mexico
was lower.
*****
The DJIA lost 108 points to close
at 13985. The S&P 500 was down 13 points closing at 1548 and the NAZZ
dropped 25 points to 2780.
Breadth was 3/1 negative on the
NYSE and volume was light.
There were 152 new highs and 90
new lows.
The bears won the
day.
*****
12 October 2007 Daily Comments
Thoughts
Today is the real
Columbus Day, celebrated by Italian Americans, remembered with fondness by
Europeans and school children of the last century when holidays were celebrated
on the actual day and with sadness by American Indians and African Americans.
*****
Asian markets took their cue from
the late sell off in the U.S.
markets yesterday and moved lower on Friday. European bourses are also lower at
midday and oil is down with an $82
handle while gold has dropped $4 in the early going in NYC. Treasuries are
giving ground because of the PPI number which more than expected.
*****
GE announced in line earnings. Oracle
is taking over another software company to pump up earnings with accounting
shenanigans in the manner that Computer Associates developed and perfected
until reality caught up. Citigroup
fired some folks for losing billion of dollars but CEO Prince remains a Prince
and CEO.
*****
We bought more
Ford in accounts where we sold Bristol Myers yesterday.
Also today Coldwater Creek
announced that it would have a loss for the third quarter and break even for
the last six months of the years. The shares are trading at $8 down from a high
of $26 early in the year. The shares are off $3 today and volume is over 20
million shares with a float of only 60 million shares. Institutional investors
are obviously abandoning the stock. We had taken a small position at $12 in our
larger accounts and we are now adding to that
holding and in large/aggressive accounts at $8.
Insiders own 30% of the shares
and the Dennis Pence, the husband part of the husband/wife team that founded
the company, suffered a heart attack a month ago and has announced that he will
be stepping down from day to day operations. CWTR obviously missed the women’s market
this year.
With CEO Pence stepping down and
the large insider ownership, if the buyout markets ever recover and CWTR
continues to founder it would be a buyout candidate. CWTR has small debt and a
good chunk of cash but we are treading lightly since there are three weeks to
go to mutual fund year end and more big boys and girls may chose to abandon the
stock. Also the company announced a $75 million buyback and they may be
standing there today with us buying stock with more downside to come in the
next few weeks when they fill their quota. Or maybe they are smart and standing
aside for now. Action in the last hour of the day when the company can’t be
buying will give a clue.
*****
Talbot’s and Chico’s
are down in sympathy with CWTR. We repurchased Chico’s in our large/aggressive accounts at $14.30.
*****
Last Friday, Canadian pharmacy
chain Jean Coutu Group bought 1,975,262 shares of Rite Aid
for $9.1 million, an average of $4.63 a share. The purchase came three days
after the stock hit its 52-week low of $4.28 on Oct. 2, following a
disappointing earnings report and lowered guidance. Jean Coutu now owns
251,975,262 for a 31.9% stake in the Camp Hill, Pa.-based retailer. We are buying more shares today at $4.29.
In June 2007, The Jean Coutu Group
merged its United States
network of 1,854 Brooks and Eckerd stores and six distribution centers,
primarily located on the East Coast and in the Mid-Atlantic region, with Rite
Aid Corporation. As a result of the transaction, The Jean Coutu Group received 250
million shares of Rite Aid common stock, giving it an approximate 32% common
equity interest and approximately 30% of the voting power in the expanded Rite
Aid.
*****
We flipped some NLY in our
large/aggressive accounts for a scratch. We shouldn’t have tried to trade the
stock.
*****
Oil closed at $83.72 up 78
pennies. Gold lost $3 to $754. Treasuries closed weaker with the two-year at
4.22% and the ten-year at 4.69%.
European stocks were mixed at the
close and Brazil
dropped over 1% while Mexico
closed higher by over 1%.
*****
The DJIA gained 80 points to finish
at 14092. The S&P 500 was up 8 points to 1562 and the NAZZ jumped 34 points
2705 as Baidu resurrected itself and the rest of the
tech area on the back of the Oracle bid for BEAS.
