Bud's Poem Page

30 September 2004 - Daily Comment

Yesterday’s Markets

7:32am and 2nd Quarter GDP was up 3.3%, the deflator was 3.2%. The ten-year Treasury is 4.03% up a few basis points.

Amid the hoopla of the world we value greatly where we live and last night while walking we thought of friends an family and want to share the result of those good feelings.

          Harvest Moon

At midnight a lone cricket chirps
As walking ‘neath the Harvest Moon
We hum the old familiar tune
And feel the frost begin to form

Yesterday the forest trees
That outside our window grow
Signaled to us change had come
As they donned their autumn leaves

The cows are happily afield
Where hay so recently was cut
Finally after weeks of grass
Luxury alfalfa fills their gut

Cows are but eating machines
As farmer Pete does often say
They live to eat and eat to live
And that they do from day to day

They know nothing of the world 
Beyond the fences that are home
So peaceful with their bellies full
Content and cudding as they roam

Little Pooper now alone
Every morn does bark away
The night scent coons and skunks
Have left where she claims sway

She guards the meadow ‘low the house
And hill that rises in the south
She runs to cornfield and to barn
Warning all that she’s around

The cats are happily hunting now 
Mouse and rat and tiny shrew
Provide them both with rapid chase
And usually lose the deadly race

When walking o’er the well trod ground
We marvel at our luck and life
For here among our nature sound
A home away from worldly strife


8:33am and this is a must read essay by Bill Gross who runs $500 billion with a b in bond money and his take on inflation and how the government reports it. http://www.pimco.com

8:38am and final 2nd Quarter GDP at 3.3% was above the last estimate of 3.0%. So things were better in the 2nd Quarter than we knew they were. The 0.3% rise has caused a little profit taking in Treasuries with the ten-year now up 7 basis points in yield.

10:30am and today the NAZZ is leading the markets higher being up 20 points while the DJIA is up 15 points. Breadths is 2/1 positive on the NAZZ and 5/4 positive on the NYSE. Oil is lower on the announcement of higher petroleum inventories but remains above $49. The Treasury ten-year is at 4.08% after spending most of yesterday at 3.99%.

We have a bid in for KO at $39.70 and TWX at $15.75 but have had no luck so far today.

12:58am and Nigeria has a truce, the U.S. has more oil than trades thought, and the price of oil is down 65 cents.

The drop in oil earlier to $48.50 led to the major measures firming and now they are trading in positive territory. Oil stocks are undergoing profit taking, and other stocks are meandering into month end.


1:26pm and we wonder why the SEC is allowing Janus to run its present  advertising campaign about research from the ground up before making an investment. Janus should have been put out of business for the way they ran folks money in the late 1990s.

3:02pm and the DJIA closed up 55 points at 10130. 26 points of that move was accounted for by Caterpillar the folks who are going to have record earnings but can’t afford to pay their employees health insurance costs. The S&P 500 gained 4 points to end at 1113 and the NAZZ rose 25 points to finish at 1895. Breadth on the NYSE was negative and was 5/3 positive on the NAZZ. Oil lost 39censs to $49.51 and the ten-year Treasury ended at a 4.09% yield. Program trading ruled the day.

This Morning

7:01am and Hong Kong was up over 1% with Japan fractionally higher. Europe is higher as are U.S. futures. Today is the last day of the quarter and with two positive days behind us we would expect the markup folks to continue the chore today with those two positive days as reasons to buy for any inquiring regulators.

We are looking at Coke and Time Warner and Tiffany for buying. Today will be talking head debate day.

Gold is up $2 at $416. We didn’t realize it was that high. Oil is pennies higher but under $50.

So let the games begin.


29 September 2004 - Daily Comment

Yesterday’s Markets

7:14am and domestic politics and foreign entanglements are affecting the markets these days. It seems that every time the markets take two steps forward the next step is backward. The polls suggest Bush is going to win which the markets like. Then Homeland Security says there is going to be an attack and the markets recoil. Oil rises over $50, and North Korea says it has made nuclear fuel. Colgate, Coke and a slew of good companies warn while the Google's and Ultra Petroleum’s of the world move merrily higher. The DJIA breaks 10,000 on the downside.

If bull markets like to climb a wall of worry there is enough worry to go around at the present time. But this is the time of year for worry. The Presidential Debate on Thursday will provide a good indication of where the candidates stand and go a ways towards settling the election question.

Within the next few weeks most of the earnings warnings for the quarter will be over and some good new numbers will be announced. The only problem is that when stalwarts have disappointed we don’t know whether second tier stocks can carry more than themselves higher.

We continue to want to own Coke slightly lower and will probably buy it this week. TWX and a few of our trading stocks are on our radar screen. We believe Time Warner has an unappreciated asset in AOL and the TWX/Comcast/ Adelphia soap opera may eventually create a viable and understandable cable relationship between CMCSA and TWX that will allow some decisions on value.

There are interesting stocks around. Maytag is being kicked out of every portfolio and is at $17.50 down from $30 this year and $60 in three years ago. Our hesitation is that MYG has a ton of debt. The latest drop in the price of MYG came when analysts woke up to the fact that rising steel prices would affect earnings.

And so it goes. We are doing some window shopping but we don’t yet want to pull the trigger because if we are wrong it can cost us 10% as it did with Colgate while we don’t see any of the stocks we are interested in running away from us on the upside over the near term.

The last few years the drill has been to buy the better quality stocks in early October and to wait till December, late December, to buy the beaten down low priced numbers. We never get it exactly correct but we have been able to rescue return the last few years by decent choices in the last quarter.

9:45am and stocks opened higher but now the major measures are lower. Breadth is still positive. Consumer Confidence came in at 96.8 down from 98.7 last month. Treasuries are slightly lower in yield and oil is at $50.

11:05am and the major measures are positive with the DJIA up 50 points. Breadth is also 2/1 positive on the NYSE and has turned positive on the NAZZ. The NAZZ is lagging today and so we would guess that this rally is end of quarter related rather than a turn higher.

When looking at charts of either the S&P 500 or the DJIA, one sees that both have been making a series of lower highs and lower lows since the high back in February 2004. There have been three rallies that failed since then and that is not a good sign. But we are in the season of breakouts and so there may be a confluence of events in the next few weeks that reverses the seven month trend. But we will await the events not anticipate them.

12:55pm and now there has been an earthquake in California. With Mt St Helen rumbling in the northwest and all the Florida hurricanes plus the flooding up the east coast this has been an eventful two months. The sad part about Florida is that a lot of the folks who lost homes were those who could least afford it.

The DJIA remains 50 points higher and the S&P 500 is up 3 points while the NAZZ is just managing to stay in positive territory. Oil has backed off the $50 level and ten-year Treasuries are about 5 basis points higher in yield at 4.05%.

1:51pm and entering the final hour the DJIA is up 75 points while the NAZZ is up 5 points. Breadth remains positive and volume is moderate.

Yahoo has a market value of $44 billion on revenues of $3 billion. Time Warner has a market cap of $80 billion and revenues of $44 billion. The AOL division of TWX has more revenue than Yahoo yet is treated as a pariah by Wall Street because Wall Street analysts were burned by the merger.

Caterpillar sees record 2005 earnings. Caterpillar needs to have its employees pay for more of their health care costs.

3:02pm and oil finished up for the day but under $50. The DJIA closed up 91 points at 10080. The S&P 500 gained 7 points to end at 1110 and the NAZZ rose 10 points to 1870.

