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Madison, WI 53703
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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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