Breadth was 3/2 positive on the
NYSE but volume slowed dramatically.
New highs contracted sharply to
85 and there were 70 new lows on the NYSE.
The bulls won the
day and the week by surviving yesterday’s reversal and closing higher on a
Friday.
*****
11 October 2007 Daily Comments
Thoughts
U.S stocks opened higher out of
the box this morning. Wal-Mart raised guidance and that gave a positive tone to
mostly less than expected same store sales number for retailers. For example,
American Eagle Outfitters missed and opened almost $1 higher. That may have
been short covering since the shares retraced some of the pop in the next hour
of trading but that move higher is indicative of any news is good news that is sustaining
the market move higher. It will end at some point.
Asian markets were mostly 1%
higher or more and European bourse indexes are higher at midday. Gold is up $4 and Oil ahs an $82 handle.
Treasuries are giving ground.
*****
Jobless claims were 308,000 and
last weeks numbers were adjusted lower. The trade deficit was $57 billion when
$59 billion was expected and continues a trend of lower trade deficits which is
a positive.
*****
As we said yesterday the markets
are ignoring the Boeing announcement
about the delay in the new airplane. It is made from composite material which
is a new technology and we have seen reports-that have been dismissed as
irrelevant by Boeing and analysts- that the composite material will not meet FAA
crash safety requirements if the FAA sticks to its guns.
We think the delay has to do with
that and not the announced supply issues. Or maybe it is a combination of both.
We know that the markets are concentrating on the here and now but eventually the discounting mechanism will come
into play. And with all the Iran
bombing talk, Turkey’s
incursion into Kurdish Iraq, and Israel
bombing Syria,
we have the caution light flashing in the back of our greedy brain.
*****
We took our profit
on Bristol Myers. It is a takeover talk perennial and one of these
days it may happen and we will rue trading it instead of holding it. But till
then… we also sold PFF Bank and Boston Scientific and some J Crew in our large/aggressive accounts
for modest gain.
*****
Ford is higher
today and we are adding to our positions in accounts. The share
price is now above is both its 50 day and 100 day moving average and with the
GM making 12 month highs and the now private Chrysler no longer available to
buy, we want to buy our second tranche of stock. The union settled with
Chrysler last night and leaves only Ford to go. A move lower in the stock would
afford an opportunity to buy more.
*****
We spent the evening thinking about
our TLAB holdings. The position has grown too large in relation to the other
stocks we hold. Our intent all along has been to make Ford our largest percentage
low priced stock position by year end and the TLAB position has grown as we
have attempted to make ourselves right on our call on the stock. But we are not
larger than the markets and we need to reduce the position to bring it in line
with our other low priced tech stock holdings. TLAB has already pre-announced
lousy results but if the markets are in a funk next Tuesday when TLAB releases
final numbers TLAB’s share price could move lower. And so we are
selling half the TLAB position for a loss. As usual, it is always
nicer to take profits than losses but the discipline is….The Tellabs sale pays
for the Ford buy.
*****
At 1:15pm
the markets turned on a dime and headed south. There are reports that there is
a liquidity crisis in Russia.
We are not surprised.
Also Baidu (the Chinese Google) was at a new highs of $360 when Morgan Stanley
cautioned and the shares dropped $30. Apple
and Research in Motion (the
Blackberry maker) which are two other favored mo-mo stocks are on the downside after
being higher all morning.
The correction may be upon us.
*****
The buyers are beginning to
reappear at 1:45pm. If the bulls can
get the DJIA up 100 points by the close they will have proven their power.
Conversely if the bears can get the DJIA down 100 points they will have
reasserted control for the short run at least.
*****
Baidu is now $50 below its high for the DAY. Even for a $300
handles soon to be $200 handles stock that is an awakening reversal.
*****
Oil closed at $83.08 up $1.78.
Gold gained $10 to $756. Treasuries were lower most of the day but gained into
the close as stocks weakened with the two-year at 4.12% and the ten-year at 4.63%.