This Morning

6:54am and Europe is higher while Japan and Hong Kong were down a bit. U.S. futures are also indicating a lower opening. At 7:30am traders get final 2nd Quarter GDP and GDP deflator. Since that is looking out the rear window it shouldn’t affect the markets.

Yesterday’s rise was attributed to quarter end markups and so today and tomorrow may be quiet affairs. The last time we said that the DJIA rallied 100 points.

So let the games begin.


28 September 2004 - Daily Comment

Yesterday’s Markets

8:05am and stocks are set to open lower. Last week was the first down week in six weeks for the S&P 500. And yet the S&P 500 closed August at 1104 and on Friday is closed at 1110 so there has been no movement this month.

Actually the S&P 500 since January 1, 2002 is down 3% from 1148, so if folks haven’t seen much movement in their portfolios over the last two years and eight months that’s why. If those portfolios are higher as are our managed ones (16% to 25% higher) they are beating the benchmark. Lowered expectations are necessary since the returns of the late 1990s may be difficult to repeat anytime soon.

JP Morgan is going into the hedge fund business by buying Highbridge Capital Management for $12 billion. Highbridge has $7 billion under management. Hedge funds are all the rage now and it is estimated that assets in hedge funds exceed $1 trillion. Those assets can be leveraged 10 to 1 or more. That represents a lot of volatility and risk. Hedge funds by their nature take inordinate risks because that is the way the folks running them make their big fees.

Thursday is the end of the first fiscal half for companies in Japan. The Japanese fiscal year ends March 31.

Crude oil is approaching $50 againd with it trading at $49.75 this morning. Gasoline prices are up 5 cents per gallon in the last two weeks.

8:54am and we bought Colgate as a short term trade. It has traded down to the $45 level and we don’t want the trade to turn into an investment. CL is up a few pennies today on a mention in Barron’s and we are using the strength to sell our trading position. We think the selling pressure will resume later today as the Barron’s effect wears off and the boys and girls go back to cleaning up their month end positions to eliminate losers for the quarter.

We may revisit the stock later in the year. We don’t like taking losses but a trade is a trade whether it is profitable or a loss and the discipline is to stick with our initial reasoning. We sold CL at $45.35 for a $1 per share loss in smaller accounts and a $3 per share loss in our more aggressive accounts.

In the spring of 2000 we bought Proctor Gamble at a split adjusted $45 when it dropped from $55 on negative earnings news. We bought it for a trade and sold it at a loss at $42 when it didn’t rebound as we thought it would. It eventually traded down to $25 and sat there for a while before recovering and moving back up to $60 this year. By sticking with our trading philosophy that a trade is a trade we suffered a loss but also avoided a much greater loss. We did trade the shares off the $25 level and that is the reason we will continue to watch CL.

10:10am and U.S. new home sales were up in August. With the decimation of housing in Florida new home sales should really start popping.

Breadth is 2/1 negative and the DJIA has been down about 35 points all morning and the NAZZ has been off over 10 points.

Reuters is reporting Time Warner Inc. TWX and Comcast Corp. on Monday agreed to a pact giving Comcast an option to cut its stake in Time Warner's cable unit, opening the door for Comcast to unwind the entire partnership. Comcast, the largest U.S. cable operator, holds 21 percent of Time Warner Cable, a stake it inherited after buying AT&T's T cable systems in 2002. The companies have been in long-running talks to let Comcast eliminate its stake in the unit. Under the agreement, Comcast will have an option to reduce its overall interest in Time Warner Cable to about 17 percent. In exchange for stock in a Time Warner subsidiary that will hold cable systems and cash. Comcast holds its Time Warner Cable stake through a trust. The trust has agreed to postpone until April 1, 2005, asking Time Warner to register the Time Warner Cable shares held by the trust for sale in a public offering, the companies said. That delay will allow the companies to explore over the next six months "alternative approaches to facilitating Comcast's exit from its ownership position in Time Warner Cable," Time Warner Chairman and Chief Executive Dick Parsons said in a statement.

11:13am and another more bearish guru is suggesting 1094 is the line in the sand for the S&P 500.

The stock markets have resumed their meandering mood of last week with 2/1 negative breadth and no great selling pressure although the major measures remain lower.

The ten-year Treasury is at 3.99% yield. We read speculation this morning that the final part of the rally in the ten-year is the result of long/short hedges being unwound. The low yield on the ten-year seems to fly in the face of the Fed’s rosy scenario for the economy. Since the Fed doesn’t meet till after the election they will probably say little and for certain do nothing so that they don’t interfere with the election.

1:20pm and Reuters is reporting that Time Warner and Comcast are in talks about a joint bid for Adelphia. The speculation is that then TWX and Comcast could exchange Adelphia assets to unwind the TWX/CMCSA cross ownership mentioned in our 10:10am post.

The DJIA attempted a slow motion rally over the last two hours that failed. The major measures are now sliding lower in boring trading. Breadth remains 2/1 negative and Oil is still under $50.

3:02pm and the DJIA closed down 58 points at 9888. The S&P 500 lost 7 points to end at 1103 and the NAZZ was down 20 points at 1860. Oil finished at $49.65 and in after hours trading moved above $50 and the Treasury ten-year ended at a 3.99% yield the five-year at a 3.28% yield. The yield curve is certainly flattening.

This Morning

6:51am and this morning we get Consumer Confidence at 9am after the markets have opened. Overnight Asia was lower while Europe and U.S. futures are mildly higher. Saudi Arabia says it is going to try and increase production of oil while the head of the OPEC Cartel says there is not much that they can do to increase production and thank you very much for buying our oil at over $50 per barrel.

We have no great thought for today; rather we will watch and react if anything develops. Our cash gives us security.

So let the games begin


27 September 2004 - Daily Comment

Friday’s Markets

7:32am and Durable Goods Orders for August were down 0.5%, ex-transportation up 2.3%, non-defense capital goods ex aircraft down 0.5%, computer and electronics orders were up 4%.

According to a guru we’ve been following the 1095 to 1100 level on the S&P 500 is important support that can’t be broken if the rally is to resume before another more severe down leg.

We ourselves continue to view the 960 to 980 level on the S&P as our goal if we are to commit to the markets in more than a trading way.

Fannie Mae is going to open lower on a negative WSJ story. As Fannie goes so may go the financials. Fannie is accused of smoothing earnings but some folks may be thinking that with all the hedges Fannie has there may also be some shenanigans occurring in that area.

Wachovia as dropped its opinion on The Gap to market perform from outperform.

9:44am and stocks are higher in moderate trading. Breadth is slightly positive and volume is OK. Treasuries are a bit weaker.

Existing Home sales were down 3% in August at 6.54 million with 6.63 million expected. That’s an annualized rate.

Fannie Mae is off $2 today at a 12 month low and $15 from its 12 month high at $80.

11:21am and Berkshire Hathaway owns 200 million shares of Coke. KO has lost one half of its value amounting to $8 billion in the last five years from its high of $81 in the late 1990s. That’s a lot of money even for Warren Buffet.

In the working your way up department: J.P. Morgan Chase & Co. hired Rick Lazio, former U.S. Congressman from New York and past Senate candidate, as executive vice president in charge of government relations and public policy, effective Oct. 1. He will also join the bank's executive committee.

3:02pm and the markets closed before the DJIA turned negative. In the reverse of yesterday the NAZZ was off most of the day and the DJIA was up. At the bell the DJIA was up 8 points at 10047. The S&P 500 gained 2 points to end at 1110 and the NAZZ was down 6 points at 1880. Treasuries were unchanged and oil was up on the day at $48.88.