European bourse indexes closed
higher as the U.S.
markets were up when the European closed. Mexico
and Brazil finished
lower in sympathy with the reversal in U.S.
stocks.
*****
Even with the reversal in stocks Ford closed on near its high.
*****
The DJIA lost 65 points to close
at 14015. The S&P 500 dropped 8 points to close at 1554 and the NAZZ eased 40
points to 2772.
Breadth was 3/1 positive on the
NYSE until the contra hour reversal and finished the day 3/2 negative. Volume
increased on the sell off especially on the NAZZ.
There were 350 new highs on the
NYSE with most of those made in the first two hours of trading and there were 70
new lows.
The bears won the day.
*****
10 October 2007 Daily Comments
Thoughts
Asian markets were higher
overnight with India
up another 2% and Hong Kong better by 1%. European
bourses are also higher at midday and
Gold is up $6 this morning on a weaker dollar. Oil has an $80 handle and
Treasuries are flat.
*****
Investors’ Intelligence had 60%
bulls and 21% bears. With 18% for a correction the bullish plus number of 78%
suggests most folks who want to be in the markets are.
*****
We purchased
Comcast and Yahoo in more accounts this morning as stocks traded
lower.
*****
Boeing announced that there is going to be a delay in the delivery
of its Dreamliner and the shares are down $2. That is placing pressure on the
DJIA which is down 90 points at 11am.
That news is also hitting Boeing suppliers like Honeywell which is down $2.
*****
The Boeing news is disconcerting
and as soon as the markets wake that news will probably bring on a pullback. We are selling Marsh McLennan,
Time Warner and Pfizer to neutralize the cash effect on accounts of
our morning purchases.
*****
We also decided to
eliminate AMD and Intel which announces earnings next week.
*****
We sold SMOD at
$9.04 for a nice one week $1 profit.
*****
European bourse indexes were
mostly higher. Mexico
was up 1% and Brazil
was off a bit. Oil ended up $1.04 at $81.03. Gold rose $3 to $746. Treasuries
were flat with the two-year at 4.14% and the ten-year at 4.64%.
*****
At the bell the DJIA was down 90
points at 14075. The S&P 500 gave up 3 points to 1563 and the NAZZ gained 8
points to 2811.
Breadth was 5/4 negative on the
NYSE and volume was light.
There were 205 new highs and 60
new lows.
The bears won the
day.
*****
9 October 2007 Daily Comments
Thoughts
Stocks are opening higher this
morning after yesterday’s mild sell off. There isn’t much news and the 1 pm release of the Fed minutes from the September
meeting is the item of the day. Since that Fed meeting the employment reported
that spurred the 50bps cut ahs been revised by plus 100,000 jobs. That revision
would suggest that the Fed didn’t know what it was talking about in the
meeting. But then, maybe that is always true. Anyway, Uncle Ben may feel a
little embarrassed by believing the statistics
that weren’t and it is our guess that to show his independence there will
be no cut at the Halloween meeting.
*****
Student Loan Marketing is suing
the buyout group that has reneged on the $60 price the group agreed to pay when
buyouts were all the rage five short months ago. The buyout group wants to pay
$50 per share. SLM wants the $60 number or the $900 million break up fee.
Hooray for capitalism.
*****
Asia was
higher overnight with India
the big mover up 4.9%. European bourse indexes are higher at midday. Oil has a high $78 handle on it and
Gold is off a couple of more dollars in thee early going. Treasuries are flat
as the bond boys and girls are back to work after their Monday holiday.
*****
Alcoa kicks off earnings season
tonight as the first of the DJIA thirty to report for the third quarter.
*****
Gary Forsee is out as CEO of Sprint and taking his $55 million
golden parachute for doing nothing. Hooray for capitalism. Sprint just won $80
million from Vonage in an infringement settlement so that money is coming in
and going out.