This Morning

6:25am and Asia was lower overnight, Europe is lower as are the U.S. futures. The talk has turned from hurricanes to the Presidential Debates and that will be the focus of the news media and thousands of talking heads this week.

On the economic front there is little new today. Since quarter end is Thursday we would expect weak stocks to stay weak this week and strong stocks to stay strong as the big boys and girls pretty up their portfolios for client viewing.

We remain interested in Coke and a few other stocks for purchase this week.

So let the games begin.


24 September 2004 - Daily Comment

Yesterday’s Markets

7:32am and first time claims for unemployment rose 15,000 to 350,000 which was above expectations. Continuing Claims were 2.88 million, a gain of 10,000.

Andrew announced that sales will be lower and earnings will not be and the stock is lower in early trading at $10.60. If ANDW acts the same as RFMD it will pop higher later today. Our buy point for more shares and the shares we sold is under $10.

8:51am and the DJIA is down 30 points and the NAZZ is off 2 points. The S&P 500 is hanging around the 1110 level which gives no comfort to the bulls but is not yet exciting for the bears.

Andrew opened at $10.50 down 75 cents and then rallied to $11.50 at which time we sold our remaining shares. The news this morning was not good and we don’t understand the recent trend of tech stocks rallying on bad news. These stocks like RFMD and ANDW are down and may be fairly priced but they aren’t on the bargain counter and we don’t understand the rush to buy. We did read of a fund with great performance this year that has been buying CCMP so at least we understand the run up in that stock as traders mimic the buying that fund is doing. The same may be occurring in RFMD an ANDW.

But we march to our own drummer and we are thankful for the folks buying ANDW today who have allowed us to exit at a small profit.

10:10am and there is talk that the Energy Department is thinking of tapping the Strategic Petroleum Reserves. That talk has oil caused oil to sell off below $48.

Stocks remain lower and Treasuries are laconic. Breadth is flat on the NYSE and slightly positive on the NAZZ.

The Index of Leading Economic Indicators was off 0.3%, down 0.2% was expected.

Martha Stewart Living OmniMedia stock is on fire as the shorts are being toasted. The shares are up $5 in the last three days. It may turn out that the trial was the best thing that happened to Martha. Five months in jail has created $200 million is market worth for Martha.

1:27pm and in the contra hour the NAZZ is exhibiting strength while the DJIA is 50 points lower. Tech stocks are in the green and that is where the NAZZ strength is located.

Why they are is a question we can’t answer.

Reuters reports that Andrew Corp. ANDW, the telecommunications equipment company, on Thursday forecast a fiscal fourth-quarter loss, citing weak North American demand and higher raw materials costs, but its shares rose on relief the outlook was better than Wall Street feared. Say what?

3:02pm and the DJIA closed down 70 points at 10040. The S&P 500 gave up 5 points to end at 1106 and the NAZZ rose 3 points to finish at 1888. Breadth was slightly negative at the close on the NYSE and the NAZZ. Oil finished at $48.46 and Treasuries were firm.

This Morning

6:32am and this morning the boys and girls get Durable Goods at 7:30am and Existing Home Sales at 9am to trade around. Durable Goods are expected to be down 0.3% and EHS are guestimated at a 6.8 million annual rate.

Overnight Asia was lower with both Hong Kong and Japan down over 1%. Europe is slightly lower. U.S. futures are higher. Yesterday’s down and dreary trading may perk up today as Putin in Russia says the Russian government will not nationalize Yukos. Oil is down a few pennies but remains over $48.

It’s Friday and anything can happen.

So let the games begin


23 September 2004 - Daily Comment

Yesterday’s Markets

7:24am and as Tellabs traded down 25 cents per share in early electronic trading Morgan Stanley’s downgrade was just what the trapped short sellers in TLAB need to cover their shares while mitigating their losses.

Wendy’s pre-announced and blamed Florida. In the justice department (re TLAB downgrade) Morgan Stanley is down $2 on lackluster earnings.

General Motors is offering interest free six year loans to sell cars. Say what? Ford is going to follow suit. Remember when the loan period on cars was three years and rates were 20%?

This Morning

6:01am and we took most of the day off to head to Madison and get our recalcitrant Volvo fixed and to attend a lecture with our Ph.D. dissertation candidate daughter. Both missions were accomplished.

And as we left the markets headed south and kept going down all day. We don’t know the reason although there are many being proffered. Whatever, at the bell the DJIA was down 135 points to 10109, the S&P 500 closed at 1113 down 16 points and the NAZZ dropped 30 points. Volume increased but there were still more new highs than lows and we have a feeling that this is not the resumption of the downturn but rather a more violent move within the trading range.

This morning Asia was mixed and Europe lower but U.S. futures are muted. Oil is lower but still over $48 and gold is up $1 at $410.

We obviously did nothing yesterday and will probably stand pat today. Buying big caps down big on bad news worked well last week until it didn’t. We are stuck in Colgate for a bit. It stabilized yesterday and is down $12 in a week so our guess is that it will rally on any rally with at least a dead cat bounce. With our almost 90% cash position we have the luxury of waiting to decide.

So let the games begin


22 September 2004 - Daily Comment

Yesterday’s Markets

7:32am and RFMD cut its sales forecast due to lower sales in Asia and also said it will lose a few cents per share rather than earn a few pennies for this quarter. So our sale the other day looks prescient except the stock is currently trading higher in the third market. For the last two days bad news for tech stocks has been good news. Strange.

August Housing Starts were 2 million. Permits were 1.95 million versus expected 1.98 million. Treasuries are rising a bit in yield from their lowest yields of their year.

8:45am and stocks opened higher with tech stocks leading the way. With the lousy results from General Mills this morning we are going to sell our trading stocks that have any profits to reduce exposure. At the moment we are tying to get out of Coke, Tribune and Unilever. Colgate sold off at the opening so we are going to hold on for now. Actually that is the one we expected to rally at the opening after yesterday action. We guess the committee meetings went late into the night and the sells in CL are being entered this morning. We’ll let them pass and assess the damage later.

9:59am and we sold Coke for a 40 cents per share profit, and Unilever for a 60 cents per share profit. Slowly but surely and it beats taking a loss.

The DJIA is up 3 points as is the NAZZ after both visited negative territory for a while this morning. Breadth is positive as traders wait the 1:15pm witching hour.

12:02pm and the markets are floating along in auto drive till the Fed meeting is over.

We sold our Tribune position for a better than $1 per share profit. The gains on KO and UL and TRB will somewhat offset the $2 drop in CL today.

We added more shares of CL at $46.32 to accounts that didn’t own it. We won’t buy more for our trading accounts unless the stock breaks to $45. That is breakout/support going back seven years. The $48 level where we purchased yesterday was 12 month support. That level obviously didn’t hold.

We reduced our other trading position to ride the CL out. We don’t know whether that is smart but that is what our gut told us to do. That is the opposite of the ‘old saw’ to sell losers and let winners run but Colgate was down so quickly this morning that we didn’t have time to react and we think the markets are so arbitrary these days- just look at the run up in PMC Sierra and RF Micro on bad news- that we want to do it this way this time.

1:16pm and the Fed raised 25 basis points and issued the same statement as last time. The Fed sees subdued inflation and positive growth trends and as soon as oil prices come down every thing will be OK. Treasuries are unchanged and stocks are meandering. By the by, oil is $47.05.

1:59pm and entering the final hour stocks have rallied with the DJHIA up 55 points and the NAZZ up 16 points. The S&P 500 is tickling 1130 and if it breaks through that number there will be a further short covering rally.

3:02pm and the DJIA closed up 40 points at 10245. The S&P closed up 7 points at 1130 and the NAZZ gained 12 points to end at 1930. Breadth was 2/1positive at the close.

This Morning

6:32am and Asia was lower overnight as is Europe. U.S. futures are indicating a lower opening. There are no economic statistics today for the boys and girls to trade off. Morgan Stanley lowered Tellabs rating because of uncertainties over the merger with AFCI and JP Morgan upped RF Micro to outperform presumably because their numbers were so bad yesterday. Go figure. Why don’t they do the same for Colgate?

Interstate Bakeries filed Chapter 11 so our not eating our favorite Hostess small chocolate donuts while not helping our diet did have an effect on Interstate.

The Fed rate increase yesterday was a non event. The S&P 500 is at 1130 and if it breaks through the rally has more days to live. Quarter end mark up may begin although it seems a bit early.

So let the games begin.


21 September 2004 - Daily Comment

Yesterday’s Markets

8:02am and Colgate is going to open $5 per share lower. That peaks our interest.

MLFPS has lowered its rating on Citigroup to neutral based on the need for C to balance growth versus ethics on the heals of Japan’s disciplining of C and the brouhaha over a multi-billion euro bond trade a few week ago. It’s interesting to have MLFPS talking about Citigroup’s ethics.

The Fed meets tomorrow and is expected to raise rates another 25 basis points. Building Permits and Housing Starts come tomorrow. Thursday brings Jobless Claims and Index of Leading Indicators and Friday has Durable Goods orders and Existing Home Sales.

8:48pm and all the major measures are lower with the DJIA down 60 points. Breadth is negative and Treasuries are a bit higher. Colgate is down $5.50 and we have bid in at down $6. Unilever is off over $2 on a warning similar to CL and PG is off in sympathy.

One of the few DJIA stocks higher is HPQ which is up on the announcement of a $3 billion share buyback. That amounts to 4% of the outstanding shares.

Oil and oil stocks are higher.

9:01am and we bought the Colgate at $48.15 for our larger trading accounts. The share price is off over $6 from Friday’s close and $11 from its twelve month high. Reuters reports that today was Colgate’s first profit warning since 1995. That may be saying something about the economy.

We are also trying to buy Unilever at $32.75 which also warned and is down $2.25 from Friday’s close and $12 from its 12 month high.

9:13am and there is buying interest in the large cap tech names. HPQ, MOT, AMAT, CSCO, INTC, Dell etc. are all up today. Breadth is almost 2/1 negative but the drop has been contained for now.

9:33am and the NAZZ has moved to the positive side as low priced but not cheap tech stocks see buying interest.

Morgan Stanley cut Pfizer to market perform from outperform saying PFE is going to move in line with its peers going forward.

10:19am and we were reminded this morning by Minyanville of the three steps and a stumble rule which used to be popular. The rule is that if the Fed raise rates three times in a row the markets will stumble. Tomorrow will be the third rate rise in a row. The markets are also approaching quarter end and month end and there will be some house cleaning going on. Coupled with the big caps like KO and CL warnings, traders and investors have good cause to be cautious. At least that is our take on the situation.

Crude oil is up 66 cents at $46.25. the NAZZ is up 7 points and the DJIA is down 50 points and the S&P is failing at the 1130 mark.

12:05pm and PMC Sierra rallied on the lousy forecast while Colgate tanked. That’s what makes a market. We added Tellabs to accounts where we didn’t think the exposure was large enough.

1:41pm and with a bit more than an hour left the DJIA is off 85 points and the NAZZ is down 2 points. Tech stocks are holding onto gains but below the best levels of the day. The final hour is a question mark.

3:02pm and at the close the DJIA was down 80 points at 10204. The S&P 500 lost 8 points to end at 1123 and the NAZZ gave up 2 points finishing at 1908. Treasuries were up at he close and Crude Oil closed at $46.35 up 76 cents.

This Morning

6:28am and happy Fall, the season or the event? Yesterday chip stocks warned and then rallied. Europe is higher and ASIA was mixed. U.S. futures are higher. Building Permits and Housing Starts are scheduled for 7:30am and then the FOMC (Federal Open Market Committee Meeting) breaks up at 1:15pm with an expected announcement of a 25 basis point rise and a statement on the economy.

The gurus think the Fed has to raise this time even though there are signs of slowdown since the raise is expected and Uncle Alan really doesn’t want to scare the markets before the election. The statement may move the markets if there is a suggestion of slowdown taking hold. Which way they will move is the question.

General Mills just announced it will miss its estimate so the consumer stocks continue to take it on the chin. We can’t buy them all. For now we’ll hold what we have and take a look at the opening. We think there remains a one week window for rally into the first debate on September 30.

So let the games begin


20 September 2004 - Daily Comment

Friday’s Markets

8:15am and Qaulcomm increased guidance for the quarter but traders didn’t like the guidance and the fact that QCOM is going to change to recognizing licensing revenue when received rather than estimating and adjusting later as it has been doing. The shares are down 3 dollars.

8:57am and the U of M Sentiment Survey was 95 versus expected 97. Breadth is 2/1 positive on the NYSE and flat on the NAZZ. The NAZZ is lower by 4 points because of QCOM and the DJIA is up 30 points. Conflicting signals coupled with expiration day make for confusing markets.

After the close last night TXN announced a 21 million share buyback and a raise in the annual dividend to 10 cents. The stock is up a tad on that news. The buyback size is de minimis considering the number of shares outstanding.

QCOM may get pinned to the $37.50 option expiration price today and if it does we are going to try it for a trade. After all they raised guidance. The stocks is overpriced, but then it always is and we aren’t marrying it, only anchovying it.

Crude Oil is up a dollar at $ 44.90 and Treasuries are flat.

9:53am and breadth is now negative on the NYSE also. Treasuries are a tad weaker while the DJIA remains up 50 points and the NAZZ is up 4 points.

1:33pm and the markets are dragging into the close. Crude oil is up to $45.50. The DJIA is slowly eroding as is the NAZZ. Breadth is positive on the NYSE and negative on the NAZZ and volume is light for an expiration day.

3:02pm and the DJIA closed up 40 points at 10284. The S&P 500 gained 5 points to end at 1128 and the NAZZ rose 6 points finishing at 1910. Treasuries closed slightly lower

This Morning

6:13am and in the Yukos Oil soap opera in Russia there are reports that Yukos will suspend rail shipment of oil to China that amount to 100,000 barrels a day because the rail companies want their money up front for carrying the oil. Yukos is battling bankruptcy in Russia for non payment of taxes as Putin tightens his grip on the soon to be Russian dictatorship.

Overnight Asia was mixed and Europe is lower. Colgate and Unilever pre-announced lower earnings and U.S. stock futures are lower.

18 Iraqi soldiers were kidnapped, there are floods all through the east, the Yankees beat the White Sox and the Bears beat the Packers.

Today the markets will open lower and may begin the sell off we have been awaiting, or maybe not.

So let the games begin


17 September 2004 - Daily Comment

Yesterday’s Markets

7:32am and no inflation according to the Bureau of Inflation with CPI and CPI core both up 0.1%. That lack of inflation exists only in the la la land of the Fed and friends.

Initial claims for unemployment were 333,000.

7:35am and we offer a little levity from ‘anonymous’, who is a very busy person.