Our timing on yesterday’s
purchase of Sprint could have been better since the shares are lower today. The
lower price is because Sprint announced the exit of Forsee and also said they
were going to lose 400,000 post paid subscribers this quarter and have less
than revenues and earnings. With the sell off on the CEO
leaving (share prices usually rise on that type of
news) we are going to take our 40 pennies loss on yesterday’s purchase and
watch for a while.
*****
The Fed minutes from the
September meeting all members wanted and easing. The minutes said that the Fed
was skeptical about the employment report (any chance that was added after the
fact?) but thought there was weakness in job growth. The full minutes for the
meeting are here:
http://www.federalreserve.gov/fomc/minutes/20070918.htm
*****
We bought Dell in
accounts that own Marsh & McLennan and also added more TLB to our
large/aggressive accounts.
*****
Gold ended at $744 up $4 on the
day after trading at $734 early in the morning. Oil was up $1.24 at $80.26.
Treasuries closed weaker with the two-year at 4.13% and the ten-year at 4.66%.
*****
European shares were higher with France
up over 1% and Mexico
was fractionally higher while Brazil
gained 1.5%.
*****
The DJIA gained 120 points to close
at 14165. The S&P 500 was up 12 points at 1565 and the NAZZ rose 15 points
to 2805.
Breadth improved during the day
to 2/1 positive on the NYSE and volume was light.
There were 190 new 12 month highs
on the NYSE and 60 new lows.
The bulls won the
day.
*****
8 October 2007 Daily Comments
Thoughts
Today’s holiday trading will be
light as will our posts.
Asian markets were mixed overnight
with India down
1.5% and Shanghai up over 2% on its
first trading day in a week. European bourses are mixed at midday. Gold is down $6 and oil is under $80. Treasuries
are closed for the day.
*****
In the early going stocks are
lower.
*****
Yahoo has been receiving
positive analysts’ chatter recently and so we re-purchased shares in our
large/aggressive accounts for a trade. We also re-purchased Sprint Boston Scientific, Dell, Talbot’s and Comcast and added to Motorola in those
same accounts.
*****
Alcatel really hasn’t sold off as
we thought it would when we traded out of it a few weeks ago. The company will announce
re-structuring plans for the umpteenth time when they announce earnings on
October 31. We would rather own it than be out of it at that
time and so we are using today’s weakness to buy ALU in many accounts at $9.95.
We are buying for less than we sold. We also added more TLAB at $8.97
to some accounts.
Both TLAB and ALU have almost $4
per share in cash on the books. We are suffering some short term pain with TLAB
but having traded the stock for years without much luck we think this is the
year to make some dollars on the shares as the big boys and girls sell on the
realization that a takeover is not soon in the cards. They ran the share price
to $14 this summer on takeover talk. They are eliminating now in get rid of losers season and we are
buying.
*****
European indexes closed slightly
lower across the continent. Oil dropped $2.20 opt finish at $79.02 after
trading down to $78.50 during the trading session..
Gold lost $8 to $739.
*****
Momentum stocks were strong
today.
*****
The DJIA closed down 23 points at
14043. The S&P 500 dropped 5 points to 1552 and the NAZZ was up 7 points at
2787.
Breadth was 2/1 negative on the
NYSE and volume was holiday light.
There were 140 new highs and 50
new lows on the NYSE.
The bears won the day
and the Bears also won last night.
*****
5 October 2007 Daily Comments
The stock markets
are open for Columbus Day but the treasury market isn’t.
*****
Thoughts
The Department of Labor reported
that September nonfarm payrolls rose 110,000, slightly larger than the expected
100,000. At least as important, the 4,000 decline in August was revised to an
89,000 increase. While these numbers are less than the 200,000 monthly
gains commonly seen during strong economic growth, it still reflects moderate
growth. Average hourly earnings rose 0.4%. This was a bit more than expected
and follows a 0.3% August increase.