You know you're living in 2004 when...
  1. You accidentally enter your password on the microwave.
  2. You haven't played solitaire with real cards in years.
  3. You have a list of 15 phone numbers to reach your family of 3.
  4. You e-mail the person who works at the desk next to you.
  5. Your reason for not staying in touch with some friends and family is that they don't have e-mail addresses.
  6. You go home after a long day at work and still answer the phone in a business manner.
  7. When you make phone calls from home, you accidentally dial "9" to get an outside line.
  8. You've sat at the same desk for four years and worked for three different companies.
  9. You learn about your redundancy on the 11 o'clock news.
  10. Your boss doesn't have the ability to do your job.
  11. You pull up in your own driveway and use your cell phone to see if anyone is home.
  12. Every commercial on television has a website at the bottom of the screen.
  13. Leaving the house without your cell phone, which you didn't have the first 20 or 30 (or 60) years of your life, is now a cause for panic and you turn around to go and get it.
  14. You get up in the morning and go online before getting your coffee.
  15. You start tilting your head sideways to smile. :)
  16. You're reading this and nodding and laughing.
  17. Even worse, you know exactly to whom you are going to forward this message.
  18. You are too busy to notice there was no #9 on this list.
  19. You actually scrolled back up to check that there wasn’t #9 on this list.

8:15am and CSFB increases its guestimate of yearly earnings for Motorola to over 80 cents per share on the belief that high end handset sales will help margins. Prudential lowers Tribune to neutral on the lousy third quarter advertising revenues.

9:27am and Schwab’s customer trading was down 11% in August versus July. That was bad but less that the over 15% drop at both E-Trade and Ameritrade last month. We remain interested in the stock but are waiting for it to return to the $8 level in the next market sell off.

The NAZZ is up 14 points this morning and the DJIA is up 40 points. Breadth is positive and volume is light on the Jewish New Year celebration.

10:58am and stocks remain higher with breadth over 2/1 positive and volume light. KO is weak today and if there is a sell off later we may be able to pick up stock under $40 per share for our larger accounts.

1:05pm and the Philly Fed report says that business conditions are still expanding but factories are sluggish. The Index was 13 versus and expected 26. On that news Treasuries are rallying. The major market measures are still positive and breadth is very positive.

2:09pm and we bought Coke on sale at $39.99 for the same accounts we purchased Tribune the other day. Because we are unsure of the markets direction we are more comfortable trading the larger stocks for now.

3:02pm and the DJIA closed up 14 points at 10244. The S&P 500 gained 3 points to 1123 and the NAZZ rose 7 points to end at 1903. Crude oil closed over $44. Treasuries closed on their highs with the ten-year at a 4.08% yield and the five-year at a 3.28% yield.

This Morning

6:52am and Asia was mixed overnight. North Korea is not making nice. The European markets are higher and so is the U.S. futures. Today is expiration day. Ford is suggesting it will have better earnings and the semiconductor book to bill ratio was 1 in August versus a revised 1.4 in July.

We continue to look for large cap trades but other than that are not expecting much for the next few weeks.

University of Michigan sentiment index this am at 8:45am is the only number for the boys and girls to play with today.

So let the games begin.


16 September 2004 - Daily Comment

Yesterday’s Markets

7:32am and Business Inventories were up 0.9% and Sales were up 0.6% both of which were as expected. The Empire State manufacturing index jumped to 28.3 which better than.

We haven’t mentioned that Friday is the expiration day for this month. There are so many various trading products that have been created than we don’t know whether it is a triple or quadruple in sextuple expiration day, but we do know that options expire on that day.

7:45am and Goldman Sachs has lowered opinions on software and hardware tech companies.

OPEC has voted to boost oil production 1 million barrels. We thought they had already done this.

Coke is trading ant $40.55 in the OTC market right now and we are interested. The flighty big boys and girls will be bailing out before quarter end. Under $40 has been a good buy point for the past 8 years. Warren Buffet has owned the stock for many years. KO traded at $80 back in 2001. Now it is half that price. Sometimes trading does make sense, at least in hindsight.

8:16am and Capacity Utilization was 77.3% which was in line and Industrial Production for August rose 0.1 % which was less than the 0.4% expected.

8:33am and Legg Mason recommends buying KO on weakness. They upgraded the stock a week ago when it was trading at $43. At least they are sticking to their guns. We have a bid in at $39.75 for starters.

9:30am and breadth is 2/1 negative for the second day in a row. The DJIA is down 60 points and the NAZZ is back under 1900 having surrendered 17 points. Volume is moderate. Rosh Hashanah begins tonight and ends with Yom Kippur on September 25 so volume may tail off this afternoon as traders head home early.

10:03am and crude oil inventories dropped over 7 million barrels in the recent report. Oil is over $45. The major measures continue lower and breadth remains stinky.

10:27am and Martha is asking to do her five months and get it over with. We think that is a great idea so she can get back to work early next year.

11:43am and RFMD and ANDW are giving back their gains of the past week. Motorola and Nokia are selling off and since they were our key to the ANDW and RFMD we are trying to selling all of the RFMD for scratch since it is the ‘diciest’ stock we own and we are trading out of the ANDW in our large accounts with a 40 cents profit.

We are holding ANDW in our smaller accounts and accounts with 500 shares or less since we like the stock for over year end and are only trying to scalp a few hundred dollars profit per account with our trading sell. Also our larger accounts are invested in CAB and TRB while our smaller ones aren’t.

The NAZZ is off 22 points and the DJIA is down 80 points at this time.

1:14pm and the major measures remain lower although they are off their lows for the day. Breadth is sill 2/1 minus and there the catalyst for the bounce off the lows made earlier is that crude oil has reversed and is now lower for the day at $43.65.

We haven’t been able to pick up Coke at $39.75 and it is currently priced at $41. We aren’t going to chase it.

3:02pm and no rally today. The DJIA closed down 87 points at 10231. The S&P 500 lost 8 points to end at 1120 and the NAZZ dropped 19 points to close at 1896.

This Morning

6:57am and this morning brings August CPI (Consumer Price Index) and the weekly initial claims for unemployment.

Overnight Hong Kong and China were higher while Japan was off a bit. Europe is mildly higher and U.S. futures suggest the markets here will open slightly higher.

With our sale of RFMD and trading sale of ANDW in large accounts we are at a standstill. We still would take a stab a Coke under $40 and will continue to look for that type of stock selling off on lousy quarterly sales projections. The tech rally ended quickly.

Nortel announced lower sales projections and that may affect other telecom suppliers.

So let the games begin.


15 September 2004 - Daily Comment

Yesterday’s Markets

7:32am and Retail Sales for August were down 0.3% versus and expected drop of 0.1%. Ex autos Retail Sales were up 0.2%. The Current Account deficit for Quarter 2 was a negative $166 billion much higher than expected but a yawn. The dollar is weaker on the Current Account news.

As a refresher we present the following discussion of a Current Account from a Canadian government website. The heading is the Balance of Payments and the body of the work discusses the current account and the capital account and their relationship to the balance of payments.

The Balance of Payments

The balance of payments is a comprehensive statement of a country’s economic transactions with the rest of the world for a given period of time—normally a quarter or a year. It is composed of the current account and the capital account: the current account measures transactions associated with trade in goods and services, investment income and transfers, while the capital account measures financial flows such as purchases of bonds and equities or direct investment activities. The balance of payments should not be confused with the balance of trade, which is a narrower concept that measures only trade in goods and services.