*****
What is
interesting about the numbers is that last months report which was reported as
a decline of 4000 jobs was changed to an increase of 89,000 jobs. (July was
also revised upwards by 39,000 jobs.) The supposed decline of 4,000 jobs was a
major reason the Fed cut the Fed Funds rate by 50 bps in September. Since there
are no take backs in this business the cut stands and the bears lick their
losses but the guessing is that any future rate cuts are surely on hold. And it
surely is strange how the mistaken negative report that caused so much turmoil
and rescued all the big boys and girls from their greed.
*****
Tellabs pre announced negative news on both sales and earnings and
the shares are taking a haircut this morning. No pain no gain.
*****
Asian markets were mixed with Hong
Kong up over 3% recapturing most of its losses of the previous two
sessions and Japan
was down a small fraction. Shanghai
remained closed.
European bourse indexes are
mostly small higher at midday.
Treasuries are higher ion yield/lower in price on the employment report with
the two-year at 4.10% up in yield from 3.99% lat night and the ten-year at 4.61%
up from 4.53% yesterday. Gold is $742 and Oil is unched at $81.93.
*****
JP Morgan and BankAmerica
are reported to plan on taking a combined $3 billion plus in write downs on their
sub prime portfolios.
*****
At noon
the S&P 500 is at 1555 and the summer correction is over. The question now
is whether the bulls have the mojo to push stocks through the old highs or
whether this is a double top with more backing and filing and maybe worse to
come.
*****
The DJIA is up over 100 points
and a lot of the volume today looks like short covering. We sold Circuit City at $9.35 and Talbot’s at $19.25 for a bit better than scratch profits.
Ever since Don passed in 1994 we have been quick on the trigger with in trouble retail stocks. Don was a genius
in everything and especially when it came to buying value in retail.
When TLB and CC traded lower
after we recently purchased them we were uncomfortable adding more shares. In
the back of our mind there are the Spiegel, and Merry Go
Round and just recently The Bombay
Company bankruptcies to remind us that some times perceived value in retail
is not.
*****
In our
larger/aggressive accounts we sold most of our UNFI and bought Intel, PFF Bank (a
California bank with a 5% yield for now at least) and a chunk of Alcatel
Lucent. We are adding to our TLAB holdings in most accounts with the share
price down 40 pennies at $9.20.
Net/net we raised cash today.
*****
Treasuries closed lower on the
day with the two-year at 4.08% and the ten-year at 4.64%. Gold gained $4 to
$748 and Oil dropped 22 pennies to $81.22. European bourses closed higher as
did Mexico and Brazil.
*****
The DJIA gained 92 points to place
a nice bookend on the week for the bulls. The DJIA ended at 14067 which was
below a new high. The S&P 500 was up 15 points to 1557 a new record high and
the NAZZ gained 47 points to close at 2780.
Breadth was better than 3/1 positive
on the NYSE but volume was light.
There were 210 new highs and 60
new lows on the NYSE.
The bulls won the
week.
*****
4 October 2007 Daily Comments
Thoughts
The old
stockbroker would have been 103 today.
*****
Asian markets were mostly lower
overnight with Hong Kong off 1.8% and Shanghai
closed. European bourses are mixed at midday
and U.S. stocks
are trading flat in the early going. Treasuries have a bid on the back of Factory
Orders being down 3.7% and Gold is off $7. Oil has a $79 handle.
*****
Mother Merrill fired some folks
responsible for getting it into a $4 billion sub-prime write-off for the
quarter. Isn’t it interesting how the folks in top management knew nothing
about the mess and were all too happy to collect their bonuses last year on the
backs of profits from sub prime? By the by, a large chunk of the sub prime
losses can be attributed to the portfolio of loans Merrill purchased from National
City in January.
*****
We sold National City yesterday and sold Fifth Third and Huntingotn
Bank today both for a plus scratch. All three will be announcing earnings
in the next few weeks and loan write-offs will be the story. HBAN already
announced a $35 million write down for two loans in Michigan.
That is a lot of money for a bank its size.