In principle, the current account and capital account should balance each other out. If Canada buys more goods, services and the like than it sells (i.e., if it has a current account deficit), it has to sell its assets to finance the spending (i.e., run a capital account surplus) or go into debt. In theory, therefore, the balance of payments is always zero.

Current account surpluses or deficits may or may not be a matter of concern, depending on specific circumstances. Surpluses or deficits in either account might or might not be problematic. For example, as a relatively new and rapidly growing country in the 20th century, Canada often experienced strong inflows of direct investment. These inflows helped Canada grow and prosper, although they tended to cause a capital account surplus and a corresponding current account deficit. In contrast, there have also been occasions when Canadians have substantially increased their investment abroad. Such circumstances can lead to a capital account deficit, which would be balanced by a current account surplus.

Canada ’s transactions with the rest of the world involve the exchange of Canadian dollars for the currency of the other country involved in the purchase or sale. For example, when people in foreign countries invest heavily in Canada , the inward investment flows may put upward pressure on the value of the Canadian dollar, as the investors seek to put their investment plans into effect by exchanging their foreign currency for Canadian dollars. Balance of payments statistics are quite useful in analyzing changes in currency values.

8: 12am the WSJ reports that Bush administration officials have increasingly worried about a potential airline-pension domino, with Delta following United and US Airways into bankruptcy to shed their retiree obligations. The Treasury Department is starting to ponder legislative fixes, according to one person familiar with the situation. One alternative would be to try to prohibit companies from using bankruptcy so easily. But paradoxically, attempting to fix the problem legislatively could make it worse by encouraging more companies to move into bankruptcy before Congress can act.

9:25am and stocks and the major measures are basically unchanged. We sold Motoorloa for a $1 per share profit. We continue to believe this is only a trading market and we expect a big down sometime in the next month. Hopefully we will be able to move some more stocks today if there is a pop to the upside.

9:42am and breadth is 2/1negative today which is the first time it has been this negative for a week.

3:02pm and we had no posts today became it was boring. At the bell the DJIA was up 6 points at 10320. The S&P 500 gained 2 points to finish at 1128 and the NAZZ rose 5 points to end at 1915.

This Morning

5:59am and Japan and Hong Kong were lower overnight and Europe is slightly higher. Oil production is the gulf will be shut down until the hurricane passes. U.S. futures are lower but above fair value.

We have no idea what will happen in the markets today. The rally has sputtered and since t is earnings pre-announcement season we would expect more negative than positive news for the next week.

Oracle did announce better than and is trading a bit higher this morning but Tribune suggests earnings for the quarter of 48 cents versus the street expectation of 54 cents. It says political advertising is disappointing. Illinois and New York where its big TV outlet and newspapers are not contested states.

Coke is also forecasting an earnings of 48 cents versus 54 cents and since KO is in the DJIA that may lead to a down opening.

On tap this morning are Business Inventories, Capacity Utilization, and Industrial Production at 7:30am .

So let the games begin.


14 September 2004 - Daily Comment

Yesterday’s Markets

7:03am and in what may be a first, Broadcom which supplies semiconductors and stuff for broadband communications cut their third quarter guidance for revenues to $640 million form $675 million on a Sunday night. We guess they hoped no one was watching or else the wanted folks to know that they were on the case, even on a Sunday night.

7: 07am and on tap this week in economic data we have the Current Account Deficit on Tuesday morn along with Retail Sales for August. Business Inventories, Capacity Utilization, and Industrial Production all for August come on Wednesday. Thursday is the big day with Jobless Claims and CPI and the week rounds off on Friday with the preliminary U of Michigan sentiment index for September which will probably be down after their loss to Notre Dame on Saturday.

7:15am and by the by this morning’s weather in the country is straight out of Oklahoma with a bright golden haze on the meadow and the corn as high as an elephants eye. Nature can be so cruel and so kind. As the hurricanes have lashed Florida we have enjoyed weeks of absolutely perfect weather. Out time will come, most probably this winter.

7:21am and we saw this quote ascribed to anonymous which well describes the way we often feel.

“Please don’t tell us worrying doesn’t do any good. We know better. The things we worry about usually don’t occur.”

Smith Barney has increased its equity exposure to 60% from 55%. Bear Stearns went the other way last week.

7:35am and Krispy Kreme is looking more like Boston Markets every day. The WSJ is reporting Monday that KKD auditors won’t certify results until its lawyers resolve ‘some matters’.

7:37am and Sony is making a higher bid for MGM at $12 which means that Time Warner will have to pay more dollars than originally planned if it want MGM.

8:23am and Wal-Mart sees same store sales for September up 2% to 4%. Broadcom which was trading lower in the pre-market on their reduced sales forecast is now trading 3% higher. That means the telecom/broadband plays are under owned, for this morning at least.

8:58am and the New York Daily News reports that three 600 square foot studio apartments located in the “very trendy West Village section” of Manhattan are being offered for $1.3 million each. Two of the apartments are under contract. In 1989 the real estate value of the City of Tokyo was valued at more than the value of all the real estate in the United States .

The major measures opened higher and then the DJIA quickly moved back to even while the NAZZ remains 6 points higher. Breadth is 2/1 positive but volume is light.

10:41am and the NAZZ is leading the market higher. It is up 22 points now and the DJIA is up 21 points. Volume is picking up and breadth is over 2/1 positive. The shorts are losing and are covering and maybe some other sideline money is going to be committed.

We are adding a few shares of ANDW and TLAB to larger accounts and we have begun a position is Cabelas which is a sporting goods retailer that went public a few months ago at $20 per share. CAB sells sporting goods at very large (150,000 sq.ft.) stores with waterfalls etc. and has twelve right now so they have plenty of room for expansion. The stock traded as high as $30 after the IPO and we bought shares Friday and today under $25. We are not going to make it a big position because CAB is a thin trader and can only be sold in any size on bullish buying

11:39am and Tribune Cos is selling off today on news of miscounting its circulation figures and announcing that they will take a $60 million charge. We are buying stock under $40.

Time Warner withdrew from the bidding for MGM.

The DJIA is up 30 points and the NAZZ is up 23. Breadth remains strongly positive.

TLAB is up 40 cents per share today. As the shares move higher the folks who over shorted stock on the initial terms of the merger with AFCI are going to have to cover. This creates an added buying interest in the shares.

1:42pm and we’d like a strong rally in the final hour to allow us to sell Motorola and RFMD. We bought them because the shares of Nokia jumped 15% in value last week when NOK said results would be better than expected for the quarter. Since MOT makes cell phones and RFMD makes chips for both MOT and NOK cell phones we thought we’d get some movement from them. Since then Nokia has gone nowhere while these two stocks are up about 15%.

Breadth remains positive and volume is OK. There has been some profit taking and we are trading anchovies not investing for the long term.

3:02pm and the rally fizzled in the final hour and so we didn’t sell anything. MOT and RFMD both closed lower than the prices at which they opened so we missed the opportunity to trade out of them for today at least. At the bell the DJIA was up 2 points at 10315. The S&P 500 was up 2 points at 1125 and the NAZZ gained 16 points to end at 1906.

This Morning

6:03am and Asia was mixed overnight while Europe is mostly down this morning. U.S. futures are above fair value. The pullback in tech in the last hour of trading may be signaling that the NAZZ rally is running out of steam. As always, time will tell.

This morning traders get Retail Sales and the Current Account Deficit with which to make their moves.

We were about three hours too late yesterday in our epiphany to take some trading money off the table. We are ready today if given a second chance. If not we will hold MOT and RFMD and await a better opportunity to sell even higher.