We think the regional banks will
not be given as much of a pass on their mortgage mistakes. The money center
banks all have large trading operations that can replace the lost money quickly
by seeing customer order flow and trading on that knowledge. And the money
center banks are probably hard at work creating another money cow like sub
prime mortgages to sell to institutional investors as some dynamic new idea. Of
course soaking the customer with hidden fees has always been the way the street makes big dollars. The regionals
don’t have that advantage.
We bought the shares of all three
for a pop on the Fed interest rate cut and really didn’t get much of a pop from
them. And we want to raise cash here at a market high which is 10% above the
August low. October is always filled with surprises and we have enough volatile
stocks left.
*****
Jobless claims were 317,000.
*****
The European Central Bank left
bank borrowing rates unchanged at 4% as did the Bank of England at 5.75%.
*****
We are buying shares
of Smart Modular Technologies. It is a tech stock that makes DRAM stuff
for original equipment manufactures. It just announced disappointing sales and earnings.
DRAM prices had risen into summer but now have fallen back. SMOD is priced at 60% of revenues and is off
30% in price since August. Insiders own 40% with a float of only 20 million
shares. It expects to earn $.80 in 2008 and we are buying at $7.90 or ten times
earnings.
Of this year’s results the CEO
Iain MacKenzie said:
The majority of our sales are
DRAM-related, and our business model is driven primarily by unit and density
growth of DRAM memory products sold to OEM customers. The 65% decline in DRAM
average selling prices (ASPs) since the first quarter of fiscal 2007, and in
particular, an entire fourth fiscal quarter of depressed DRAM ASPs weakened
unit and density growth, which in turn negatively impacted our financial results
for the quarter.
"However, some signs that
bode well for improved unit and density growth of SMART products include a
trend towards server virtualization in the enterprise market, in which multiple
applications run on a single physical server, and the continued growth in
computing requirements.
"We continue to work towards
diversifying into non-DRAM businesses by broadening our flash, embedded systems
and display product offerings. Earlier in the fiscal year, we introduced our XceedUltra U100 solid state drive (SSD) product family. The
XceedUltra, which is the industry's first SSD with a
next-generation serial ATA (SATA) interface, utilizes our proprietary
controller technology to achieve sustained read speeds of 100MB/s and write
speeds of 60MB/s. More recently, we introduced our XceedLite
product line of SATA SSDs, designed specifically to
support OEM demands for an industrialized version of the secure digital (SD)
form factor. Both of these new product offerings position SMART to capitalize
on the transition occurring in the enterprise, military, medical and industrial
markets as streaming video-on-demand, online transaction processing, internet
search, and other data-intensive storage applications migrate from hard disk
drives. Our embedded systems and display products reflect the results of our
diversification efforts, and our focus remains on kiosk, POS and digital
signage applications, where the markets are fragmented, and where we can best
leverage our engineering expertise and worldwide manufacturing presence.
"We successfully closed
fiscal year 2007 as a leader in high-end OEM-focused memory products. We
believe the foundation of our success is based on the depth of our engineering
design capabilities, customer-centric service, worldwide supply chain,
manufacturing and logistics, and the breadth of our product portfolio. In spite
of an increasingly challenging business environment throughout the fiscal year,
we remained disciplined and focused, generating strong earnings while
controlling costs. As we move into fiscal 2008, we remain steadfast in our
objectives to cost-effectively deliver a diverse portfolio of products and
utilizing our global footprint and technology expertise," concluded Mr.
MacKenzie.
*****
Europe
closed mixed across the continent. Mexico
was lower while Brazil
was higher. Gold was up $6 to $743 and Oil ended at $81.50 up $1.56. Treasuries
gained with the two-year at 3.99% and the ten-year at 4.53%.
*****
The DJIA gained 7 points to end at
13975. The S&P 500 was up 3 points to 1543 and the NAZZ gained 4 points to
2733.
Breadth was 5/4 positive and
volume was light.
There were 75 new highs and 65
new lows on the NYSE.
The bulls squeaked
to a win on the day.