The markets looked tired yesterday for the first time in four days and so we are interested to see how events unfold today.

So let the games begin.


13 September 2004 - Daily Comment

Friday’s Markets

7:53am and Producer Prices were down in August with the PPI off 0.1% and Core PPI down 0.1% when both were expected to be up by about the amounts they were down. The Trade Deficit was only $50 billion down from a record $55 billion the month before.

No sweat. The airlines are losing billions because of higher fuel prices, the price of linerboard and wood are going through the roof because of the hurricanes, and because gas prices have stayed at all time highs but not climbed to new all time highs we are to believe there is no inflation. That is after the Kaiser foundation said that health insurance costs climbed 11% last year to over $10,000 per year for a family of four. Home and land prices have climbed from 10% to 50% over the last year but since the housing inflation figures come from rental costs which aren’t rising because folks are buying instead of renting there is supposedly no housing inflation. Businesses see no inflation in employment costs because they continue to layoff workers and send business overseas or replace them with machines.

8:51am and stocks are lower in moderate selling. Michael Eisner announced that he will leave as CEO of Disney when his term expires in 2006. That means the media mavens can speculate on his replacement for the next two years. That’s a lot of hot air time.

9:45am and the DJIA and S&P 500 are lower while the NAZZ is higher on the news that a judge has ruled that Oracle may proceed with its hostile takeover of PeopleSoft. That has the beaten down software stocks rallying as traders impute that all of the remaining software stocks will be acquired Monday morning.

Breadth is positive on the NAZZ and negative on the NYSE.

11:04am and EDS is going to cut 20,000 jobs. That’s Ross Perot’s old outfit that he foisted on GM which GM foisted on the public and used to fund its pension plan when the stock was at $50 per share. EDS now trades at $20. Funny how that works.

12:02pm and breadth is now positive on both the NAZZ and DJIA. The DJIA would be positive but Alcoa is down $3 per share.

12:46pm and since 9/11/01 the DJIA is up 15.3%, the S&P 500 is up 18.4% and the NAZZ is up 7%. The Lemley Letter Model Portfolio is up 25%.

The Shanghai Index in China closed at a five year low today.

3:02pm and the DJIA closed up 24 points at 10313. The S&P 500 rose 4 points to 1123 and the NAZZ gained 25 points ending at 1895. Europe was higher and oil was down $1.78 to $42.83.

This Morning

6:22am and the overseas markets are higher. Japan and Hong Kong were both up 1% and Singapore even showed a gain. Europe is showing gains across the board and U.S. futures are higher. Oil is a bit higher on fears of Hurricane Ivan’s visit to the Gulf this week.

With Bush leading in most polls and the Friday rally in the face of 9/11 plus the close above 1123 on the S&P 500, it looks as if the markets will continue higher this morning. The next stop on the S&P is 1140.

US Airways filed bankruptcy fro the second time in 2 years. Thank you Mr. Wolfe. We don’t hear much of him and his wondrous powers any more. The media mavens are making much of JetBlue and the low cost carriers. The low cost carriers are low cost because they have only been in business are relatively few years. Give them time and they will look just like the older carriers.

We have made a few bucks with our recent purchases and we aren’t inclined to push our luck too much. We may take a ride on BMY since the drug stocks will be major beneficiaries of a Bush win but other than that stock we are inclined to let our purchases of last week run and not press too much. We remain in a trading move and we think there are too many weeks before the election to crown George king again. After all he did lose the last election while winning it. Kerry may do the same thing to him this time by winning the electoral vote while losing the popular vote. We live in interesting times.

So let the games begin.


10 September 2004 - Daily Comment

Yesterday’s Markets

7:32am and jobless claims for the week ending 9/3/04 were 319,000. That was better than expectations although the hurricanes are affecting the numbers and so we’ll have to wait until hurricane season is over. Import prices were up 1.7%, year over year import prices were up 7.2%. Non petroleum import prices were up 0.4%. That indicates inflation in import prices. Treasuries are lower on the news. Stocks are higher on the news.

Yesterday Greenspan mentioned that moderation in non petroleum import prices was a positive for the economy. The gibberish continues.

8:58am and stocks are mixed in light trading. Nokia announced that it is doing better than the street expected.

Yesterday MLFPS went to neutral on Motorola at the same time Motorola was announcing that phone sales would be up 30% this quarter. The share price on MOT is down from $20 in June and $16.40 a few days ago. our guess is that MLFPS let some favored clients know last week that they were going to downgrade the stock and that much of the downgrade selling is out of it. http://www.realmoney.com reports that CEO Zander is out with a note disputing the MLFPS contention that handset sales were soft. He says they are strong.

We are buying MOT shares at $15.60 because we think the NOK announcement is significant and signals good news this quarter and next for cell and wireless equipment companies and suggest that the Baby Bells Wireless divisions are really going to spend money on upgrading. Motorola got rid of Galvin last year. We have been trading around trying to catch the bottom in the cell phone equipment stocks. That’s because we think the AWE merger with Cingular is going to lead to another round of cell phone buying.

We are also repurchasing the RFMD at $5.60 that we sold last month at a higher price than which we sold. But we made a small profit on last month’s trade and since RFMD supplies booth MOT and NOK with chips we want to play the speculative potential in this stock. RFMD has previously warned for this quarter so we are betting that any news will be neutral to positive. We have had decent luck trading RFMD and hope that luck continues.

Finally we are repurchasing ANDW at $10.80 off a bit from where we sold it and consistent with wanting to own wireless equipment suppliers on the Nokia announcement without going overboard. Andrew is down from over $20 per share earlier this year.

9:19am and Wholesale Inventories were up 1.7% which was higher than expected and ahs caused stocks to pause. The DJIA is off 3 points while the NAZZ is up 6 points. Breadth is almost 2/1 positive and volume is light.

We read the amended merger terms of the TLAB/ AFCI merger and we think that TLAB has struck a good bargain. TLAB increased the cash portion to $12 from $7 and reduced the shares to be issued to .504 shares from 1.55 shares. The overall reduction in the merger price was $350 million. On the news the share price of TLAB jumped to $10.30 but it has now backed down to $9.50.

One of the reasons we sold the shares last month is that we didn’t want to own them during the restructuring negotiation.

AFCI has $850 million in cash which is about $9 per share so in effect TLAB is paying most of the cash with AFCI’s own money. TLAB has plenty of cash and after the merger will still have in excess of $1 billion and no debt. In effect the AFCI folks are cashing out and this will relieve selling pressure on TLAB stock when the merger is completed since TLAB will only be issuing about 44 million shares.

With the change in the number of shares there are some stuck arbs that had shorted TLAB and bought AFCI on the old terms. Not all of them have covered and TLAB advisors are probably betting that there will be more buying interest by the arbs who will have to cover the shares of TLAB they are short and don’t get on the merger by absorbing any TLAB shares remaining AFCI shareholders may want to sell.

We think the reconstituted deal is much better than the original and want to get back into the stock before the merger is completed. TLAB will be paying a bit more than 2 times revenues with the shares it is issuing net of cash. That’s is less than the multiple to sales at which TLAB is priced.

The Traders short TLAB on the original merger terms are buyers now not sellers and that adds some support to the stock. We are going to repurchase the shares we sold at a scratch profit last month. As with RFMD we are paying up for the repurchased shares but when trading, new information requires paying up sometimes.

11:34am and the major measures are lower but the NAZZ is outperforming the DJIA again today.