*****
3 October 2007 Daily Comments
Thoughts
With the way the markets acted in
our absences we are planning on taking a few more business trips.
This morning stocks are lower in
a replay of yesterday’s consolidation after the big move on Monday. Monday was
the first day of the Fourth Quarter and that probably had much to do with the
move. Traders are watching to see whether the markets will pull back after
touching a new high. The S&P 500 did not make a high. A double top may lead
to consolidation during this month which is a clean up month for Mutual Funds
as they close their books on October 31. Mutual Funds take their losses and
pile into winners and that action usally offers s few good buying opportunities
among higher quality stocks.
One example is
Walgreen’s which missed its numbers on Monday and collapsed $8 (20%) while the
markets were moving up. We took a position in WAG and then added to that
position yesterday as the share price declined another $1.50. WAG did the same
thing last year and then recovered nicely into the New Year and we are hoping
for the same action.
We also bought NCR
on Monday after it spun off a subsidiary. But yesterday when we wanted to add
to the WAG position we took a 25 pennies loss because we didn’t want
to increase our market exposure when the DJIA is at a new high.
We sold Micron
ahead of earnings because for the last few days disappointing earnings (except
in the financial sector) have been followed by sell offs in the shares of the
company disappointing. Micron sold off after it announced earnings.
In a similar vein Palm announced disappointing results on
Monday and the share price dropped. We want to own that stock and so we didn’t
sell. But we didn’t buy any more and we will await further retrenchment before
we add.
*****
Asian markets were mixed overnight
with Hong Kong down 2.5% and India
up 3% and Japan
up almost 1%. Shanghai was closed.
European bourse indexes are
mostly higher. Gold is flat after moving big time up and down while we were
away. Treasuries are flat but lower in yield from last Thursday.
*****
Deutsche Bank announced that it was going to take a $3 billion
charge and the shares are higher in the early going. When the major banks announce
write offs they rise. We don’t know whether that will hold true for the
regionals which we own and so we may reduce or eliminate holdings before
earnings.
*****
An analyst at Morgan Stanley made
negative comments on the chip group including Intel and AMD this
morning and they both are lower today.
*****
We bought Micron
back in many accounts at $10.90. Now that the news is out and the stock has
reacted we are more comfortable owing it.
*****
Investors’ Intelligence had 57% bulls and 25% bears in the latest
survey. The bulls haven’t been at these levels since last June.
*****
National City
has a $1 billion plus sub prime loan portfolio that it had to keep when it sold
its sub prime lending subsidiary to Mother Merrill earlier this year. Those
loans are mortgages on which the first interest payment was never made. NCC has
written down about 15% of those loans and probably has another 35% to go to be
reasonable. In their mid quarter update NCC did not say it was going to write
down any more this quarter. Several months ago NCC used the money from the sale
of the sub prime lending subsidiary plus other funds to buy back stock at $38. The
stock currently is priced at $26. The CEO in charge when those decisions were
made has retired but his mismanagement has not yet been dealt with by the new
management. We are worried about this quarter. New management may not write off
enough of the loans.
When we are afraid of earnings we
usually sell before and see how the shares react. We are doing that with NCC.
We would like to raise some cash after the large market move.
We sold NCC at
$26.70 for a scratch to $1 per share profit.
*****
Oil ended at $79.90 down 16
pennies. Gold was unchanged at $736. Treasuries closed lower with the two year
at 4.01% and the ten-year at 4.55%.
European indexes were mixed at
the close and Brazil
and Mexico were
lower with Brazil
off over 2%.
*****
The DJIA closed down 80 points at
13970. The S&P 500 dropped 7 points to 1540. The NAZZ lost 18 points to end
at 2730. This is the first time in over a month that the DJIA has been down two
days in a row.
Breadth was 3/2 negative at the close
and volume was light.
There were 84 new highs and 60
new lows.
The bears won the
day but the bulls are not worried — yet, and that’s a worry.
*****
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Summary of Business Continuity Plan
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