Time Warner’s CFO, according to CNBC, is suggesting spinning TWX’s cable division into Adelphia Cable, the one in bankruptcy, with TWX retaining a stake in the newly formed cable company. This action would require a spin of TWX cable division and then the acquisition of Adelphia by the spun off entity and is the type of convoluted action that only Time Warner is capable of creating. We wonder if the same investment bankers who suggested the AOL merger are the ones suggesting this action.

12:16pm and one reason we did a tad of buying today is that every guru we have read is calling for a pullback. We have made a living going counter to the trend and so we want to have a little more money at work. Obviously being 87% cash after the purchases is comforting if we are wrong.

2:11pm and entering the final hour the NAZZ is up 23 points while the DJIA is down 10 points. Breadth on the NYSE and NAZZ is 2/1 positive. It may be short covering brought on by the Nokia announcement.

3:02pm and the DJIA closed down 25 points at 10287. The S&P 500 gained 2 points to end at 1118 and the NAZZ gained 19 points to finish at 1870. Oil finished at $44.57 up $1.80.

This Morning

7:02am and at the half hour PPI (Producer Price Index), Core PPI and the Trade Deficit will be announced. The markets will key those numbers for at least ten minutes after the open then what occurs is anyone’s guess.

Overnight Asia was mixed with Japan lower on a reduced GDP number and Hong Kong was higher. Europe is mixed as are U.S. futures. Oil is a few pennies higher.

The NAZZ led the markets yesterday and is ahead today also. With another hurricane set to hit Florida or Sunday or Monday and folks cleaning up in the east from the last hurricane interest in stocks may wait until next week.

So let the games begin.


9 September 2004 - Daily Comment

Yesterday’s Markets

8:26am and TLAB adjusted the terms of its merger with AFCI by about $300 million in TLAB favor. TLAB shares are trading higher this morning at $10.15 as the arbitrageurs are adjusting their short positions to account for the change in terms. After the adjusting is completed we would guess that the shares will move lower as more arbs enter the fray and NAZZ stocks continue to sell off. We are still interested but we think the AFCI merger is going to cause enough uncertainty that we will wait to see how the markets judge the combination.

8:32am and Delta has announced that it will cut 7000 jobs to avert bankruptcy. JetBlue had bad news this morning also and it is trading lower. Airline stocks are anchovies.

8:49am and stocks have opened lower as have Treasuries. Dean Foods is off 20% on an earnings warning and Dow Jones says that ad revenues won’t meet expectations and is off a couple of dollars per share.

Dean Foods is down 20% on a trade of 1.3 million shares. DF has 160 million shares outstanding. That means a trade of 1% of the outstanding stocks has caused a drop of $3 billion in market value. DF is over owned by institutions and has been a hot stock for a few years as the company acquired dairies all over the country. It has acted like a tech stock and it has met reality today just as tech stocks do.

9:40am and The DJIA is up 8 points and the NAZZ is up 10 points as Greenspan’s testimony released before he testifies is that he sees an improving economy. It’s election time folks, what else is he going to say?

10:47am and as Greenspan testifies the major measures are fluctuating plus and minus even on light trading. Breadth is less than 2/1 positive and there are a few stocks taking big hits on earnings warnings.

11:47am and breadth is now negative. Greenspan has finished his testimony and the DJIA is off 26 points with the NAZZ down 6 points. Greenspan remains in his lower taxes, lower spending and everything will be all right speaking mode.

2:02pm and entering the final hour the DJAI is off 32 points and the NAZZ is down 7 points. It has been, is, and will probably continue to be boring.

3:02pm and the DJIA closed down 31 points at 10310. The S&P 500 lost 5 points to finish at 1116 and the NAZZ dropped 8 points to 1851. Treasuries ended higher in price and lower in yield on the day, Europe was slightly lower and Oil dropped 56 cents to close at $42.53.

This Morning

7:11am and Asia was lower, Europe and U.S. futures are lower and it is raining in NYC. There was a car bombing in Jakarta, the Bank of England left rates unchanged and the weekly claims for unemployment come at 7:30am. Traders aren’t paying attention to that number any more unless it is good.

It looks like down early and then maybe a rally although we think we are late in the week for that. We have no dog in the fight today and we will be watching again.

So let the games begin.


8 September 2004 - Daily Comment

Yesterday’s Markets

7:38am and Asia was higher overnight and Europe and the U.S. are higher this morning. The big boys and girls want to take them higher to begin September and we’ll find out how much fire power they have.

8:12am and Luna the wonder dog left this morning on her trip to Kentucky to begin guard duties for Homeland Security at the home of her new master Tyler Bud Bezold as his birthday present on his seventh birthday. Pooper has promised to take up the slack here at the farm and will assume triple perimeter duty in red alert situations. We have also enlisted Happy Cat and Stripes the cat to assist in this regard.

We will miss Luna but we know she is going to have a great time and much love from our grandchildren.

8:17am and we send our best wishes to all our Florida clients and friends who have had a rough thirty days.

9:11am and stocks opened higher out of the box with good breadth and decent volume. The DJIA reached a high of up 65 points and the NAZZ was up 15 points. At the moment stocks are stalled and need a rest from the strong beginning.

9:39am and the CBO is projecting a deficit for this year of $442 billion and next year’s deficit at $344 billion. We think next year’s estimate is too low. Deficits are expected to exceed $2.3 trillion over the next ten years. And it’s all Bill Clinton’s fault.

1:02pm and the DJIA was up 95 points a few minutes ago. It is now up 80 points as we enter the contra hour and the NAZZ after being up over 20 points is up 16 points. Breadth remains 2/1 positive and volume has picked up a bit.

The bounce today has been ascribed to the good Bush poll numbers but we also think there are some folks who want to put some money to work. Most of the gurus including us are non believers that a rally can happen this month and so it probably will. But we feel no inclination to assume risk after last month trading raised accounts by 2% or more. Our next entry point is going to be after a nice scary sell off which we think will occur sometime this fall.

We are open to trading individual stocks that tank although we are letting the 20% drop in the price of Rite Aid today pass us by today we want to trade a bit better quality than that stock. It is on our quarter end and year list as usual.

3:02pm and the DJIA closed up 80 points at 10341. The S&P gained 8 points to finish at 1121 and the NAZZ rose 14 points ending at 1858.

This Morning

6:33am and Asia was lower overnight by a little and Europe is also. Bear Stearns has lowered its equity exposure in its Model to 55% and also lowered its year end target on the S&P to 1050 stating that a sustainable economic recovery will not occur until second half of 2005.

Texas Instruments gives a heads up after the close tonight and this is the time of the quarter when analysts lower ratings on stocks ahead of companies warning.

New polls show the presidential race tightening but Bush still has a 4 points lead. Greenspan testifies before Congress today on his economic outlook and new mortgage applications rose 7% last month.

We are in a watching mood for now.

So let the games begin.


7 September 2004 - Daily Comment

6:43am and today's comment will be short since we have been vacationing for the week and are not really in tune with the markets.

Last week the markets reacted as we thought they would and today begins the fall season and the Presidential race in earnest. Bush has a good sized lead and the markets will like that. This morning Walmart announced that September sales should be up 4% to 6% and the markets will like that also.

Iraq is not going any better with 9 soldiers killed over the week end but it is not going any worse either and so it is off the radar screen. The terrible carnage in Russia is a Russian specific event as far as market participants are concerned and so it will have no effect either.

We would expect an up day today as buyers feeling good from their weekend rest and Bush’s pop in the polls spend some money. We are going to get our feet under us before we take any action.

So let the games begin.

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